Income Tax Appellate Tribunal - Mumbai
Nirfabrics Ltd. vs Deputy Commissioner Of Income-Tax on 20 May, 1994
Equivalent citations: [1994]50ITD336(MUM)
ORDER
T.V.K. Natarajachandran, Vice-President
1. This is an appeal by the assessee, which is directed against the revisional order of the Commissioner of Income-tax under Section 263 of the Income-tax Act, 1961 dated 20-3-1989.
2. The assessee has raised a specific ground vide ground No. 1 challenging the jurisdiction of the Commissioner of Income-tax and three other specific grounds challenging the merits of the revisional order of the Commissioner.
3. The assessee is a resident company. The assessment year involved is 1984-85 for which the accounting year ended on 30-6-1983. Against a loss of Rs. 74,631 returned by the assessee, the Assessing Officer determined the loss at Rs. 7,52,029. While completing the assessment, the Assessing Officer is said to have not properly enquired into the expenditure of Rs. 1,04,139 on conveyance and commission and brokerage paid at Rs. 6,81,186 on sales promotion. Further, the assessee has paid bonus at the rate of 20% though on account of loss sustained only the minimum bonus of 8.33% was payable under the Payment of Bonus Act under Section 36(1)(ii). As these claims were not properly enquired into by the Assessing Officer, the Commissioner of Income-tax concluded that the assessment order under Section 143(3) made on 30-3-1987 was erroneous and prejudicial to the interests of the Revenue. After observing the due process of law and taking into account the submissions made on behalf of the assessee, the Commissioner of Income-tax held that the question whether hiring of private taxis only would be covered by the provisions of Section 37(3B) or even engaging public taxis would also be covered by the aforesaid section requires to be investigated and verified. Even the payment of commission and brokerage is required to be considered with reference to the relevant scheme under which such expenditure was incurred and the terms and conditions under which the commission and brokerage was paid. As regards bonus, the existence of allocable surplus was required to be verified so as to justify the payment of bonus exceeding 8.33%. Failure on the part of the Assessing Officer to make the relevant enquiries and apply the law on these points rendered the assessment erroneous and prejudicial to the interests of Revenue. Therefore, the Commissioner of Income-tax set aside the assessment order and restored the matter to the file of the Assessing Officer for passing fresh order in accordance with law, after giving the assessee reasonable opportunity of being heard.
4. At the time of hearing, none appeared on behalf of the assessee nor any petition was filed for adjournment. Therefore, the appeal is decided ex parte on the basis of the record and submissions of the learned D.R.
5. The learned D.R. has vehemently supported the revisional order of the Commissioner of Income-tax both on jurisdiction and on merits of the case.
6. After due consideration of the record and the submissions of the learned D.R., we hold that the Commissioner of Income-tax was not justified in invoking his jurisdiction under Section 263 for setting aside the impugned order of assessment made by the Assessing Officer. According to the Bombay High Court in the case of CIT v. Gabriel India Ltd. [1993] 203 ITR 108, two circumstances must exist to enable the Commissioner of Income-tax to exercise the power of revision under Section 263, namely, the order proposed to be revised should be erroneous and by virtue of the order being erroneous, prejudice must have been caused to the interests of the Revenue. An order cannot be termed as erroneous unless it is not in accordance with law. The assessment order is framed by the Assessing Officer after he has exercised quasi-judicial powers vested in him in accordance with law and arrived at a conclusion and such conclusion cannot be termed as erroneous simply because the Commissioner does not feel satisfied with his conclusion. There is also a second requirement namely that the order is prejudicial to the interests of Revenue. Both these conditions must exist before the power of revision could be exercised. There must be in existence certain objective facts before the statutory power of revision could be exercised by the Commissioner of Income-tax. If the action of the revisional authority is challenged before the Court, it would be open to the court to examine whether the relevant objective facts were available on record, which were called for and examined by such authority. In the case of Gabriel India Ltd. (supra), the Commissioner of Income-tax even after initiating proceedings for revision and hearing the assessee could not say that the allowance of claim of the assessee was erroneous and that the expenditure was not Revenue expenditure but expenditure of capital nature. He simply asked the Assessing Officer to re-examine the matter which was not permissible in law. In the circumstances, the order of the Tribunal setting aside the order passed by the Commissioner of Income-tax under Section 263 was approved by the High Court.
7. In the instant case, the revisional order of the Commissioner of Income-tax itself clearly shows that the conveyance expenses incurred were spent on engaging public taxis because the staff of the company visited various clients for which taxis were used. There was also a categorical statement by the assessee that no amount has been spent on hiring private taxis. Engaging public local taxis did not amount to expenditure incurred for hiring of motorcars. For this purpose, the Explanatory Memo to the Finance Bill, 1983 was relied upon by the assessee.
8. Coming to the commission payment, the explanation of the assessee was that the commission or brokerage was paid for introducing business as agent for collecting payments and attending to various complaints. In other words, the commission was paid for procuring orders and collecting payments and attending to the public complaints. As regards payment of bonus at 20% it was explained that it was an annual feature of the business and it was paid as per the past practice and as per the understanding with the Employees' Union. In other words, the payment of bonus at 20% was customary or a normal annual feature.
9. The Commissioner of Income-tax has simply rejected the explanation offered by the assessee on the plea that everything requires to be verified. He has not given any categorical finding that the order passed by the Assessing Officer was erroneous in law. He has also not given a finding that the order passed by the Assessing Officer was prejudicial to the interests of Revenue. Without giving any positive findings that the impugned order passed by the Assessing Officer was erroneous and prejudicial to the interests of Revenue, he has given a finding that the explanation offered by the assessee requires to be cross-verified ignoring the legal provisions and the past practice of the business. In other words, instead of pointing out that the order passed by the Assessing Officer is erroneous in law or prejudicial to the interests of Revenue, he only wanted all the claims to be investigated and verified again. Therefore, prima facie, the order passed by the Commissioner of Income-tax is not justified because he simply asked the Assessing Officer to re-examine the matter afresh which is not permissible under Section 263. Following respectfully, the dictum of the Bombay High Court in the case of Gabriel India Ltd. (supra), we hold that the Commissioner of Income-tax was not justified in invoking the jurisdiction and revising the impugned order under Section 263 of the Income-tax Act, 1961.
10. Coming to the merits of the case, we find that the expenditure incurred on engaging public taxis (yellow top) is not covered by Section 37(3A) as held by the Tribunal Bench 'A', Bombay in the case of Urmila & Co. (P.) Ltd. v. ITO [I.T. Appeal No. 379 (Bom.)/87, dated 1-9-1991 and I.T. Appeal No. 380 (Bom.)/87, dated 29-7-1992]. In the memorandum explaining the provisions of the Finance Bill, 1983 vide 140 ITR (St.) 141 at page 156, it has been clarified that the expenditure incurred on chartering aircraft or hiring charges paid for engaging private taxis etc. would be taken into account for the purpose of disallowance under Section 37(3A). The words used "private taxis" are significant in contradistinction with the words "public taxis". Therefore, obviously, public taxis are not Contemplated by the provisions of Section 37(3A). The explanatory notes to Finance Act, 1983 vide circular No. 372 dated 8-12-1983 contained in Taxmann's Direct Taxes Circulars, Vol. 3 at page 962 at paragraph 34 shows the expenditure on chartering aircraft or the hire charges for engaging cars plied for hire are contemplated by Section 37(3A) read with (3B). The word used "cars" is significant in contradistinction to the words "public taxis". Further, Clause (ill of Sub-section (3) of Section 37 explains the Explanation referred to in Sub-section (3A) of Section 37 as that incurred on running and maintenance of aircraft and motor cars. The words "running and maintenance" are significant. In other words, the expenditure should be incurred both on "running" and "maintenance". This could be possible only in the eventuality of private motor cars are engaged on rental or lease basis whereby the running and maintenance expenditure are incurred thereon by the assessee. In the case of public taxis with yellow top, the question of maintenance expenses does not arise and could not have been contemplated by the statute. Therefore, the expenditure incurred on public taxis is not against law and as per clarification of law given above.
11. As regards payment of commission and brokerage, they cannot amount to sales promotion expenses per se. In any case, the Commissioner of Income-tax himself was not sure and left the matter for verification of the terms and conditions of the contract for payment of commission. The Calcutta High Court in the cases of CIT v. Hindusthan Motors Ltd. [1991] 192 ITR 619, CIT v. Bata India Ltd. [1993] 201 ITR §84 and CIT v. Statesman Ltd. [1992] 198 ITR 582 has held that commission and discount paid to the agents were in the nature of selling expenses and not sales promotion expenses. In other words, such payments were incidental to selling and not for promoting sales. In the light of the aforesaid rulings, the payment of commission and brokerage does not make the order of the Assessing Officer erroneous in law.
12. As regards bonus, the explanation offered by the assessee clearly shows that the payment of bonus at 20% is customary based on past precedent and with the understanding of labour union. The Commissioner of Income-tax has not given any categorical finding regarding the absence of allocable surplus to justify the payment of bonus at 20%. It is not anybody's case that there was no allocable surplus to justify the payment of bonus at 20%. Here also, there is no positive finding that the order passed by the Assessing Officer allowing the bonus is erroneous in law but left the matter for verification. Thus, even on merits of the case, the order of the Commissioner of Income-tax setting aside the assessment order is not justified in law and on the facts and circumstances of the case. Accordingly, we set aside the revisional order of the CIT both in respect of jurisdiction as well as on merits of the case and restore the order of the Assessing Officer.
13. In the result, the appeal is allowed.