9911796707
TMI Blog2008 (10) TMI 237X X X X Extracts X X X X X X X X Extracts X X X X ..... B. V. NAGARATHNA JJ. M. V. Seshachala for the petitioner. Vivek Holla for M/s. Holla and Holla for the respondent. JUDGMENT The judgment of the court was delivered by MRS. B. V. NAGARATHNA J. - In C. P. Nos. 365 and 366 of 1999 (IT) by the order dated April 8, 2001, this court directed the Income-tax Appellate Tribunal, Bangalore Bench "A" to refer questions Nos. 3 to 7 sought to be referred by the Commissioner of Income-tax renumbering the same as questions Nos. 1 to 5. Accordingly, the Assistant Registrar of Income-tax Appellate Tribunal, Bangalore, has forwarded a reference under section 256(1) of the Income-tax Act, 1961, in R. A. Nos. 307 and 308/Bang/96 arising out of I. T. A. Nos. 904 and 906/Bang/1988 for the assessment years 1983-84 and 1984-85 for its opinion on the question of law as stated in the reference which is extracted as follows: "1. Whether, on the facts and evidence brought on record, the conclusion of the Income Appellate Tribunal that the fact of commission payment by the assessee to the Mehtas was proved beyond reasonable, is tainted by flawed logic ? 2. Whether, on the facts and circumstances of the case, the Income-tax Appellate Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the inflated contract cost were handed over to the Mehta group as commission, the figures being Rs. 2,15,456 for the assessment during 1983-84 and Rs. 45,64,851 for the assessment year 1984-85. But no entry was made in the assessee's books of account for the alleged commission paid. The Assessing Officer, however, held the payment of commission was only a device to escape and avoid tax and he, therefore, completed the assessment by making additions of the aforesaid amounts for the two years respectively. Being aggrieved by the said assessment order, appeal I. T. A. No. 30/C-IV (CIT)(A)-III/1987-88 was flied in respect of the assessment year 1983-84 and I. T. A. No. 28/C-IV (CIT(A)-III/1987-88 was filed in respect of the assessment year 1984-85. With regard to the disallowance of commission receipts, the order of the Assessment Officer was confirmed by the appellate authorities by order dated January 8, 1988, and further the Income-tax Appellate Tribunal in I. T. A. Nos. 905 and 906/Bang/1998 confirmed the orders of the Commissioner of Income-tax (Appeals) by its order dated January 31, 1990, and Miscellaneous Petition No. 10/Bang/90 filed against the said order was also dismissed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the work done by the assessee which additional payment was to be paid by way of commission to the Mehtas. In the books of account of the assessee/firm certain debit entries were made as expenditure towards steel purchase for the construction although in fact the steel was to be supplied by the principal. When the search was made by the Department, the assessee stated that the amounts were not spent for steel purchases but for paying commission to obtain the contract. According to the assessee, the commission was paid only for the purpose of business and that the amount was deductible from the income. 4. Sri A. P. Mehta, who was examined on oath had testified to the effect that there was such understanding of receipt of commission for awarding the contract to the assessee and the total amount payable was as claimed by the assessee for the two assessment years 1983-84 and 1984-85 and an identical amount was declared by various members of the Mehta group in their returns which were filed after the search. 5. According to the Department, the payments purportedly made cannot be termed as commission as the amount involved is not paid for any services rendered inasmuch as the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the bogus purchases were also initiated separately. Similarly, for the assessment year 1984-85, there was a difference between particulars in respect of the return filed on January 30, 1985, and September 30, 1986, inasmuch as Rs. 56,72,010.33 which was shown as materials in the return filed on January 30, 1985, was split up and Rs. 10,87,159.71 was shown as materials and Rs. 45,84,850.62 was shown as commission. 10. The Assessing Officer held that the change in the return filed on September 3, 1986, could not be held to be a bona fide omission as contemplated under section 139(5) and the assessment was proceeded with on the basis of the return filed on January 30, 1985, which was based on the books of account. The Assessing Officer has recorded that on September 4, 1986 J. S. Dave and M/s. Chimanlal R. Mehta and M/s. Maneesh and Co., had accepted the bogus nature of steel bills and at that stage the assessee revealed about the commission paid to the principal and, therefore, no purchases had actually been made but only purchase bills had been obtained and that a sum of Rs. 45,84,815.62 was shown under the materials accounts and that penalty proceedings should be initiated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Panthaki and Co. as per the original estimate recommended by the architects, even though the construction of the factory building as per the revised structural design resulting in cost reduction of Rs. 48 lakhs. It is further agreed that, (i) such cost reduction of Rs. 48 lakhs shall be paid by M/s. J. K. Panthaki and Co. as commission in cash to Mr. A. P. Mehta, Mr. Jayaraj A. Mehta Mrs. Prabhavathi A. Mehta, Mrs. S. J. Mehta, and Miss Raksha A. Mehta for awarding the construction of KBBC Ltd., (ii) the said commission of Rs. 48 lakhs is to be withdrawn from the books of account of J. K. Panthaki and Co. during the financial years ended March 31, 1983, and March 31, 1984; (iii) the amount of commission to be shared by each person shall be decided mutually amongst the aforesaid person; and (iv) The time, mode, quantum and place of remittance, etc., shall be mutually decided by Mr. J. K. Panthaki and on behalf of other persons by Mr. A. P. Mehta. As mutually agreed upon by the aforesaid persons, Mr. J. K. Panthaki was asked to remit the below mentioned amounts to the said persons: 1. Mr. A. P. Mehta Rs. 13.80 lakhs 2. Mr. Jayaraj A. Mehta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 1, 1962, declaring that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure. It is significant that the Explanation has been added by way of a declaration specifically mentioning the words "offence" and prohibited by law and the said Explanation is in the nature of a deeming provision which bars a deduction or allowance in respect of an expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law. What is an offence or what is prohibited by law has not been explained and, therefore, the scope for interpretation or bringing under the Explanation any expenditure in respect of which no deduction or allowance can be made is vast. 20. In the instant case, learned counsel for the Revenue submits that the payment of commission to an extent of Rs. 48,00,000 for obtaining a building contract of Rs. 1,28,18,413 by the assessee not to the principal that is Karnataka Ball Bearings Ltd. but to the personal accounts of the Mehta group which ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
