1972 (12) TMI 13 - HC - Income Tax

1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in disallowing a sum of Rs. 7,850 paid as commission to the three parties ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal is right in confirming the addition of Rs. 50,000 to the business in imported electric motors ? - both the questions are answered in the affirmative and against the assessee.

Summary

Issues Involved:
1. Disallowance of a sum of Rs. 7,850 paid as commission to three parties.
2. Confirmation of the addition of Rs. 50,000 to the business income from imported electric motors.

Detailed Analysis:

1. Disallowance of Commission Payment:

The assessee, a hardware firm, claimed deductions for payments made to three individuals (Thangavelu, R. S. S. Mani, and Kabir) for securing requisitions from agriculturists for electric motors. The Income-tax Officer (ITO) examined these individuals, who denied receiving the claimed amounts. Thangavelu admitted to receiving only Rs. 25 as commission for one motor, R. S. S. Mani denied any involvement, and Kabir claimed Rs. 2,500 for booking orders through his brother's influence. The ITO also found a letter from the assessee to Venkatakrishna Reddiar, indicating he was responsible for procuring orders, supported by a civil court decree in his favor for commission. Consequently, the ITO disallowed the commission claims and the Tribunal upheld this decision, concluding no commission was paid to the three individuals.

2. Addition of Rs. 50,000 to Business Income:

During the assessment year 1958-59, the assessee sold 198 imported electric motors. The ITO doubted the genuineness of the sales bills and conducted an inquiry. Letters sent to 24 customers revealed discrepancies: nine letters returned undelivered, eleven customers denied receiving motors, and two admitted paying extra money. The ITO estimated suppressed income, finding significant price differences in motors billed in subsequent years and considering the high market demand. He estimated an additional Rs. 50,000 in undisclosed profits, which the Tribunal found reasonable.

Legal Contentions and Court's Findings:

The assessee argued that the ITO acted on materials gathered behind its back without giving a chance to rebut them, contesting the demand to pay batta for summoning witnesses. The court held that once the ITO doubts the return's accuracy, it is the assessee's responsibility to substantiate its claims. The ITO's reliance on gathered materials was justified as they indicated the return could not be true. The court emphasized that the ITO is not bound by strict rules of evidence but must act in consonance with natural justice, which was followed as the assessee was given an opportunity to cross-examine witnesses but chose not to.

Conclusion:

The court affirmed the Tribunal's decisions on both issues:
1. The disallowance of Rs. 7,850 as commission was upheld due to lack of credible evidence supporting the payment.
2. The addition of Rs. 50,000 to the business income was sustained based on reasonable estimation and sufficient material evidence.

The questions were answered in the affirmative, favoring the revenue, with costs awarded to the revenue.