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TMI Blog1984 (4) TMI 120X X X X Extracts X X X X X X X X Extracts X X X X ..... cted in the past right up to the stage of the Tribunal on the ground that no evidence had been led to establish that the flats had been used for business purposes by the assessee. For the years under appeal, the Commissioner (Appeals) accepted the claim of the assessee observing that there was evidence to show that the flats had been used for business purposes. He observed that the notices for holding the meeting of the board of directors were given by the assessee and they clearly proved that the premises were being used for business purposes, meaning thereby for holding the meetings of the board of directors. We agree with the Commissioner (Appeals) that the decisions relating to the earlier years are distinguishable inasmuch as for the years under appeal the assessee produced the evidence in the shape of the notices pertaining to the meetings of the board of directors. Shri Pandey, the learned representative for the assessee, submits that all the directors belong to the erstwhile royal family and that they always stayed in some prestigious hotels in New Delhi and that the premises having been taken on rent for holding the meetings of the directors could not have been used for re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the combined order dated 28-3-1980 of the Commissioner (Appeals), the Tribunal heard the appeals being IT Appeal Nos. 944 to 947 (Jp.) of 1980, assessment years 1971-72 to 1973-74, and they were decided by the order dated 10-7-1981 (see pages 61 to 63 of the paper book). The said order was delivered by the learned Accountant Member, to which one of us (Judicial Member) was a party. The Tribunal came to the conclusion that there was no evidence to show that compound interest was charged by the assessee from Citric India Ltd. It was clearly held that as per the written agreement of the parties, interest was payable at the rate of 12 per cent only and that no evidence was there to prove that the said agreement was, in any way, modified by the parties. A slip of paper which was seized during the search operation from the premises of the assessee, showed the working of interest on compound interest basis, but the Tribunal took the view that that could not constitute a supplementary agreement modifying the original agreement. The Tribunal, in the order dated 10-7-1981 found as follows : "5. We have heard the rival submissions. A reference to the accounts of the assessee in the books of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e registered office of the assessee-company is situated, belongs to his wife. Shri Pandey submits that Shri Harishchand used to receive the dak of the assessee-company and some other papers and for such service, he was being paid by the assessee-company a meagre amount. There is nothing on record to disbelieve the case of the assessee. Shri Harishchand having actually rendered services to the assessee-company, we hold that the payment made to him is connected with the business and is, therefore, allowable. For the reasons, we agree with the Commissioner (Appeals). 7. In the result, all the appeals are dismissed. Per Shri Ram Rattan, Accountant Member -- I have gone through the combined order passed by the learned Judicial Member. I do not fully endorse the views expressed therein. There are the following three issues involved in these appeals by the revenue : 1. Disallowance of expenditure incurred on Delhi flat common for all the three years. 2. Disallowance of salary paid to Shri Harishchand at registered office at Delhi. 3. Disallowance of interest calculated on compound interest basis. 2. So far as the first two issues are concerned, I agree with the conclusions a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d interest. The assessee even denied having charged the agreed interest at simple rate. The main argument is that the seized paper has no evidentiary value and the entries in the books of account have to be accepted as correct. This document does not constitute supplementary agreement, nor it suggests more interest received or agreed to be received under the table. 3. I am afraid, I cannot subscribe to the above views. Search and seizure provided under section 132 is a very drastic measure against tax evaders. It is resorted to by the department, when the authority competent to order search has reasonable belief of suppressed income, assets, documents, account books, etc. To say that a document found during the course of search has no evidentiary value is to forfeit the very purpose of the provisions contained in section 132. In fact such incriminating material found during the course of search would depict the real state of affairs against the entries in the account books. The drastic action under section 132, in fact, is with a view to show, with the help of incriminating material found during the course of search, if any, that entries in the account books do not reflect the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther these have been calculated on financial year basis or otherwise. The assessee, it appears, kept these details on financial year basis as it was considered convenient. The fact of charging compound rate of interest is positively established from this document. It is a very vital document for the purpose of considering the accrual or otherwise of interest income from Citric India Ltd. It is, however, unfortunate that neither the revenue nor the assessee has ventured to file a copy of this document in the paper book. It is, therefore, not known as to on what capital interest has been calculated in different years. I am, therefore, not in a position to comment further on this document. Suffice it to say that this document overrides the entries in the account books. In the circumstances, I am unable to sustain the order of the learned Commissioner (Appeals). The same is, therefore, reversed with reference to the compound interest and the orders of the ITO are restored. It may not be out of place to mention that the Jaipur Bench of the Tribunal has already set aside the order of the Commissioner (Appeals) for the assessment year 1976-77 and restored the issue regarding taxability of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mple or compound rate of interest. It is pertinent to mention that the learned Members have differed not only on the issue involved but also on the framing of the points of difference. While, according to the learned Judicial Member, the point of difference is : "Whether, on the facts and in the circumstances of the case, can it be said that there was an agreement between the assessee and Citric India Ltd. to charge compound interest ?" The learned Accountant Member is of the view that the following two are the points of difference : "1. Whether, on the facts and in the circumstances of the case, it can be said that document Sl. No. 107 found by the department at the business premises of the assessee during the course of search and seizure under section 132 of the Income-tax Act, 1961, has evidentiary value and overrides the entries in the books of account and other documents relating to loan to Citric India Ltd. ? 2. If so, whether the ITO was justified in charging compound interest on loans advanced to Citric India Ltd. ?" 2. It may not be out of place to observe that the learned Accountant Member has, as a matter of fact, not decided the issue finally. Observing that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tated, disclosed the interest on the above loan as its income in the assessment years 1967-68 and 1968-69. Subsequently thereto, no interest income has been shown though the ITO has been assessing the assessee on the basis of assumed interest income. 5. In the first two years, i.e., the accounting years ending 30-6-1966 and 30-6-1967, the assessee has charged interest, debited the debtors' account and credited its interest account which has been disclosed as its income as stated above. What has happened in the next four years is not known as the assessee has not filed copies of the debtor-company's account in its books nor has furnished copies of profit and loss account and balance sheet in spite of specifically asking the assessee-company to do so. The audit notes in its profit and loss account and balance sheet for the years ending 30-6-1972, 30-6-1973 and 30-6-1974 indicate that the amounts of interest on this loan worked out to Rs. 3,28,156, Rs. 2,04,876 and Rs. 2,04,876, respectively, but the same was not debited to the debtors' account and/or credited to the interest/profit and loss account. Audit note in the profit and loss account and balance sheet for the year ended 30-6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd by me at length. I have also gone through the entire records as is evident from the manner in which I have been able to state the facts in the earlier paragraph. In order to appreciate the rival contentions, it is desirable to make a reference to the debtor-company's letter dated 27-7-1965 to the assessee which incorporates the terms and conditions on which the parties have agreed to land and borrow the said sum of Rs. 20 lakhs. On the face of it, it is not very clear from the terms whether the interest payable is simple or compound. On the other hand, the undertaking given by the debtor-company to the effect that they will issue credit notes and also make the payments yearly, i.e., on or before 30th June every year, indicates that the interest was to be paid yearly and nothing more. In other words, if the interest is not paid as contemplated, what will happen to the unpaid interest, i.e., whether it will form part of the principal and carry interest or whether it will simply remain as an amount outstanding, is not at all clear from the agreement. The ordinary presumption, according to me, would be that the outstanding interest, if any, will stand as a separate debit to the debt ..... X X X X Extracts X X X X X X X X Extracts X X X X
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