Income Tax Appellate Tribunal - Allahabad
Income-Tax Officer vs Goyal Trading Co. on 20 December, 1994
ORDER
S. Grover, Judicial Member
1. This Revenue's appeal is directed against the order dated February 22, 1991, passed by the Commissioner of Income-tax (Appeals)-I, Kanpur, in respect of the assessment year 1989-90 by which he deleted the additions of (i) Rs. 7,38,000 added in the assessment on the ground that to such extent the purchase account had been wrongly debited and also vacated the disallowance of Rs. 4,200 added by the Assessing Officer as proportionate interest in respect of money advanced to Messrs. Manoj Enterprises. In respect of the primary contention (supra), the Revenue's agitation is that the learned first appellate authority wrongly admitted fresh evidence.
2. The learned Senior Departmental Representative, Shri Vinit Sahai, made primary submission that with regard to the grievance that fresh evidence had wrongly been admitted, the Revenue's case was that there was violation of rule 46A of the Income-tax Rules, 1962, which provision governs production of additional evidence before the first appellate authority.
3. In the context of the abovesaid controversy, some basic facts and sequence must necessarily be first stated because there were two types of evidence brought on record by the learned Commissioner of Income-tax (Appeals), one at the request of the assessee, and the other as directed by him for disposal of the appeal.
4. The respondent, a partnership-firm, filed its return on October 19, 1989, showing an income of Rs. 58,800. At this stage sequence and events are noticed from the ordersheet of the Assessing Officer up to March 29, 1990, which is the date when the assessment order was passed as also A entry of May 11, 1990, a photocopy of which has been taken on record by us :
"XI.89 The Deputy Commissioner of Income-tax, Range-I, Kanpur, has accorded approval (or scrutiny, vide his letter dated November 24, 1989.
Issue notice under sections 143(2), 143(3) and 142(1) for November 1, 1989.
1-11-1989 Shri Sunil Tewari, Assistant of Shri C. L. Kanodia present.
Application for adjournment filed. Adjournment to November 8, 1989.
8-11-1989 Shri C. L. Kanodia, Chartered Accountant, present. Request for adjournment. Adjournment to November 20, 1989.
20-11-1989 Shri M. C. Agarwal, partner, present and Shri C. L. Kanodia, Chartered Accountant, written reply filed. To furnish the following details :
(i) evidence repayment of sales tax outstanding.
(ii) complete address of partners from whom purchase made.
(iii) Nature of work done in Madras for which travelling expenses of Rs. 3,060 deleted on October 31, 1988.
(iv) Copy of bank statement.
(v) Other details required, vide question dated October 25,1989.
(vi) Detail copy of account of Messrs. Manoj Enterprises. Explain, why proportionate interest on advance to Messrs. Manoj Enterprises should not be disallowed.
30-11-1989 Shri M. C. Goel, partner, present along with Shri C.L. Kanodia, Chartered Accountant. To furnish the following details :
(i) Copies of stock statement furnished to the bank.
(ii) Copies of sales tax returns.
(iii) Copies of account of four partners.
(iv) Bank certificate regarding overdraft/cc limit.
(v) Evidence re. basis of value of closing stock. Adjournment to December 13, 1989.
13-12-1989 Shri C. L. Kanodia, Chartered Accountant, present. Written reply filed. Case partly heard. To produce books of account. Adjournment to December 20, 1989.
20-12-1989 Shri M. C. Goel, partner, present along with Shri C.L. Kanodia, Chartered Accountant. Details of sales filed. Books of account produced.
Further to furnish details :
(i) Monthwise purchase and sale.
(ii) Quantitative details itemwise.
(iii) Closing stock, itemwise break-up.
(iv) Itemwise gross profit rate.
Adjournment to January 4, 1990.
4-1-1990 Shri C. L. Kanodia, Chartered Accountant, present. Part details filed. Requests for adjournment. Adjournment to January 10, 1990.
10-1-1990 Shri C. L. Kanodia, Chartered Accountant, present along with Shri M. C. Goel, partner. Written reply filed along with books of account produced. Case partly heard and adjournment to January 19, 1990.
19-14990 Shri C. L. Kanodia, Chartered Accountant, present along with M. C. Goel, partner. To furnish the following details :
(i) Relationship, if any, with the partners proprietor of Messrs. Hissaria Brothers.
(ii) Nature of work done by Messrs. Tribeni Technocorn Ltd,, Calcutta, for which difference of Rs. 240 per 100 bags paid to them, vide Hissaria Brother's Bill No. dated February 8, 1989, endorsed with the bill of Shri Hanuman Jute Mills Ltd., Calcutta, and other bills.
(iii) Correspondence, if any, with Hissaria Brothers, Calcutta, regarding payment of commission to them to difference (sic) to Tribeni Technochem Ltd., Calcutta.
(iv) Relation, if any, with directors of Messrs. Tribeni Technochem Ltd., Calcutta.
8-2-1990 Shri C. L. Kanodia, Chartered Accountant, present along with Shri M. C. Goel, partner. Request for time for furnishing the required information. Adjournment to February 15, 1990.
27-2-1990 Shri C. L. Kanodia, Chartered Accountant, present along with Shri M. C. Goel, partner. Written reply filed. To furnish the remaining details. Adjournment to March 7, 1990.
7-3-1990 Shri C. L. Kanodia, Chartered Accountant, present along with Shri M. C. Goel, partner. Two written. replies filed. Case adjourned to March 16, 1990.
14-3-1990 Shri M. C. Goel, partner, present voluntarily. Books of account inspected. To furnish the details of purchases and sales of A in the assessment year 1988-89 and commission paid and payment to Calcutta parties in respect of each such purchase. Adjourned to March 16, 1990.
16-3-1990 Shri M. C. Goel, partner, present along with Shri C.L. Kanodia, Chartered Accountant. Statement of Shri M.C. Goel, recorded under section 131 of the Income-tax Act, 1961. Required to furnish :
(i) Copy of assessment with Messrs. Basti Sugar Mills, Basti and Walterganj.
(ii) Why one-third of expenditure on Dep. on car should not be disallowed.
(iii) Why expenses relating to residential phone should not be disallowed.
(iv) furnish details required vide 0. .S. entry, dated March 14, 1990.
(v) Reconcile the difference of Rs. 71,500 in Basti Sugar Mills. Adjournment to March 22, 1990.
22-3-1990 Shri C. L. Kanodia, Chartered Accountant, present. Requests for time for furnishing the details required, vide 0. S. entry, dated March 16, 1990.
Fresh notice under section 142(1) read with notice under section 143(5) issued and served on Shri C. L. Kanodia, Chartered Accountant.
Adjournment to March 29, 1990.
22-3-1990 Shri C. L. Kanodia, requests for copies of statement of Shri M. C. Goel, recorded on March 16, 1990, for letters dated February 5, 1990, of Messrs. Kalanaurto International, vide letter dated February 21, 1990, of Messrs. Ludlow Jute Mills, Calcutta, for copying fee of Rs. 50 issue.d.
26-3-1990 Shri C. L. Kanodia present. Application dated March 24, 1990, filed requiring for copies of following documents :
(i) Statement of Shri M. C. Goel, partner, dated March 16, 1990.
(ii) Copy of letter of Messrs. Kalanaurto International and Messrs.
Ludlow Jute Mills.
(iii) Copy of letter dated ... of Messrs. Ganga, Calcutta.
29-3-1990 Shri C. L. Kanodia, Chartered Accountant, present along with Shri M. C. Goel, partner. Written reply filed along with copies of purchases entries of Messrs. Basti Sugar Mills, Basti. Case discussed for orders.
11-5-1990 Shri C. L. Kanodia, Chartered Accountant, present. Application requesting for copy of ordersheet. Letters to Ganges Mfg. Co. and Technocom Ltd. filed. Challan for Rs. 50 issued."
5. Notings by the assessee made on the right side of the order sheet entries have not been reproduced above because the entries clearly show that there was no default as such on the part of the assessee, but requests came to be made for time. It is not a case where the assessment was becoming time barred at the close of the financial year, i.e., March 31, 1990, but where the limitation was up to March 31, 1991. Proceedings right up to March 29, 1990, continued which, as mentioned above, was the date of the assessment order also.
6. The assessee-firm enjoyed income from trading in jute goods which was primarily jute bags. In addition, the assessee earned commission income from selling jute goods on behalf of principals.
7. It has been stated in the assessment order that on cross-checking of purchases and sales of A-Twill bags, it was noticed that jute bags of its particular quality were directly sent by the concerned jute mills to the concerned parties at the instance of the assessee or his sole agent at Calcutta, Messrs. Hissaria Brothers. The Income-tax Officer further recorded that in the trading account commission at the rate of one per cent, of the sale bill to Messrs. Hissaria Brothers, Calcutta, and difference to a third party at Calcutta varying between Rs. 170 to Rs. 320 per hundred bags was debited : on the basis of debit notes sent by the assessee's agent. The details of transactions were reproduced in the assessment order and it was also stated that neither any receipt nor any voucher was available with the assessee in support of the amount of difference credited to four parties of Calcutta.
8. The Income-tax Officer thereafter called for some information from the assessee with regard to these transactions regarding the nature of work done by them, to produce the receipts/vouchers for payments made to them, state the relationship and produce correspondence between Messrs. Hissaria Brothers and the concerned four parties.
9. The assessee explained that the payments were made on account of purchase of jute goods by Messrs. Hissaria Brothers, Calcutta, from Messrs. Triyeni Technocom Ltd., Messrs. Abhisek Company, Messrs. Ganga Ram Ashok and Messrs. Ram Kishan Kanhaiya Lal, Calcutta. They had raised debit notes for the proportionate cost of jute goods which were debited by Messrs. Hissaria Brothers in the assessee's account and the same was paid through bank drafts. It was also stated that the purchases are made through their agents, Messrs. Hissaria Brothers, who made the purchases either from jute mills or from the local parties. The seller issued the debit note in the name of the purchaser through the agent and the payment was made to Calcutta parties being part of the purchase price keeping in view the difference between the market rate and jute mills rate. It was also stated therein that the despatches were directly made from Calcutta to their customers and payments were made to the Calcutta agent through bank drafts and the sale proceeds were collected from the sugar mills to whom the bags were sold.
10. The Income-tax Officer did not find the said explanation to be satisfactory and stated that the same did not mention the nature of work done by the four parties of Calcutta to whom payments totalling to Rs. 7,38,060 were made by the assessee's agent, Messrs. Hissaria Brothers, Calcutta, and no receipts or vouchers were produced in support of these payments and the names of directors/partners and also their relationship with the assessee's partners were not disclosed and no correspondence between Messrs. Hissaria Brothers and these four parties were produced.
11. The Income-tax Officer, thereafter, addressed letters to the suppliers/ mills at Calcutta and enquired about the details of the transactions and also as to whether the goods were freely available on the relevant dates. These suppliers confirmed the transactions and also stated that the goods were freely available.
12. The Income-tax Officer also recorded the statement of Shri Maman Chand Goel, partner of the assessee-firm, about the transactions made with the parties at Calcutta who explained the position with regard to these transactions but the Income-tax Officer was not satisfied with the reply given by him and he was of the opinion that since the jute mills had prepared the sale bills in the name of the assessee-firm without mentioning the names of the parties, the payments to them were not justified. The Income-tax Officer also addressed letters separately to the four parties. Out of them three had responded confirming the transaction and sent replies, but the letters sent to Messrs. Triveni Technocom Ltd. were received back unserved,
13. In reply to the show-cause notices issued by the Income-tax Officer, the assessee had stated that they did the forward bargain in advance in August/September, 1988, for the supply of "A-Twill bags" in October, 1988, and in subsequent months, but the Income-tax Officer was not satisfied on the ground that no evidence was furnished in support of this contention and according to him, it was not explained as to how the four parties to whom substantial amount was paid, came into the picture. He also observed that these parties apparently did not render any services to the assessee to justify the payments and also did not accept the assessee's contention that the letter to Messrs. Triveni Technocom was sent to the wrong address.
14. The Assessing Officer, therefore, concluded that the payments were made to the four parties just to inflate the purchase price and to reduce the true profits. The amount of Rs. 7,38,000 debited by the assessee in its purchase account as paid to Messrs. Triveni Technocoms Ltd., Messrs. Ganga Ram Ashok Kumar, and Messrs. Abhisek Company and Messrs. Ram Kishan Kanhaiya Lal was added as the assessee's.
15. The learned Commissioner of Income-tax (Appeals) in the appeal against the addition of Rs. 7,38,000 firstly accepted the assessee's request for admission of additional evidence on the ground that considering the sequence and the time given by the Assessing Officer, the assessee could be said to have been prevented by reasonable cause from adducing necessary evidence and secondly on his own motion as stipulated under Section 250(4) of the Act, required the assessee to place certain evidence on the file and give information.
16. The Commissioner of Income-tax (Appeals) dealt with the case from sub-paragraph 28 of paragraph 1 of his order. Since we are in complete agreement with his approach and uphold his order deleting the addition of Rs. 7,38,000, it is considered expedient and in the fitness of things, that sub-paragraphs 8 onwards up to sub-paragraphs 28 of paragraph 1 are reproduced below, because otherwise, it shall be simply rewriting his order making changes in the language :
" 1.8. The learned counsel had vehemently contested the findings of the Income-tax Officer and has stated that Messrs. Hissaria Brothers, Calcutta, are the sole purchasing agents who had placed advance orders in August, 1988, for supply of jute bags from October onwards. There was a fall in the rates at the time of actual supply. The agents had made an advance bargain with four parties, at Calcutta, at the rates prevalent in August. These parties had arranged the bags from jute mills and there being a fall in the prices at the time of supply, the difference had to be paid to them on account of the fall, in the rates. It is further stated that the Income-tax Officer did not examine the agent and further that all transactions are by way of the account payee cheques/drafts. The Income-tax Officer had sent summons to Messrs. Triveni Technocom Ltd. at an incorrect address and it was the duty of the Income-tax Officer to enforce the service of notice under section 131 in view of the decision in CIT v. Orissa Coloration P. Ltd. [1986] 159 ITR 78 (SC) and the payments were made on account of business transactions and the same have not been held to be bogus. Reliance in this connection was placed on the Allahabad High Court's decision in Nathu Ram Premchand v. CIT [1963] 49 ITR 561.
1.9. The appellant filed an application under rule 46A of the Income-tax Rules stating therein that some of the documents could not be filed before the Income-tax Officer for want of proper opportunity. He had started the enquiries from March 16, 1990, and completed the assessment within a period of two weeks without giving a fair and reasonable opportunity. It was also stated that Messrs. Triveni Technocom is a genuine party and exists at the given address but the Income-tax Officer could not serve the notice since the same had been sent on an incomplete and incorrect address. Along with the said application, the appellant filed certificate from Messrs. Hissaria Brothers, Messrs. Ram Kishan Kanhaiya Lal, Messrs. Triveni Technocom Ltd., Messrs. Abhisek Company and also a confirmation from Messrs. Triveni Technocoms about their assessment orders. Daily price bulletin about the prevalent price in the months of August, September and October, 1988, were also filed. All these documents were forwarded to the Income-tax Officer for his comments.
1.10. The Income-tax Officer, vide his report dated August 24, 1990, stated that in respect of pages Nos. 23, 37, 41, 42 and 44, the assessee was required to produce evidence, vide ordersheet entry dated January 19, 1990, but no such evidence was filed at the time of assessment. Pages Nos. 88 to 94 of the paperbook are the photocopies of the daily price bulletin of Sunny Trade Association, Calcutta, in which it is mentioned that these quotations are in no way binding on manufacturers/dealers/traders in their individual transaction and the assessee had not furnished any evidence to prove that the said transactions were in fact entered/finalised on those dates. Papers Nos. 95 to 124 are the details of telephone of the partner which are irrelevant unless the assessee furnishes the name and address in respect of each telephone. In such circumstances, the Income-tax Officer stated that no such circumstances exist which may entitle the appellant to produce fresh evidence at this stage.
1.11. Another report was received on September 11, 1990, wherein it was stated that as regards papers Nos. 23, 37, 41, 42 and 44, paper No. 37 is an undated letter from Ram Kishan Kanhaiya Lal, Calcutta, certifying the sale of 54,000 A-Twill bags to the appellant which appears to be incorrect as the sale invoices of the mills from which those bags were purchased bear the dates of November, 1988. It is further noticed that the said party to whom the difference of Rs. 1,14,300 was paid by the assessee have shown in their certificate dated Nil, the sale of 54,000 bags on August 29, 1988, whereas the mills from where the bags were procured have issued sale invoices on October 14, 1988, October 15, 1988, November 18, 1988, and November 19, 1988. Similarly, with regard to paper No. 41, the assessee has failed to furnish any correspondence of any manner which could substantiate its claim that the orders were placed for the purchase of jute bags with the Calcutta parties to whom substantial amounts of difference was paid. Regarding papers Nos. 88 to 94, the Income-tax Officer has stated that the rates mentioned in the daily price bulletin were not binding and the assessee cannot claim that the goods were bought by him at the rates mentioned in the daily price bulletin. Further, in respect of pages Nos. 95 and 124, it is stated that from the telephone numbers given in the lists it is not clear as to how the telephone number called upon is connected with the business of the assessee.
1.12. The assessee submitted another application under Rule 46A on September 14, 1990, enclosing therewith copies of the bargain slips as have been maintained in the normal course of business by Messrs. Hissaria Brothers, Calcutta, to establish the dates when the orders have been placed by Messrs. Hissaria Brothers, Calcutta, upon the sellers, who had confirmed the transactions. A copy of the credit notes issued by Messrs. Hissaria Brothers duly confirmed was also filed. It was also stated regarding the Income-tax Officer's objections about the appellant having failed to purchase the jute bags locally from J. K. Jute Mills Ltd., Kanpur, that they are not manufacturing A-Twill jute bags and, therefore, there was no occasion for the appellant-firm to have purchased these bags from Kanpur. A copy of confirmation from the agents/brokers of Messrs. J. K. Jute Mills Ltd., Kanpur, was filed.
1.13. The Income-tax Officer sent another report dated September 21, 1990, stating therein that the assessee has furnished photocopies of the five bargain slips typed on the letter pad of Messrs. Hissaria Brothers, Calcutta, who happens to be the agent of the assessee at Calcutta. These slips are nothing but concocted evidence, which is clear from the fact that the assessee has admitted that he supplies A-Twill bags to Messrs. Basti Sugar Mills, Basti, on the basis of orders and delivery schedules received from them. By furnishing fake bargain slips, the assessee has tried to prove that he had placed orders for purchase of A-Twill bags with four parties of Calcutta as early as in August and September, 1988. The Income-tax Officer has given details of these bargain slips from which it is seen that the assessee received orders in the month of September and October, 1988, whereas he had placed orders with the sellers of Calcutta in the month of August, 1983, and the payments were not made to the Calcutta party even at the time when actually supplies were made. The Income-tax Officer has further stated that it is clear that no such orders were placed with the four parties of Calcutta but huge amount of difference was shown to have been paid to them in order to reduce the true profit. According to him, issue of credit notes does not prove that the payment was made for business consideration. Vide order.
1.14. Vide order sheet entries dated August 15, 1990, October 9, 1990, November 12, 1990, and January 4, 1990, (?) I have also asked the A. R. to file copies of correspondence between Messrs. Hissaria Brothers and four other parties of Calcutta, complete certificates from Calcutta parties confirming advance transactions, receipt of payments, supply of goods, etc., to file confirmations from the mills and brokers who supplied goods to the appellant through Messrs. Triveni Technocom Ltd., Calcutta.
1.15. In pursuance of my directions, the assessee filed certificates from all these parties confirming the necessary transactions and also the payments made to them which again were sent to the Income-tax Officer for his comments. Vide his report dated December 21, 1990, the Income-tax Officer has stated that on enquiry from the East India Jute and Hessian Exchange Ltd., Calcutta, they have mentioned that they are not aware of any system of bargain sale/purchase in the jute trade and that the only recognised system is forward trading in raw jute and jute goods regulated under the Forward Contracts (Regulation) Act, 1952, wherein delivery of goods is effected 11 days after the date of contract. According to the Income-
tax Officer, the assessee's theory of having made bargain purchases from four parties-of Calcutta two months before the actual delivery of goods was effected, does not hold good.
1.16. Enquiries were also made by the Income-tax Officer during appeal proceedings from the jute mills/suppliers of Calcutta who actually supplied the jute bags to the assessee, which revealed that they had sold goods through the brokers other than those to whom the aforesaid amount of difference was paid. The Income-tax Officer enclosed a chart with his report which depicts that the amount of difference was paid by the assessee to the persons who were neither the sellers nor the assessee's agents. Column 4 of the said chart shows the name of the party to whom the difference was paid by the assessee whereas column 5 shows the name of broker through whom the goods were sold to the assessee. Transactions mentioned at serial Nos. 3 and 8 of the said chart were effected through East India Jute and Hessian Exchange Ltd., Calcutta, and in those cases there was direct contract between the assessee and the broker concerned and the transaction was regulated through East India Jute and Hessian Exchange Ltd., Calcutta. It is thus not clear as to how Messrs. Ganga Ram Ashok Kumar and Messrs. Triveni Technocom Ltd., Calcutta, came into the picture and were paid difference amounting to Rs. 45,000 and Rs. 43,200, respectively. The Income-tax Officer has thus concluded that the assessee paid huge amount of difference to parties who were neither the assessee's agent nor sellers' agent and the amount was debited by the assessee in its purchase account to reduce the true profits.
1.17. The appellant was again asked to file some more information by me which was again forwarded to the Income-tax Officer who sent his report dated January 18, 1991, stating that in all the 10 transactions mentioned in the list filed by the assessee, difference totalling to Rs. 4,58,100 has been paid by the assessee-firm to Messrs. Triveni Technocom Ltd., Calcutta. The assessee has tried to establish that in all such transactions, Messrs. Triveni Technocom Ltd., Calcutta, placed orders for purchase of jute bags on behalf of the assessee-firm with the brokers of the companies/ suppliers, namely, Messrs. Sita Ram Farmania and Sons, Calcutta, B. L. Thard and Co., Calcutta and others. In all such cases, the contracts and the bills were raised by the concerned brokers on Messrs. Goel Trading Co., the appellant, and the payments were also made by the commission agent of the assessee-firm, Messrs. Hissaria Brothers, Calcutta, to the concerned parties. Thus, in none of the 10 transactions, was the contract made through Messrs. Triveni Technocom Ltd., nor the bills raised on or by Messrs. Triveni Technocom Ltd., and the payments were also directly made by the assessee's agent. The assessee has failed to bring even an iota evidence to prove his theory that all such purchasers were made through Messrs. Triveni Technocom Ltd., Calcutta, and it is clearly established that the assessee debited the amount of Rs. 7,38,000 in its purchase account as so called difference paid to parties as mentioned above to reduce its income and there was no business purpose for debiting those amounts in the purchase account.
1.18. The assessee filed reply dated January 29, 1991, clarifying the points raised by the Income-tax Officer as under :
(i) As regards the comments of the Income-tax Officer that the contracts and the sale bills were raised by the concerned broker of the jute mills on Messrs. Goel Trading Co., Kanpur. It is submitted that on the instructions and by contracts order of Messrs. Triveni Technocom Ltd., Calcutta, the contracts were executed between the broker of the jute mills and Messrs. Goyal Trading Co., Kanpur. This fact is clear from the confirmatory letters of Messrs. Sita Ram Farmania and Sons, Messrs. B. L. Thard and Co., Messrs. Prem Chand Gupta, Calcutta, which have already been submitted before your honour.
(ii) That the contract of supply has been filed with East India Jute arid Hessian Exchange Ltd., Calcutta, by the broker member showing the name of the jute mills and the assessee duly signed by the broker. These contracts of jute goods cannot be submitted to the exchange by the non-member parties.
(iii) That all the concerned parties have separately confirmed in writing through us or directly to the Assessing Officer the facts of the case, and keeping in view the Assessing Officer's report, the transactions may be explained in the following manner :
(a) the assessee has placed orders of jute bags (LSI mark) to its commission agent against supplies to be made on forward basis. This fact has been confirmed by the commission agent of the assessee.
(b) the commission agent of Calcutta placed the order for the purchase of jute bags on behalf of the assessee to any of the local dealers/ parties for arranging supply to be made at a future date at the prevailing rate.
(c) the sale bills are made by the jute mills in the name of the assessee as contracted on whose behalf the goods had been booked and supplies are made. Confirmatory letters from the local party, mill broker and jute mills have already been submitted.
1.19. After considering the appellant's request for admission of fresh evidence under rule 46A, I am of the opinion that the same deserves to be accepted since the documents filed during appeal proceedings are very much relevant to the issues involved and the appellant could not file them at the assessment stage for lack of proper opportunity as the enquiries were conducted in the month of March and the assessment was also framed in that very month.
1.20. Some of the information and documents were filed in pursuance of the enquiries made by me during appellate proceedings by virtue of powers vested in me. Some of the relevant documents pertaining to these transactions in the shape of certificates from the concerned parties in confirmation of the transactions, receipt of payments and supply of goods, etc., were called for along with certificates from the brokers through whom the transactions have been affected. The information as obtained consequent to the said enquiries was also sent to the Income-tax Officer for his comments which have been reproduced in the above paragraphs.
1.21. To summarise the version of the appellant with regard to these transactions, it may be stated that the appellant placed orders for the purchase of A-Twill jute bags with their sole purchasing agents, Messrs. Hissaria Brothers, Calcutta, mainly for the supply to Messrs. Basti Sugar Mills and also for nominal trade. The agents in turn made advance bargains with the four trading parties of Calcutta, namely, Messrs. Triveni Techno-com Ltd., Messrs. Abhisek Company, Messrs. Ganga Ram Ashok Kumar and Messrs. Ram Kishan Kanhaiya Lal. These parties placed orders for these bags through the brokers with the manufacturing mills. The transactions were made in advance at the prevailing rates. However, at the time of actual delivery, there was a decline in the market rates as a result of which the appellant had to pay the difference in the rates to the concerned parties. The sale bills were prepared by jute mills in the name of the appellant under instructions from the four parties mentioned above in order to avoid double payment of sales tax. These transactions were made through the brokers and the orders were placed by these four parties on the mills and the brokers acted on the instructions of these four parties and the supplies were arranged from the jute mills.
1.22. The appellant has filed sufficient evidence and other documents on record to prove that all these are business transactions made in the normal course. During the course of assessment proceedings, the Income-tax Officer had made enquiries from these four parties. The three parties had responded and confirmed the transactions. The letter addressed to Messrs. Triveni Technocom was, however, not delivered on account of some deficiency in the correct address, Messrs. Triveni Technocom Ltd. confirmed subsequently that the letter addressed by the Income-tax Officer was not delivered to them on account of defects in the address. All these parties have filed certificates once again during the appellate proceedings confirming the transactions with regard to supply of the jute bags against payment received by them. They have also certified the dates on which the transactions took place and given the bill numbers and payments received by the agent. Messrs. Hissaria Brothers has also confirmed these facts. The brokers, through whom the purchases were made by these four parties from the jute manufacturers, have also filed certificate stating therein that the purchases were made by them on behalf of these four parties and as per their instructions, the bills were raised on Messrs. Goyal Trading Company and the payment was made by their agents. The appellant has also filed bargain slips indicating the advance bargains made by Messrs. Hissaria Brothers, the appellant's agents with the four parties. These bargain slips give detailed description about the names of the sellers, buyers, quantity, quality, rate, date of delivery, amount and all other details which prove that the transactions were made in advance at the then prevailing rates and the actual supplies were made at later dates at the rates prevailing at the time of actual delivery. These slips are in confirmation of the other certificates issued by the agent, the traders, the brokers and the jute mills do not leave any scope for any doubt.
1.23. The Income-tax Officer has raised certain doubts about the documents filed, specially, about the bargain slips by stating that they are not genuine. No material has, however, been brought on record by him to rebut the particulars contained in the bargain slips also to prove that these bargain slips are fictitious. The particulars mentioned in the bargain slips are duly supported by the certificates of the agents, the four trading parties who arranged the goods, the brokers through whom the purchases were made from jute mills and also confirmation from the jute mills themselves. The appellant has also filed necessary particulars and given the dates regarding the enquiries made by Messrs. Basti Sugar Mills with regard to purchase of these jute bags. Since the said sugar mill is a regular customer, the appellant placed orders for purchase of the jute bags on the basis of their enquiries and tenders and also received a firm order at the relevant time and the Income-tax Officer's doubts about the discrepancies in the dates of orders placed by the sugar mills and the orders placed by the appellant on the traders for purchase of jute bags, are based on suspicion and not supported by any definite material.
1.24. The appellant filed price bulletins which are indicative of the prevailing prices as at the time of advance bargains and as at the time of actual supplies. These rates do give indication of version (sic), i.e., fall in the price at the time of actual supplies. The Income-tax Officer's observation on these bulletins that the rates are not binding, is thus not much relevant to the issue. The Income-tax Officer during the appellate proceedings also made enquiries from the exchange through whom the transactions were made but it has been clarified by the appellant that only those transactions are registered with the jute exchange which are conducted on behalf of their members, and such transactions should actually take place within 11 days. In the appellant's case, the transactions were made by the non-members and as such could not be registered with the said exchange. Moreover, the transactions were made much in advance and the delivery period was two to three months.
1.25. None of the four parties, to whom the payments have been made, can be held to be related with the appellant in any manner whatsoever. The payments have been made to them against purchases of jute bags arranged by them from the manufacturers through the brokers. These transactions cannot be held to be bogus or fictitious by any stretch of imagination. The payments have been made to them by way of account payee drafts or cheques through the agents against the debit notes and bills raised by them are duly supported by their certificates and also the certificates of all the concerned parties. The brokers through whom transactions were made by these parties with the jute manufacturers and who had arranged the supplies from the jute mills, are also strangers and are in no way connected with the appellant.
1.26. The Income-tax Officer also indicated some misgivings about the actual dates of transactions. As per the certificates of these four parties, the dates of sales shown by them are in fact the dates of bargain and the dates of sale shown by the jute mills are the actual dates of delivery. The sale bills issued by the jute mills, did not mention the name of the intermediaries since the transactions were made by the brokers at the instance of four parties and the bills were issued in the name of the appellant on instructions from the said four parties given to the jute mills through the commission agents and all these facts are duly verified from all the concerned parties.
1.27. Regarding the Income-tax Officer's observation that no bills had been made at the time of advance bargains, the appellant has clarified that there is no such system and the payments were made only at the time of actual delivery and as such no adverse inference can be drawn against the appellant on this account.
1.28. Thus in view of the numerous documents and other evidence filed, I am of the considered opinion that the payments made to the four parties, Messrs. Tribeni Technocoms Ltd., Messrs. Abhishek Company, Messrs. Ganga Ram Ashok Kumar and Messrs. Ram Kishan Kanhaiya Lal was made purely for business consideration. All these transactions are bona fide transactions and the gaps existing at the assessment stage have since been filled up by way of certificates from all the concerned parties. The payments had to be made to these four parties on account of fall in the rates from the date of the advance bargains to the date of actual supplies and there is no material on record to suggest that the said transactions are in any way not genuine. The payments have been made bona fide and for the purposes of business to the four parties as stated above and have to be allowed as such and the addition made on this account at Rs. 7,38,000 is, therefore, not sustainable and is deleted." .
17. It may be mentioned here that considering Rule 46A of the Income-tax Rules, 1962, and the provisions of Section 250 and particularly Subsection (4), the Revenue's grievance that on the facts, the learned Commissioner of Income-tax (Appeals) violated the provisions of Rule 46A can be said to be wholly wrong. No further discussion in this regard is considered necessary.
18. The assessee succeeds in relation to its second grievance also and though for the Revenue, Shri Vinit Sahai, very strongly stated that the Commissioner of Income-tax (Appeals) did not pass a speaking order but there being no agitation projected in the memorandum that factually paragraph 2 of "the Commissioner of Income-tax (Appeals)' order is incorrect, we see no case to interfere. His approach in relation to Rs. 4,200 is also reproduced below :
" 2. The appellant has contested the disallowance of Rs. 4,200 being proportionate interest on money advanced to Messrs. Manoj Enterprises on the ground that the advance was made without charging of interest. It has been explained by the appellant that the major part of the amount constitutes trading transactions and the transactions took place at the end of the accounting period whereas the interest has been charged for 12 months."
19. Before parting, we would like to mention that apparently because comprehensive paper books were furnished by the chartered accountant of the assessee, the Revenue's representative did not file any documents but for a copy of the order sheet requisitioned by the Bench and which has been reproduced in the order above.
20. In the result, the Revenue's appeal is dismissed.
R.K. Bali, Accountant Member.
21. I have carefully and respectfully gone through the proposed order of my learned senior colleague, the Judicial Member, but I am unable to agree with the decision upholding the order of the Commissioner of Income-tax (Appeals) with regard to the deletion of addition amounting to Rs. 7,38,000 made by the Assessing Officer on the ground that to such extent, i.e., Rs. 7,38,000 the purchase account has been wrongly debited.
22. My learned senior colleague has reproduced the relevant order sheet entry made by the Assessing Officer in paragraph 4 of the proposed order and he has also summarised the reasons and the basis for which the Assessing Officer had made the addition of Rs. 7,38,000 in paragraphs 6 to 13 of the proposed order. However, it appears that while dealing with the submissions of the assessee in response to the show-cause notice issued by the Income-tax Officer, in paragraph 12 of the proposed order, an important fact appears to have been ignored, i.e., purchase order for "A-Twill bags" by Messrs. Basti Sugar Mills Co. Ltd., Basti, Walterganj, were placed with the assessee in writing, vide order dated September 14, 1988, and October 8, 1988, which is apparent from the reply of the assessee furnished to the Income-tax Officer in response to notice dated March 22, 1990, given by the assessee on March 29, 1990, and copy furnished to us at pages 14 and 15 of the paper book.
23. The above factual details regarding purchase orders dated September 14, 1988, and October 8, 1988, from Messrs. Basti Sugar Mills Co. Ltd. are mentioned in paragraph 3 at page 15 of the paper book filed. In case the above assertion of the assessee is correct then there could be no reasons for entering into the alleged forward bargain in advance in August/ September, 1988, for the supply of "A-Twill bags" in October, 1988, and in the subsequent months when the written purchase orders from the sugar mill itself was received by the assessee in September/October, 1988.
24. The above facts go against the alleged theory of forward bargain having been entered into by Messrs. Hissaria Brothers, which is a proprietary concern of Smt. Geeta Devi, w/o. Shri Bishan Swaroop Goel who is brother of two partners of the assessee-firm, namely, Shri Maman Chand Goel and Shri Murari Lal Goyal, with the four parties of Calcutta, namely, (i) Messrs. Tribeni Technocoms Ltd., (ii) Messrs. Ganga Ram Ashok Kumar, (iii) Messrs. Abhishek Co., and (iv) Messrs. Ram Kishan Kanhaiya Lal to whom the disputed amount of Rs. 7,38,000 is claimed to have been paid as difference in bargain price and the price at which the goods were- supplied by the jute mills directly to Messrs. Basti Sugar Mills Co. Ltd., Walterganj, on the orders of the assessee.
25. Another point which requires consideration is that the assessee has pleaded before the learned Commissioner of Income-tax (Appeals) that the assessment has been completed without giving proper and reasonable opportunity to the assessee and in the assessment proceedings the enquiries relating to the disputed payment of Rs. 7,38,000 were started on March 16, 1990, and the assessment was completed within a period of two weeks without giving fair and reasonable opportunity to the assessee as the assessment order was passed on March 29, 1990, although it was not a time barring assessment. The above submissions made on behalf of the assessee, which have been recorded in paragraph 1.9 of the order of the Commissioner of Income-tax (Appeals) and which has been reproduced with approval in the order of my learned senior colleague in paragraph 15, is factually incorrect. This will be amply clear from the sequence of entries in the order sheet, reproduced in paragraph 4 of the proposed order of my learned senior colleague and also the fact that the books of account of the assessee were impounded on January 10, 1990, and, thereafter a noting is made on January 19, 1990, in the order sheet, requesting the assessee to explain the reasons for making payment of difference to Messrs. Tribeni Technocoms Ltd., Calcutta, at Rs. 240 per 100 bags, vide Messrs. Hissaria Brothers bill dated February 8, 1989, endorsed with the bill of Shree Hanuman Jute Mills Ltd., Calcutta, and other bills. After this entry, a specific notice under Section 143(3) dated February 27, 1990, was also given to the assessee asking him to explain the nature of payment made to Messrs. Hissaria Bros., agent of the assessee, to Messrs. Tribeni Technocoms Ltd., Messrs. Abhishek Co., Messrs. Ganga Ram Ashok Kumar and Messrs. Ram Kishan Kanhaiya Lal and the assessee did give a reply dated March 7, 1990, to this notice, which has been furnished at page 6 of the paper book and as such the assertion of the assessee that enquiries were started only on March 16, 1990, is factually incorrect.
26. However, the grievance of the Revenue in ground of appeal No. 2 that the Commissioner of Income-tax (Appeals) has erred in law and facts in admitting fresh evidence in respect of bills of difference of Rs. 7,38,000 is not well-founded as the Commissioner of Income-tax (Appeals) has plenary powers to admit evidence if he considers it necessary for the disposal of the appeal pending before him. The only condition being that he should allow a reasonable opportunity to the Assessing Officer before admitting fresh evidence and that requirement has been complied with by the learned Commissioner of Income-tax (Appeals) in this regard.
27. However, the fact remains that the assessment in this case was taken up for scrutiny in the month of November, .1989, and the assessment was completed on March 29, 1990, and the grievance of the assessee is that he was not given a reasonable opportunity before taking an adverse view against him regarding the payment of Rs. 7,38,000 to the four parties of Calcutta, mentioned supra (at page 50) in paragraph 22.
28. The assessee filed an appeal against the above order on April 23, 1990, and the hearing of the appeal before the Commissioner of Income-tax (Appeals) commenced on August 10, 1990, when the assessee made an application under rule 46A of the Income-tax Rules, 1962, for submitting certain documents, which were forwarded by the learned Commissioner of Income-tax (Appeals) to the Assessing Officer for his comments. The Income-tax Officer did send an interim remand report dated August 24, 1990, and then another on September 14, 1990. Thereafter the assessee submitted another application under Rule 46A on September 14, 1990, enclosing along with his letter the copies of the alleged bargain slips claimed to have been maintained in the normal course of business by Messrs. Hissaria Brothers, Calcutta, the purchase agent of the assessee, to establish the dates when orders were placed by Messrs. Hissaria Brothers, Calcutta, upon the sellers four parties, to whom the payment of Rs. 7,38,000 on account of difference is claimed to have been made and these copies of the bargain slips were also sent to the Assessing Officer for his comments and subsequently the Income-tax Officer had sent another report dated September 21, 1990, submitting that the alleged bargain slips were nothing but concocted evidence on the ground that the assessee has admitted to have supplied A-Twill bags to Messrs. Basti Sugar Mills Co. Ltd., on the basis of the order received from them and the purchase order from the sugar mills were in fact placed with the assessee on September 14, 1988, and October 8, 1988.
29. A perusal of the bills issued by the jute mills favouring the assessee indicates the name of the broker as Messrs. Ashok Kumar Pawan Kumar ; Messrs. Banwari Lal Thrad and Sons ; Messrs. Sita Ram Farmania and Sons and Messrs. Morgan India Co. and the names of the four parties, i.e., Messrs. Tribeni Technocoms Ltd. ; Messrs. Ganga Ram Ashok Kumar ; Messrs. Abhishek Co., and Messrs. Ram Kishan Kanhaiya Lal, do not figure at all in the bills issued by the jute mills in favour of the assessee. It is also pertinent to note that during the course of his statement recorded by the Assessing Officer under section 131 of the Act on March 16, 1990, Shri Maman Chand Goel, partner of the asses see-firm, was specifically asked as to why the assessee had not entered into forward contracts with the jute mills itself for the supply of A-Twill bags as the assessee was in the know of the fact that it has to supply A-Twill bags to the sugar mills in the sugar season as per its contracts because admittedly the assessee was having dealings with the sugar mills for the last 15 years. To this Shri Maman Chand Goel, partner, replied that there was no practice of making advance booking by the jute mills and after this answer when the Assessing Officer asked him as to how under such circumstances the four parties of Calcutta to whom the difference has been paid, have made advance booking with the jute mills and in reply to this Shri Maman Chand explained that he is unable to say anything.
30. A perusal of the assessment order reveals that in the present assessment year there was a change in the constitution of the firm and the accounts were maintained for two periods, first period from April 1, 1988, to August'31, 1988, for which the sales were declared at Rs. 4,23,297 and gross profit of Rs. 41,590 giving gross profit rate of 9.8 per cent. The second period was from September 1, 1988, to March 31, 1989, when the sales were declared at Rs. 50,68,177 and the gross profit was Rs. 1,68,193 giving gross profit rate of 3.32 per cent, and it was in relation to the second period that the Assessing Officer has made detailed scrutiny and found that the. assessee had made 17 transactions of purchase of A-Twill bags from the jute mills through his purchase agent, Messrs. Hissaria Brothers, a sister concern, to whom commission was paid at one per cent, of the purchase price. But in relation to these 17 transactions the difference of Rs. 7,38,000 was paid to the four parties of Calcutta by Messrs. Hissaria Brothers on behalf of the assessee, the details of which have been mentioned at page 4 of the assessment order. Although it is claimed by the assessee that necessary confirmations from these parties regarding the receipt of difference from the assessee was furnished before the Assessing Officer and also before the Commissioner of Income-tax (Appeals), copies of which have also been furnished before us, yet the confirmations do not inspire much confidence. The confirmation from Messrs. Ram Kishan Kanhaiya Lal, as furnished to us at page 21 of the paper book, is in the form of a certificate that they have sold "A-Twill bags" to the assessee as per details given below and then date of the transaction, number of bags, rate per bag, excise and CST, etc., is given. But this letter of Messrs. Ram Kishan Kanhaiya Lal does not have either the sales tax number or even the telephone number and it is not even dated. Similar is the certificate from Messrs. Abhishek Co., which has been furnished before us at page 26 of the paper book. This letterhead although has the office and residential telephone numbers mentioned on the letter, yet the sales tax number of Messrs. Abhishek Co. is missing, which normally is there on the letterhead of traders. It is also pertinent to note that although proceedings before the Commissioner of Income-tax (Appeals) commenced as early as August 10, 1990, and the impugned order was passed by the Commissioner of Income-tax (Appeals) on February 20, 1991, after a period of more than six months, in which several remand reports were called by the Commissioner of Income-tax (Appeals), yet the most pertinent query as to what happened to the amount of Rs. 7,38,000 which was claimed to have been paid by Messrs. Hissaria Bros. by cheque to the four parties of Calcutta was not enquired into. The assessee has claimed that the payment of Rs. 7,38,000 was made by Messrs. Hissaria Bros., the purchase agent of the assessee, to these four parties of Calcutta and the assessee, in turn, has reimbursed Messrs. Hissaria Bros, by sending drafts of equivalent amount. . However, no enquiry worth the name was made as to what happened when this amount of Rs. 7,38,000 was deposited in the accounts of these four parties of Calcutta. Whether this amount was utilised by these four parties or it was withdrawn in cash or in some other way it was returned either to the assessee or to its agent, Messrs. Hissaria Bros. Although the Assessing Officer has made a specific query from the assessee to find out the details pf the persons who were partners or directors, of these four parties of Calcutta, yet no categorical answer was given before the Assessing Officer in this regard. Regarding the constitution of these four parties, it was mentioned that the assessee has tried to collect the information in this regard but has not been able to find out the constitution of these parties and it was suggested that the same can be obtained directly from these parties by the Income-tax Officer.
31. The findings recorded by the learned Commissioner of Income-tax (Appeals) in the middle of paragraph 1.22 of the impugned order that the brokers through whom the purchases were made by these four parties from the jute manufacturers have allegedly filed certificates stating therein that the purchases were made by them on behalf of these four parties and as per their instructions the bills were raised on Messrs. Goel Trading Co. and the payment was made by their agent is not supported by any such certificate as claimed. Although the assessee has furnished a paper book running into 111 pages, yet the alleged certificates from the brokers to the effect that they have arranged to supply jute bags from the jute manufacturers to the assessee on behalf of these parties, is not available on the paper book and the same was also not found on the assessment record as stated by the learned senior departmental representative on a query from the Bench during the course of hearing of the appeal.
32. In this view of the. matter, it becomes all the more important/necessary to find out as to what actually had happened to the amount of Rs. 7,38,000 paid by Messrs. Hissaria Bros., on behalf of the assessee to the four parties of Calcutta and it was the duty of the Commissioner of Income-tax (Appeals) to get this enquiry made through the Assessing Officer before coming to the conclusion that the amount of Rs. 7,38,000 was. part of the purchase price of A-Twill bags which the learned Commissioner of Income-tax (Appeals) has failed to do.
33. The Supreme Court while commenting on the powers of the first appellate authority under the Income-tax Act in the case of CIT v. Kanpur Coal Syndicate [1964] 53 ITR 225 has held that the first appellate authority has plenary powers in disposing of an appeal. The scope of his power is conterminous with that of the Income-tax Officer. He can do what the Income-tax Officer can do and also direct him to do what he has failed to do.
34. Now the question is as to what is the duty of the Tribunal in a situation where the first appellate authority has not done his duty properly in terms of the powers conferred on him under the Act as interpreted by the Supreme Court in the case of CIT v. Kanpur Coal Syndicate [1964] 53 ITR 225, referred to supra. Is the Tribunal helpless in such a situation ? The answer is obviously no. In such a situation, the duty of the Tribunal is explained by the Supreme Court in the case of Kapurchand Shrimal v. CIT [1981] 131 ITR 451, wherein it is held as under (headnote) :
" An appellate authority has the jurisdiction as well as the duty to correct all errors in the proceedings under appeal and to issue, if necessary, appropriate directions to the authority against whose decision the appeal is preferred to dispose of the whole or any part of the matter afresh, unless forbidden from doing so by statute. "
35. Even otherwise, the whole purpose of the Income-tax Act is the levy and collection of income-tax, which is rightly due from an assessee and for that purpose the appellate proceedings are merely the continuation of the assessment proceedings. The scope of appellate -powers and jurisdiction of the Tribunal have been explained by the Madras High Court in the case of CIT v. Indian Express (Madurai) Pvt. Ltd. [1983] 140 ITR 705 as under (headnote) :
" The primary purpose of the Income-tax Act, 1961, is to levy and collect income-tax and as the purpose of the statutory provisions especially those relating to the administration and management of income-tax is to ascertain the tax liability correctly, the various provisions relating to appeal and reference, etc., cannot be equated to a lis or dispute arising between two parties as in a civil litigation. Although the income-tax statute makes the Department and its officers figure as parties in appeal proceedings, they are not in the strict sense what are called by American writers as parties to 'adversary proceedings' because the very object of the appeal is not to decide a point raised as a dispute but any point which goes into the adjustment of the taxpayer's liability and hence the authorities sitting in appeal in a tax case cannot be regarded as deciding a lis. They are only engaged in an administrative act of adjusting the taxpayer's liability. Even though the appellate authorities exercise quasi-judicial functions; the proceedings before them lack the basic element of adversary proceedings. In a case where the Revenue is a party, at the same time being an authority vested with the responsibilities of drawing up the assessment and determining the correct tax liability, it would not be in accord with the scheme of the Act to impose restrictions on the ambit and power of the Tribunal by notions such as finality, subject-matter of the appeal, etc. "
36. In view of the judicial precedents referred to supra, I am of the opinion that the matter regarding addition of Rs. 7,38,000 should be restored to the file of the Assessing Officer with the directions that he should make enquiries, through the intelligence wing of the department, if so advised, at Calcutta, to find out as to what actually happened to the payments made by Messrs. Hissaria Bros, on behalf of the assessee to the tune of Rs. 7,38,000 to the four parties of Calcutta and whether any part of this amount was received back directly or indirectly either by Messrs. Hissaria. Bros. or by the assessee. In case there is evidence to suggest that the money amounting to Rs. 7,38,000 or a part of it did return either to Messrs. Hissaria Bros. or the assessee, then there will be justification for making the addition. However, the addition should be made only after getting necessary information and after giving due and proper opportunity to the assessee to explain his position vis-a-vis, the information so collected.
37. In the result, the matter regarding the addition of Rs. 7,38,000 is restored to the file of the Assessing Officer for readjudication in the light of my observations given in this order.
38. Regarding deletion of addition of Rs. 4,200 made by the Assessing Officer as proportionate interest on money advanced to Messrs. Manoj Enterprises, I am in agreement with my learned senior colleague that the approach of the learned Commissioner of Income-tax (Appeals) was quite appropriate in deleting the addition and the action of the Commissioner of Income-tax (Appeals) in this regard is upheld.
39. In the result the appeal filed by the Revenue is partly allowed for statistical purposes.
ORDER OF REFERENCE TO THIRD member
40. There being difference of opinion between the two Members, who heard the appeal, the following point of difference is framed for reference to the President of the Income-tax Appellate Tribunal under section 255(4) of the Income-tax Act, 1961 :
"Whether, oh the facts and in the circumstances of the case, the proposed order of the Judicial Member dismissing the Revenue's appeal on the question of relief of Rs. 7,38,000 granted by the Commissioner of Income-tax (Appeals) can be said to be justified or the view taken by the Accountant Member that the matter concerning the said relief should be restored back to the file of the Assessing Officer with the directions that he should make enquiries through the Intelligence Wing of the Department, if so advised, is the legally correct approach ? "
ORDER OF THE THIRD MEMBER T. V. Rajagopala Rao, President
41. This is a Third Member case which arose out of the difference expressed between the two Members who constituted the Bench and heard the appeal in the first instance. The following point of difference is framed and referred to the President under section 255(4) of the Income-tax Act, 1961 :
" Whether, on the facts and in the circumstances of the case, the proposed order of the Judicial Member dismissing the Revenue's appeal on the question of relief of Rs. 7,38,000 granted by the Commissioner of Income-tax (Appeals) can be said to be justified or the view taken by the Accountant Member that the matter concerning the said relief should be restored back to the file of the Assessing Officer with the directions that he should make enquiries through the Intelligence Wing of the Department, if so advised, is the legally correct approach ?"
42. A few facts necessary to be appreciated before taking up the above controversy may be summarised as follows :
The appeal was filed by the Department and it was directed against the order of the Commissioner of Income-tax (Appeals) dated February 22, 1991. The assessee is a partnership-firm. The assessment year involved is 1989-90 for which the previous year ends by March 31, 1989. There was reconstitution of the firm from September 1, 1988. Thus the first spell of the accounting year is April 1, 1988, to August 31, 1988, in which there were only two partners--Maman Chand Goel and Murari Lal Goel. However, from September 1, 1988, to March 31, 1989, there were four partners. They include the original two partners mentioned above and two more, namely, Smt. Sumitra Devi and Master Vishal Kumar. The assessee-firm deals primarily in purchase and sale of jute bags. It used to supply special type of jute bags called "A-Twill bags" to sugar mills. For the last about 15 years prior to the assessment year in question it used to supply A-Twill sugar bags to Basti Sugar Mills, Basti, and Basti Sugar Mills, Walterganj, both of which are private limited companies, which used to be under common management. The sugar manufacturing season starts in U. P. especially in Kanpur and nearby manufacturing centres from October every year. As usual the above mills issued purchase orders to the assessee-firm on September 14, 1988, by which they indented upon the assessee to supply 1,42,000 bags during the period from October, 1988, to December, 1988. So also it gave another indent upon the assessee on October 8, 1988, to supply 1,96,000 A-Twill sugar bags from January to March, 1989.
43. Messrs. Hissaria Brothers, Calcutta, which was a proprietary concern of Smt. Geeta Devi, wife of Shri Bishan Swaroop Goel, who is the brother of the two partners of the assessee-firm was a purchasing agent of A-Twill jute bags for the assessee-firm for Calcutta. Admittedly, the said concern used to charge one per cent, commission on the purchase value of A-Twill jute bags by the assessee-firm.
44. For the first period, the assessee-firm disclosed gross" profit at 9.83 per cent, whereas for the second period it had disclosed only 3.32 per cent. The consolidated gross profit of both the periods was worked out to 3.82 per cent, as against 5.85 per cent, disclosed for the assessment year 1988-89.
45. The purchases and sales made by the assessee especially for the second period was taken up for close scrutiny by the Assessing Officer since there was abnormal difference between the expected total gross profit in trading A-Twill bags and the reflected gross profit as per the trading account of the assessee-firm. A close scrutiny of the trading account disclosed to the Assessing Officer that the amount debited by the assessee in its trading account in respect of each purchase of A-Twill bags was more than the amount mentioned in the sale bill/invoice of the concerned mill. The amount debited in the trading account on each occasion of purchase included commission of one per cent. on the sale hill amount to Messrs. Hissaria Brothers, Calcutta, and an amount varying from Rs. 170 to Rs. 320 for 100 bags to a third party in Calcutta. The debits in the trading account were made on the basis of debit note of Messrs. Hissaria Brothers, sent along with the purchase bill of the concerned mill. A scrutiny of each of the purchase bills revealed to have covered three types of payments --payment to the jute mill, commission to Hissaria Brothers and amounts credited to Calcutta party by Messrs. Hissaria Brothers with regard to each of the purchase bills. 17 such purchase bills came to the notice of the . Assessing Officer which have been cited at page 4 of the assessment order which revealed the total payment of Rs. 7,38,000 to the four Calcutta parties mentioned below :
(i) Tribeni Technocoms Ltd.,
(ii) Abhishek Company,
(iii) Ganga Ram Ashok Kumar,
(iv) Ram Kishan Kanhaiya Lal.
46. The Assessing Officer felt that the purchase price of A-Twill bags was inflated to an extent of Rs. 7,38,000 and he called upon the assessee by his order-sheet entry dated January 19, 1990, and by issuing notice dated February 27, 1990, to furnish the exact nature of the work done by the aliove four Calcutta parties for which the corresponding amounts shown against each of them were credited to produce receipts/vouchers from them in support of payments, their confirmations to furnish names of directors/partners of the above parties and to state their relationship between the partners of the assessee-firm and to produce correspondence between the four Calcutta parties on the one hand and Messrs. Hissaria Bros, on the other. The assessee firm, filed a reply dated March 9, 1990. The important portion of the said reply is as follows :
" It is further submitted that we are purchasing jute goods from the Calcutta market through our commission agent, Messrs. Hissaria Brothers, Calcutta, the purchases are being done from jute mills or from local Calcutta parties after taking delivery order on jute mills from the local parties. The seller will issue debit note in the name of the purchaser through the commission agent. We have paid amounts to the Calcutta party being part of purchasing cost keeping in view the difference in amount between the market rate and the jute mill rate. As your honour has verified from our books of account on previous hearings that all these goods are directly sold by us to Basti Sugar Mills and other sugar mills directly from preparing bilties directly from Calcutta to the sugar mills, for maintaining continuous supply to the sugar mills and also to maintain the reputation of our firm. Against these despatches we have not taken delivery at Kanpur to avoid loading and unloading expenses here. Further, we have made all payments to the Calcutta agent through bank drafts only and collected the sale proceeds from the sugar mills through our bankers, State Bank of India, Central Road, Kanpur."
47. The Assessing Officer addressed registered letters dated February 23, 1990, March 7, 1990, and a letter by speed post dated March 9, 1990, to the four Calcutta parties. Letters also were sent to jute suppliers/mills at Calcutta. None of the mills at Calcutta mentioned that the goods were in short supply. On the other hand, Messrs. Ludlow Jute Mills, Calcutta, and Messrs. Kalanauria International, Calcutta, have clearly mentioned in their replies that goods of that variety (A-Twill bags) which were supplied to the assessee were freely and readily available with them on the dates of sale to the assessee. The Assessing Officer recorded a statement on oath from Shri Maman Chand Goel, one of the partners of the assessee-firm, on March'16, 1990, under section 131 of the Income-tax Act. In examination, he was asked to explain the nature and purpose of payments made to the four Calcutta parties. In reply, it was stated by him : "that the goods of a particular quality were to be supplied, as per agreement, to Messrs. Basti Sugar Mills, Basti and Walterganj, and to the other sugar mills. Since goods of that particular quality were not available with the jute mills, our agent, Messrs. Hissaria Bros., Calcutta, obtained the delivery orders from the abovementioned four parties of Calcutta on the rates quoted by them and the difference between the mill rate and market rate was paid through cheque by our agent, Messrs. Hissaria Brothers, Calcutta, to the parties concerned and. in turn they obtained the drafts from us. The difference paid by Messrs. Hissaria Brothers was thus a part of the purchase price." Shri Maman Chand Goel, one of the partners of the assessee-firm, also stated that the jute mills were not accepting advance bookings or indulge in forward trading in the jute goods they manufactured. When questioned how it became possible to the four Calcutta parties to do advance bookings and obtain delivery orders in advance, he did not reply. He was also asked as to why the sale bills were issued in the name of the assessee by the jute mills when according to the assessee the goods were booked by the four Calcutta parties who in turn sold the goods to the assessee, no satisfactory answer was given.
48. The Assessing Officer allowed the assessee one more opportunity by his notice issued under Section 143(3) read with Section 142(1) dated February 23, 1990, to explain as to why the expenditure debited by him in his purchase account in respect of the alleged payment of difference made to four parties of Calcutta should not be disallowed and was confronted with the informations gathered by him which are mentioned as points (i) to (v) in his assessment order. The assessee's representative filed a written reply dated March 29, 1990, seeking to explain the five points raised by the Assessing Officer. Not being satisfied with the replies tendered by the assessee regarding each of the five queries raised by the Assessing Officer, the Assessing Officer held that the assessee failed to prove that the alleged payment of difference to the abovementioned four Calcutta parties were incurred for business purposes. He held that the assessee debited a substantial amount in his purchase account in respect of each purchase of A-Twill jute bags in the shape of payment of difference to the above four parties of Calcutta just to inflate the purchase price of A-Twill jute bags so as to reduce its true profits. The amount of Rs. 7,38,000 debited by the assessee in his purchase account towards so-called difference paid to Messrs. Tribeni Technocoms Ltd., Calcutta, Messrs. Ganga Ram Ashok Kumar, Calcutta, Messrs. Ram Krishan Kanhaiya Lal and Messrs. Abhishek Company, Calcutta, is, therefore, to be added to the income of the assessee. Thus, the Assessing Officer completed the assessment on a total income of Rs. 8,21,210 for the second period of the assessee-firm. Thus, he completed the assessment on March 29, 1990, under Section 143(3).The assessee-firm challenged the addition of Rs. 7,38,000 in the appeal filed before the Commissioner of Income-tax (Appeals).
49. As per the submissions made before the Commissioner of Income-tax (Appeals), the case of the assessee was summarily put by the learned Commissioner of Income-tax (Appeals) as follows :
The assessee placed orders for the purchase of A-Twill jute bags with their sole purchasing agents, Messrs. Hissaria Brothers, Calcutta, mainly for supply to Messrs. Basti Sugar Mills and also for nominal trade. The agents in turn made advance bargains With the four trading parties of Calcutta, namely, Messrs. Tribeni Technocoms Ltd., Messrs. Abhishek Company, Messrs. Ganga Ram Ashok Kumar and Messrs. Ram Krishan Kanhaiya Lal (hereinafter referred to as four Calcutta parties for the sake of brevity). These Calcutta parties placed orders for the bags through the brokers with, the manufacturing mills. The transactions were made in advance at the prevailing rates. However, at the time of actual delivery there was a decline in the market rates as a result of which the assessee had to pay the difference in the rates to the Calcutta parties. The sale bills were prepared by the jute mills in the name of the assessee itself under the instructions from the four Calcutta parties mentioned above in order to avoid double payment of sales tax. These transactions were made through the brokers and the orders were placed by these four parties on the mills and the brokers acted on the instructions of these four Calcutta parties and supplies were arranged from the jute mills.
50. A close reading of the learned Commissioner of Income-tax (Appeals) order especially from his paragraph 1.9 to paragraph 1.19, it would appear that at least four times the learned Commissioner of Income-tax (Appeals) had permitted additional evidence to be filed by the assessee to support its case :
(i) The first application was filed under rule 46A of the Income-tax Rules on August 10, 1990. Copy of the first application filed along with documents referred to in the said application were all furnished at pages 18 to 63 of paper book No. 2 filed by the assessee.
(ii) Another application was filed before the Commissioner of Income-tax (Appeals) under rule 46A of the Income-tax Rules on September 14, 1990. Copy of the said application is furnished at page 64 of the second paper book filed by the assessee.
(iii) The Commissioner of Income-tax (Appeals) himself, vide his ordersheet entries dated August 15, 1990, October 9, 1990, November 12, 1990, and January 4, 1991, asked the authorised representative of the assessee to file copies of correspondence between Messrs. Hissaria Brothers and the four parties of Calcutta, complete whereabouts from the four parties of Calcutta confirming advance transactions, receipt of payments, supply of goods, etc. He also asked the authorised representative of the assessee to file confirmations from the mills and brokers who supplied goods to the assessee through Messrs. Tribeni Technocom Ltd., Calcutta.
51. Again the Commissioner of Income-tax (Appeals) himself asked the assessee to file some more information referred to by him in paragraph 1.17 of his impugned orders with regard to which the Income-tax Officer sent his report dated January 18, 1991. No doubt as and when fresh evidence was filed, it was referred to the Income-tax Officer and his report was obtained with regard to the fresh evidence produced before the learned Commissioner of Income-tax (Appeals). Ultimately, in paragraph 1.28, the learned Commissioner of Income-tax (Appeals) came to the conclusion that the payments made to the four Calcutta parties were all made purely for business considerations, that all these transactions were bona fide, that the gaps existing at the assessment stage have since been filled by way of certificates from all the concerned parties, that the payments had to be made to these four Calcutta parties on account of fall in rates from the date of the advance bargains to the dates of actual supplies and there is no material on record to suggest that the said transactions are in any way not genuine and, therefore, he had deleted the addition of Rs. 7,38,000 since it is not sustainable.
52. The Department having been aggrieved against the Commissioner of Income-tax (Appeals) order had filed this second appeal.
53. After hearing the appeal, the learned Judicial Member proposed his order dated March 19, 1993, accepting the whole of the reasoning adopted by the learned Commissioner of Income-tax (Appeals) in his impugned orders and he had actually quoted the whole of the Commissioner of Income-tax (Appeals) order right from paragraph 1.8 to paragraph 1.28. The learned Judicial Member held in his orders that the contention of the. Revenue that the learned Commissioner of Income-tax (Appeals) violated the provisions of rule 46A can be said to be wholly wrong.
54. However, the learned Accountant Member passed his own separate order dated April 8, 1993, being unable to agree with the decision of the learned Judicial Member, upholding the order of the learned Commissioner of Income-tax (Appeals) with regard to the deletion of the addition of Rs. 7,38,000. According to the learned Accountant Member, when the purchase orders themselves were obtained from Basti Sugar Mills, Basti and Walterganj, on September 14, 1988, and October 8, 1988, respectively, there is no occasion for the assessee to go for advance hooking or to make a forward bargain for purchase of A-Twill bags even in August, and September, 1988. The version of the assessee is incredible and is not probable. The learned Accountant Member did not agree with the approved finding of the learned Judicial Member that the assessment proceedings started on March 16, 1990, and were closed on March 29, 1990, within 15 days time. According to the learned Accountant Member, this will be amply clear from the sequence of entries in the ordersheet reproduced in paragraph 4 of the learned Judicial Member's order and also from the fact that the books of account of the assessee were impounded on January 10, 1990, and thereafter noting was made on January 19, 1990, in the ordersheet requesting the assessee to explain the reasons for making payment of difference to Messrs. Tribeni Technocoms Ltd., Calcutta, at Rs. 240 per 100 bags, vide Messrs. Hissaria Brothers bill dated February 8, 1989, endorsed with bill of Shree Hanuman Jute Mills Ltd., Calcutta, and other jute mills. After this entry a specific notice under Section 143(3) dated February 27, 1990, was also given to the assessee asking him to explain the nature of payment made to Messrs. Hissaria Bros., agent of the assessee to Messrs. Tribeni Technocoms Ltd., Messrs. Abhishek Co., Messrs. Ganga Ram Ashok Kumar and Messrs. Ram Krishan Kanhaiya Lal and the assessee did give a reply dated March 7, 1990, to this notice which has been furnished at page 6 Of the paper book and as such the assertion of the assessee that enquiries were started only on March 16, 1990, is factually incorrect.
55. Thus, according to the learned Accountant Member, the assessment proceedings started from the month of November, 1989, and were completed on March 29, 1990, and the grievance of the assessee that he was not given a reasonable opportunity before taking an adverse view against him regarding payment of Rs. 7,38,000 is not correct. The Accountant Member felt that the bargain slip was nothing but concocted evidence. Further, according to the learned Accountant Member, a perusal of the bills issued by the jute mills favouring the assessee indicated the names of the brokers as Messrs. Ashok Kumar Pawan Kumar, Messrs. Banwari Lal Thrad and Sons, Messrs. Sita Ram Farmania and Sons, and Messrs. Morgan India Co., and the names of the four Calcutta parties do not figure at all in the bills issued by the jute mills in favour of the assessee. Further, according to the Accountant Member, Shri Maman Chand Goel in his statement dated March 16, 1990, was specifically asked as to why the assessee had not entered into forward contract with the jute mills itself for the supply of A-Twill hags as the assessee was in the know of the fact that it has to supply A-Twill bags to the sugar mills in the sugar season as per its contracts to which he had replied that there was no practice of making advance booking by the jute mills and after this the Assessing Officer asked him as to how under such circumstances the Calcutta parties to which the difference is purported to have been paid have made advance booking with the jute mills. Shri Maman Chand Goel explained that he is unable to say anything. This aspect of the matter, according to the Accountant Member, was not given due weight by the Judicial Member. At page 21 of the assessee's paper book which represents the confirmation of Messrs. Ram Kishan Kanhaiya Lal does not bear either the sales tax number or even telephone number apart from that it is not even dated. Similar is the certificate from Messrs. Abhishek Company which had been furnished at page 26 of the paper book. Further, though the proceedings before the learned Commissioner of Income-tax (Appeals) had started from August 10, 1990, and concluded on February 20, 1991, and thus when the proceedings were pending before him for more than six months, it was not. elicited as to what ultimately happened to the amount of Rs. 7,38,000 which was claimed to have been paid by Messrs. Hissaria Bros, by cheque to the four Calcutta parties-whether the amount was utilised by these four parties or it was withdrawn in cash or in some other way, it was returned back either to the assessee or to its agent Hissaria Bros. Further, though the Assessing Officer made a specific query-to find out the details of the persons who were partners or directors of these four Calcutta parties, no categorical answer was given before the Assessing Officer in this regard. The certificates of brokers stating that the purchases were made by them on behalf of the four Calcutta parties and as per their instructions, the bills were raised on the assessee-firm and the payment was made by assessee's agent were not to be found in the whole of the paper book containing 111 pages filed on behalf of the assessee.
56. In this view of the matter, the learned Accountant Member felt that it became all the more important and necessary to find out as to what actually had happened to the amount of Rs. 7,38,000 paid by Messrs. Hissaria Bros, on behalf of the assessee to the four Calcutta parties and it was the duty of the learned Commissioner of Income-tax (Appeals) to get the enquiries made through the Assessing Officer before coming to the conclusion that the amount of Rs. 7,38,000 was part of the purchase price of A-Twill bags which the learned Commissioner of Income-tax (Appeals) had failed to dd. Therefore, following the ratio of the Supreme Court in Kapurchand Shrimal v. CIT [1981] 131 ITR 451 and the Madras High Court's case in CIT v. Indian Express (Madurai) Pvt. Ltd. [1983] 140 ITR 705, the learned Accountant Member felt that the matter regarding the addition of Rs. 7,38,000 should be restored back to the file of the Assessing Officer with the directions that he should make enquiries, though the Intelligence Wing of the Department, if so advised at Calcutta to find Out as to what actually happened to the payments made by Messrs. Hissaria Bros, on behalf of the assessee to the tune of Rs. 7,38,000 to the four Calcutta parties and whether any part of this amount was received back directly or indirectly either by Hissaria Bros, or by the assessee. He, therefore, felt that the whole matter should be restored to the file of the Assessing Officer for readjudication in the light of his observations given above.
57. I have heard Shri B. C. Goel, Senior Departmental Representative, for the Department, and Shri S. K. Garg, the learned chartered accountant, for the assessee. The following submissions were made by the learned Departmental Representative. Firstly, my attention was drawn to pages 14 and 15 of the paper book filed on behalf of the assessee. Pages 14 to 17 represent the reply sent to the Income-tax Officer for his enquiries made under Section 143(3) dated March 22, 1990. The reply itself is dated March 29, 1990. At page 15 of the paper book, the categorical reply for query No. 7 is the following :
" With reference to your query No. 7 of the statement, we are enclosing herewith the written purchase orders dated September 14, 1988, and October 8, 1988, for the supply of A-Twill gunny bags issued by the Basti Sugar Mills Co. Ltd., Basti and Walterganj."
58. Therefore, it is clear that there may be possibility to place orders only after September 14, 1988, and October 8, 1988, but there is no possibility to place the orders even in August, 1988. Under the facts and circumstances, it would not be possible for the assessee to pitch upon forward contracts for purchase of A-Twill bags even in August, 1988.
59. The additional evidence adduced before the Commissioner of Income-tax (Appeals) was of doubtful character and that evidence was already doubted in the remand reports submitted by the Income-tax Officer and so the Revenue should have been given a further chance of going into the genuineness of the additional evidence produced and so the learned Accountant Member is perfectly justified in remanding the matter to the Income-tax Officer. It is contended that all the Calcutta parties were shadow parties whose genuineness should be doubted. At page 86 of the assessee's paper book, the names of the jute mills from whom the purchases of jute bags were made were furnished. As can be seen from that page at least two consignments worth Rs, 2,11,433 and Rs. 2,05,817 were booked and purchased from Shri Hanuman Jute Mills, Calcutta. A direct query was made by the Income-tax Officer to Hanuman Jute Mills, Calcutta, as per the letter addressed to it, a copy of which is furnished at page 87 of the paper book and the query is the following :
" Whether, purchase orders regarding the goods sold to Messrs. Goyal Trading Co., Kanpur, itself or by someone else on their behalf. Please give the exact name and address of the party who placed the order for the goods supplied by you to Messrs. Goyal Trading Co., 53/1, Nayaganjj Kanpur, during the period April 1, 1988, to March 31, 1989 ?"
60. In answer to the said query Shree Hanuman Jute Mills Ltd., had furnished the following reply, a copy of which is furnished at page 88 of the paper book filed by the assessee :
" Two xerox copies of contracts for jute goods of the East India Jute and Hessian Exchange Ltd., Calcutta, for contracts entered into with the above party for supply of goods through the brokers as mentioned in the contracts."
61. A photostat copy of the contract is given at page 90 of the paper compilation. This will show that the assessee, namely, Messrs, Goyal Trading Co., had ordered 18,000 pieces of A-Twill bags at Rs. 1,040 per 100 bags through the licensed broker, namely, Ashok Kumar Pawan Kumar, on November 25, 1988. So the jute mills which supplied the A-Twill bags under the contract did not whisper anything about any of the four Calcutta parties. If really the purchase order of the Calcutta party was actually taken by the assessee-firm with a promise to give the difference of price then the name of anyone of the four Calcutta parties should have been mentioned either in the contract which the jute mills had entered into or its name should have been stated by the broker at least who should state that at the instance of one of the Calcutta parties it had placed orders with the jute mills. If really the purchase order obtained by the Calcutta party was purchased on behalf of the assessee, then the rate would have been different from what is stated in the contract entered into by East India Jute and Hessian Exchange Ltd., Calcutta. However, the contract clearly disclosed that it was purchased only at Rs. 1,040 per 100 bags.
62. According to the assessee's version in the following eight instances, the difference between the contractual amount and the actual amount paid to the jute mills on the date of delivery of goods was paid to Messrs. Ram Kishan Kanhaiya Lal, Messrs. Ganga Ram Ashok Kumar, and Messrs. Tribeni Technocom Ltd. In the proceedings before the Commissioner of Income-tax (Appeals) on the application filed by the assessee to receive additional evidence, the matter was referred to the Income-tax Officer for verification. Then enquiries were made from the jute mills/suppliers of Calcutta who actually supplied the jute bags to the assessee on these eight dates. As per the books maintained by the jute mills/suppliers of Calcutta, the names of the brokers through whom the goods were sold to the assessee were quite different in the following eight instances. In any event, Messrs. Ganga Ram Ashok Kumar, Calcutta, and Messrs. Tribeni Technocom Ltd., Calcutta, were not the brokers through whom the jute mills supplied the jute bags. The names of the brokers are quite different. In this connection, the Income-tax Officer had furnished annexure "A" to his report dated December 21, 1990. Column No. 4 in the chart showed the name of the party to whom the difference was purported to have been paid by the assessee, whereas column No. 5 in the chart showed the name of the broker through whom the goods were sold to the assessee by the mills/ suppliers. Annexure "A" to the report of the Income-tax Officer dated December 21, 1990, is made as annexure "A" to this order. As can be seen from the above chart, the names mentioned in column 4 are the persons to whom the difference was said to have been paid by the assessee whereas column No. 5 disclosed the names pf the brokers through whom actually the sales of the jute bags were sent to the assessee by the jute mills/ suppliers. After finding the above discrepancy, the Income-tax Officer in his enquiry report dated December 21, 1990, submitted the following at paragraph 2 of his report :
" 2. Enquiries made from the jute mills/suppliers of Calcutta who actually supplied the jute bags to the assessee and in respect of which huge amount of difference was paid to the four parties of Calcutta have revealed that they had sold goods through brokers other than those to whom the aforesaid amount of difference was paid. A-chart as per annexure "A" enclosed herewith, clearly depicts that the amount of difference was paid by the assessee to persons who were neither the sellers' broker nor the assessee's agents. Column 4 of the chart shows the name "of the party to whom the difference was paid by the assessee whereas column 5 shows the name of the broker through whom the goods were sold to the assessee. Transactions mentioned at serial Nos. 3 and 8 were effected through East India Jute and Hessian Exchange Ltd., Calcutta, and in those cases there was a direct contract between the assessee and the broker concerned and the transaction was regulated through East India Jute and Hessian Exchange Ltd., Calcutta. It is thus not clear as to how Messrs. Ganga Ram Ashok Kumar, Calcutta, and Messrs. Triveni Technocom Ltd., Calcutta, came into the picture and were paid difference amounting to Rs. 45,000 and Rs. 43,200, respectively. "
63. Further, it is the case of the assessee that they entered into forward contracts after they conducted bargain sale/purchase. However, when enquiries were made from the East India Jute and Hessian Exchange Ltd., Calcutta, they wrote a letter dated December 14, 1990, whereby they have specifically mentioned that they were not aware of any system of bargain of sale/purchase in the jute trade. They have further mentioned that the only recognised system is forward trade in raw jute and jute goods regulated under the Forward Contracts (Regulation) Act, 1952, wherein delivery of goods is effected 11 days after the date of the contract. This according to the Income-tax Officer goes against the assessee's version of having made the purchases from four parties of Calcutta two months before the actual delivery of goods was effected.
64. At page 21 of the paper book filed by the assessee, we find a certificate said to have been issued by Messrs. Ram Kishan Kanhaiya Lal. However, it is significant to note that the said certificate is undated. There is no telephone number of the alleged commission agent. There is no sales tax registration number also mentioned in the certificate. At page 26 is a similar certificate said to have been issued by Messrs. Abhishek Company, Calcutta, as having sold 18,000 bags to the assessee on August 29, 1988, at Rs. 1,290 per 100 bags. This certificate also was not dated. No sales tax registration number was also present. At pages 23 and 24 are confirmation certificates purported to have been given by Tribeni Technocom Ltd. of having entered into bargain with the asses see-firm and agreed to supply A-Twill gunny bags at Rs. 1,594 and Rs. 1,342 per 100 bags. A perusal of these documents would also reveal that they are undated. Their telephone numbers were not there. Their sales tax registration numbers were also not there. Having regard to the above the genuineness of the four Calcutta parties to whom the difference of Rs. 7,38,000 was purported to have been made was seriously doubted by the Income-tax Officer. Thus a survey of the material which is produced before the Commissioner of Income-tax (Appeals) while he had taken up the appeal hearing would show that the nature of the evidence produced was not conclusive but appears to have been open to doubt. Further, one of the partners of the assessee-firm, namely, Shri M. C. Goel, was examined under section 131 of the Income-tax Act. In his examination, he had, admitted that his firm has been having contracts for the supply of A-Twill jute bags to Messrs. Basti Sugar Mills, Basti and Walterganj, since the last 15 years. The said sugar mill entered into written agreements with the assessee-firm for purchase of A-Twill jute bags from the assessee. A specific question was put as to when the said sugar mills were its old customers for the last 15 years, why did not the assessee order the jute mills of Calcutta in advance to supply A-Twill jute bags ; the answer given is that the jute mills of Calcutta do not accept advance bookings. Then another specific question was put as to how in such circumstances, the four Calcutta parties could have placed advance orders on the Calcutta mills. For that question, no answer could be given.
65. Under section 19 of the Indian Partnership Act, the act of a partner which is done to carry on, in the usual way, business of the kind carried on by the firm, binds the firm. The version given in the above examination by Shri M. C. Goel was with regard to the usual trade carried on by the assessee-firm and, therefore, it binds the firm. The version given by Shri M. C. Goel must be taken to be an admission on the part of the assessee-firm, namely, that the jute mills of Calcutta do not enter into forward contracts for supply of A-Twill jute bags. This version was also .supported by the further evidence elicited in the enquiries held by the Income-tax Officer with the jute mills themselves in which it is elicited that the only forward contract which the jute mills entered into is to supply the jute bags only 11 days in advance but not beyond that. So in view of the admission of the partner of the firm and in view of the evidence subsequently obtained by the Income-tax Officer it would appear that the version that the assessee had entered into forward contracts 2-3 months in advance does not appear to be credible.
66. Under the above circumstances, what is the duty cast upon the Tribunal ; should it necessarily act upon the half baked evidence secured into the record or is it entitled to remand the case for full enquiry especially when the enquiry conducted by the Income-tax Officer in the appeal proceedings is not complete. In this connection, the learned Departmental Representative cited the following decisions in support of his contention that from the facts and circumstances of this case, the order of the learned Accountant Member is fully justified and the remand of the case to the ' Income-tax Officer for further .investigation is fully justified under law :
1. Hukumchand Mills Ltd. v. CIT [1967] 63 ITR 232 (SC) ;
2. Smt. Thakuri Devi v. CWT [1983] 139 ITR 271 (All) ;
3. CIT v. Rane (Madras) Ltd. [1978] 112 ITR 241 (Mad) ;
4. CED v. Smt. Leelabhai Deodhar [1982] 134 ITR 536 (MP) ;
5. Jeypore Timber and Veneer Mills Pvt. Ltd. v. CIT [1982] 137 ITR 415 (Gauhati) ;
6. A. N. Transports v. CIT [1990] 185 ITR 134 (Ker) ;
7. V. D. Swami and Co. Pvt Ltd. v. CIT [1984] 146 ITR 425 (Mad) ;
8. Nusli N. Wadia v. Asst CWT [1993] 203 ITR (AT) 26 (Bom).
67. The above authorities were cited in addition to the following three case laws mentioned by the Accountant Member in his order, namely :
1. CIT v. Kanpur Coal Syndicate [1964] 53 ITR 225 (SC) ;
2. Kapurchand Shrimal v. CIT [1981] 131 ITR 451 (SC) ;
3. CIT v. Indian Express (Madurai) Pvt. Ltd. [1983] 140 ITR 705 (Mad).
68. The above cases were cited generally in support of the contention that the Tribunal has got full powers to remand the case for further enquiries and fresh disposal in fitting circumstances. It is quite unnecessary to deal with all the case law, since nobody can question the authority or the powers of the Tribunal to remand the case. However, I wish to cite the decision of the Gauhati High Court in Jeypore Timber and Veneer Mills Pvt. Ltd, v. CIT [1982] 137 ITR 415 since it is quite elucidating and found instructive on the question at issue. The Gauhati High Court had held that the implied power of the Tribunal to remand the case was read in Section 254(1). However, the power of the Tribunal to remand a case has been put beyond any shadow of doubt in rule 28 of the Rules which their Lordships extracted as below (at page 423) :
"28. Where the Tribunal is of the opinion that the case should be remanded, it may remand it to the authority from whose order the appeal has been preferred or to the Income-tax Officer, with such directions as the Tribunal may think fit.
It must form an opinion judiciously and thereafter it can exercise the power of remand. A detailed reason may not be given in the decision. The exact nature of the remand order to be passed in a given case is a matter within the absolute discretion of the Tribunal, but the power being judicial, it must be exercised judiciously, according to rule and not according to humour the order must be legal and regular, disciplined as opposed to capricious. A capricious or impetuous order of remand is an abuse of the discretionary power conferred on the Tribunal. When such a discretionary order is made by a Tribunal, a high-powered authority, the presumption ought to be that it was a disciplined and responsible exercise of power. The grounds of such exercise of power may appear either from the order or the reasoning of the Tribunal in the decision rendered by it or in an appropriate case implicitly from the decision rendered by it in the background of the contentions raised before it. If the Tribunal decides to remand, taking a view of the case, but an alternative view or other views might exist for not remanding the case, in our opinion, the exercise of the power of the Tribunal should not be disturbed. If the effect of the order of remand is not injurious to the parties, the order should not be disturbed."
69. The learned Departmental Representative further contended that at pages 11 to 17 of the third paper book filed by the assessee, it had provided some confirmatory letters of the brokers of the jute mills. At page 11 is one such confirmatory letter given by B. L. Thard and Co. At pages 12 and 13 also the confirmations were given by B. L. Thard arid Co. In the confirmations, the said company had stated that it had entered into purchase, of A-Twill jute bags on behalf of Messrs. Tribeni Technocorn Ltd., Calcutta, vide contracts dated December 12, 1988, December 23, 1988, and December 23, 1988. At page 14 is the confirmatory letter issued by Sitaram Farmania and Sons. It had stated in the letter that it had purchased A-Twill jute bags 90 B/S on behalf of Tribeni Technocorn Ltd., Calcutta, vide contract dated December 20, 1988. However, on their instructions, the contract and subsequently the bills were raised on Messrs. Goel Trading Co., the assessee. At page 15 is a confirmatory letter given by Morgan India Company. It had stated in the confirmation that it had purchased 90 B/S of A-Twill jute bags for and on behalf of Tribeni Technocom Ltd., Calcutta, from Shri Hanuman Jute Mills Ltd., vide their contract dated January. 19, 1989. At page 16 is the confirmation of Ashok Kumar Pawan Kumar in which it is stated that it had purchased 45 bales of A-Twill bags from Vijay Shree Ltd. for and on behalf of Tribeni Technocorn Ltd., Calcutta, vide contract dated January 13, 1989. However, or their instructions, the contract and subsequently the bills were raised on the assessee and the payments were also made by their commission agent, Messrs. Hissaria Brothers, Calcutta. At page 17, the confirmation was given by Prem Chand Gupta who certified that 90 bales of A-Twill jute bags were purchased from Messrs. Kalanauria International, Calcutta, for and on behalf of Messrs. Tribeni Technocorn Ltd., vide contract dated February 7, 1989. As can be seen from the above confirmations, they were all obtained in favour of Messrs. Tribeni Technocom Ltd., Calcutta, who is one among the four Calcutta parties. With regard to the other three Calcutta parties to whom the difference was paid they did not secure any confirmations of the brokers. Further, it is significant the learned Departmental Representative contended that all the contracts referred to in the confirmations referred to above speak about the contracts having been entered into after December 12, 1989. However, according to the version of the assessee, the purchase orders should have been placed in August, 1988, itself. Therefore, by the confirmations now produced at pages 11 to 17 of the third paper book, the case of the assessee does' not advance to any extent whatsoever. On the other hand, the confirmations now produced would be of no relevance whatsoever since they do not speak about the purchase orders obtained by any of the four Calcutta parties in August, 1988. There is no evidence whatsoever produced on behalf of the assessee that the brokers of the four Calcutta parties placed any orders to purchase jute bags in August, 1988.
60. At pages 104 and 105, the assessee provided the contract for jute goods. The contract is dated February 7, 1989, it would appear that Prem Chand Gupta was the broker through which the purchase was made. Messrs. Kalanauria International was the mill from which the purchases were made. The quantity purchased was stated to be 36,000 bags. The quality is satisfied as A-Twill bags. The purchase was stated to have been made on behalf of Messrs. Goel Trading Co., Kanpur, the assessee. The terms and conditions of this contract were stated at page 105. Condition No. 3 at page No. 105 shows that it is not a forward bargain but it was a bargain for ready delivery. What is meant by ready delivery is stated as meaning a contract which provides for the delivery of goods and the payment of the price therefor either immediately or within such period not exceeding 11 days after the date of the contract.
61. Now, the case of the assessee is that they entered into forward contracts in August, 1988, for getting supplies from the last week of September onwards. So the model contract which is provided at pages 104 and 105 does not advance the case of the assessee since it does not spell out a forward contract at all. Thus the learned Departmental Representative says that there are several aspects which are to be enquired into by the Income-tax Officer and, therefore, the order of the learned Accountant Member is correct.
62. On behalf of the assessee, the learned chartered accountant contended as follows :
Regarding admissibility of evidence before the Commissioner of Income-tax (Appeals), the learned Judicial Member in his order stated that the additional evidence was all correctly admitted and the said finding of the learned Judicial Member was not dissented from by the learned Accountant Member. He submitted that the assessee's transactions with Hissaria Brothers are not in dispute. The assessee paid one per cent. commission. Through Hissaria Brothers, the assessee made purchases worth Rs. 60 lakhs in the year of account. From the four Calcutta parties, the Income-tax Officer enquired. The assessee clearly stated during enquiry stage that the directors, or partners of the four Calcutta parties are nowhere related to the assessee. Tribeni Technocom Ltd. is a private limited company and Ganga Ram Ashok Kumar is a partnership-firm. The assessee had accepted tenders for supply of gunny bags from two units of the same mill, namely, Basti Sugar Mills, Basti, and Basti Sugar Mills, Walterganj. On September 14, 1988, under one of the tenders, the assessee accepted to supply 1,42,000 bags from October, 1988, to December, 1988, and under another tender accepted on October 8, 1988, the assessee-firm agreed to supply 1,96,000 bags to the sugar mills mentioned above from January to March, 1989. The four Calcutta parties are income-tax assessees. Their confirmed copies of accounts in the books of Hissaria Brothers furnished at pages 2 to 5 of the first paper book of the assessee. Excepting Messrs. Tribeni Technocom Ltd., all other parties responded to the notices and confirmed the transactions, Regarding Tribeni Technocom Ltd., the information could not become available as their address had not been correctly mentioned there. During the course of proceedings in appeal, the said position was duly clarified, vide their letter dated March 26, 1990 (copy appearing at page 22 of the paper book). Along with the said letter not only the detailed confirmation of account was given by them they have mentioned their P. A. No. also and gave copy of acknowledgment for filing the return for the assessment year 1989-90 (copy appearing at page 25 of the paper book). Thus, the identity of all the four Calcutta parties to whom the disputed payments have been made by Messrs. Hissaria Brothers have been fully established. None of the payees was related to the assessee as stated in the narration of facts, which stood fully corroborated from the confirmation of the parties themselves. The case law referred to by the learned senior Departmental Representative is not applicable in the instant case. Since none of the three situations mentioned below is obtaining in this case, namely, (a) additional evidence was sought to be produced before the Income-tax Appellate Tribunal, or (b) there was lack of material on record, for a particular pleading/issue, or (c) where the findings have been given without considering the material on record, the issue according to learned counsel for the assessee, is fully covered by the decision of the Third Member in the case of Raj Kumar Jain v. Asst. CIT which is reported in [1994] 208 ITR (AT) 22, 38 (All). The question which cropped up in the cited ease is similar to the one which cropped up from the facts of this case. It is clarified by learned counsel for the assessee that the assessee did not make any payment to the brokers. It had made payment only to the four Calcutta parties and that too through its agent, Messrs. Hissaria Brothers, and such payments are fully verifiable from the records of the payees. The assessee relied upon the Third Member decision in the case of Nusli N. Wadia v. Asst. CWT [1993] 203 ITR (AT) 26 at 28 (Bom). It was argued that in Nusli N. Wadia v. Asst. CWT [1993] 203 ITR (AT) 26 (Bom), the learned Third Member held that in a case which was decided by the Tribunal in that case a strong suspicion hovers around and over the arrangement of the assessee's affairs, then there is every necessity to remove the suspicion. However, he submits that in the present case, before us, there is not even a whisper of suspicion at arty stage to the effect that money paid by the assessee had come back to it. Learned counsel for the assessee distinguished Hukumchand Mills' case [1967] 63 ITR 232 (SC) from the present case. In the case before the Supreme Court, an additional ground raised by the Department was admitted and it is in that context that findings were given about the powers of the Tribunal. However, in the instant case, there is no additional ground by the Department before the Tribunal. Again learned counsel for the assessee distinguished the case of Smt Thakuri Devi v. CWT [1983] 139 ITR 271 (All) by stating that that was a case of an appeal filed by the partners against penalty. The Appellate Assistant Commissioner had accepted some of the. contentions of the assessee after taking into consideration the fact that no penalty had been imposed in the case of the firm. There was no evidence to show the circumstances in which penalty has been cancelled in the case of the firm and it was precisely to ascertain these facts that the case was remanded. However, in the instant case, there was no allegation that the Commissioner of Income-tax (Appeals) had considered or taken into consideration any fact which was not being confronted to the Department. Similarly, he tried to distinguish the case of V.D. Swam and Co. Pvt Ltd. v. CIT [1984] 146 ITR 425 (Mad), stating that in that case, the assessee claimed payment of gratuity and it was pleaded before the Income-tax Appellate Tribunal that the said claim was allowable in view of the relevant Act of West Bengal. The matter was sent back since it required a fresh decision in the light of the provisions of that Act. The case of Jeypore Timber and Veneer Mills Pvt. Ltd. v. CIT [1982] 137 ITR 415 (Gauhati) was also sought to be distinguished stating that when additional evidence is produced before the Tribunal, it can accept it and if the document presented before it requires an enquiry and verification, the matter be remanded. However, in the instant case, no such additional material or evidence is placed before the Tribunal. Distinguishing the case of A. N. Transports v. CIT [1990] 185 ITR 134 (Ker), it was argued that there was paucity of material for allocation of income and it was for this reason that the matter was remanded. Similarly distinguishing Gunvantlal Keshavlal v. CED [1982] 134 ITR 533 (Guj), it was argued that before the Tribunal in that case the assessee referred to some entries in Municipal records to show that the property was held by somebody else by way of adverse possession. It was in this context that the Tribunal thought it fit to direct for looking into the matter afresh. However, in the case of the assessee, there is no such material like municipal records, etc. In CIT v. Rane (Madras) Ltd, [1978] 112 ITR 241 (Mad), the facts necessary for determination of the matter were not there on record and hence remand has been justified. However, in the instant case, the view expressed by the Accountant Member amounted to initiation of fresh investigation and, therefore, it should not be applied.
63 .Learned counsel for the assessee submitted that suspicion, however strong, cannot supplant proof and for this purpose, the following case law is cited :
1. CIT v. Orissa Corporation Pvt. Ltd. [1986] 159 ITR 78 (SC) ;
2. Kazan Lal Roop Chand v. CIT [1967] 65 ITR 488 (All) ;
3. Sheo Narain Duli Chand v. CIT [1969] 72 ITR 766 (All).
64. He also cited the case of the Punjab and Haryana High Court in CIT v. Metal Products of India [1984] 150 ITR 714 and the case of J. S. Parkar v. V. B. Palekar [1974] 94 ITR 616 (Bom) for the proposition that the rigours of the Evidence Act are not applicable while administering the Income-tax Act. Thus I have completely gone through the record as well as heard the arguments of both sides. I agree with the conclusions reached by the learned Accountant Member. My reasons briefly are the following :
As already stated above, during the appeal proceedings before the Commissioner of Income-tax (Appeals) at least two applications were filed on behalf of the assessee under Rule 46A of the Income-tax Rules to admit additional evidence. So also even the learned Commissioner of Income-tax (Appeals) suo motu called for the particular evidence to be filed by the assessee. Though no doubt all the evidences which are produced ultimately were referred to the Income-tax Officer for his comments, as already discussed above, the Assessing Officer stated that the investigations conducted by him were not complete, For instance, out of the 14 transactions, he could hold enquiry for about eight transactions only by contacting the manufacturers/suppliers of the jute goods at Calcutta. With regard to the other six sale instances, he was not able to conduct the enquiries. Further, even the evidences produced before the learned Commissioner of Income-tax (Appeals) were not of a conclusive nature. For instance, in the certificates purported to have been given by the four Calcutta parties to whom the difference of Rs. 7,38,000 was purported to have been paid, there are so many omissions. For instance, in none of the certificates, the sales tax number was mentioned. Their telephone numbers were also not mentioned. The dates of the certificates also were not mentioned. By those omissions even the identity of the parties who purported to have been passed the certificates come into a serious doubt. Therefore, since the material ultimately secured or which was present with the Commissioner of Income-tax (Appeals) is neither wholesome nor decisive and since the evidence is only half-baked, there is every necessity A for further investigations to establish the identity of the four Calcutta parties to enquire into whether they have actually received the difference of Rs. 7,38,000, whether they are entitled to receive that amount and incidentally to also know what is the ultimate destination of the money.
Further enquiries are very essential. In this regard the Gauhati High Court decision in Jeypore Timber and Veneer Mills P. Ltd. v. CIT [1982] 137 ITR 415 which is already extracted above is very instructive and it applies to the facts of the present case. I, therefore, agree with the learned Accountant Member and his decision.
65. The matter should go before the regular Bench and they should decide according to the majority opinion.
annexuee "A"
Income-tax Appeal No. 1157/(All) of 1991 Assessment year 1989-90 Sl. No. Amount of debit note/Date Amount paid to concerned jute mill/Name of jute mill Amount of difference/paid to Name of the broker through whom goods purchased (1) (2) (3) (4) (5)
1. Rs. 2,59,182 22-10-1988 Rs. 2,24,537 Messrs. Hoogly Mills Project Ltd., Calcutta Rs. 32,400 Messrs. Ram Kishan Kanhaiya' Lal, Calcutta.
Messrs.
Kumar Kumar, Calcutta Ashok Pawan
2. Rs. 2,59,182 22-10-1988 Rs. 2,24,537
-do-
Rs. 32,400 Messrs. Ganga Ram Ashok Kumar Calcutta.
-do-
3. Rs. 2,58,547 1-12-1988 Rs. 2,11,433 Messrs. Sri Hanu-
man ]ute Mills Ltd., Calcutta Rs. 45,000 Messrs. Ganga Ram Ashok Kumar Calcutta Messrs.
Kumar Kumar, (through Jute and Exchange Ltd.) Ashok Pawan Calcutta East India Hessian
4. Rs. 2,50,6125-1-1989 Rs. 1,96,447Messrs. Cheviot Co. Ltd., Calcutta Rs, 52,200Messrs. Triveni Technocom Ltd., Calcutta Messrs. B. L. Thard and Co., Calcutta
5. Rs. 2,50,35215-1-1989 Rs. 1,90,845Messrs. Ganges Manufacturing Co, Calcutta Rs. 57,600-do-
Messrs. Sita Ram Farmania and Sons, Calcutta
6. Rs. 2,50,3535-14989 Rs. 1,90,845Messrs. Ganges Manufacturing Co., Calcutta Rs. 57,600Messrs. Triveni Technocom Ltd., Calcutta Messrs. Sita Ram Farmania and Sons, Calcutta
7. Rs. 2,50,89324-1-1989 Rs. 2,02,072Messrs. Hoogly Mills Project Ltd., Calcutta Rs. 46,800-do-
Messrs. Banwari Lal Thard and Sons, Calcutta.
8. Rs, 2,51,0758-2-1989 Rs. 2,05,817Messrs. Shri Hanu-man Jute Mills Ltd., Calcutta Rs. 43,200-do-
Messrs. Morgan India Co. (Through East India Jute and Hessian Exhange Ltd., Calcutta).