Punjab-Haryana High Court
Commissioner Of Income Tax vs Kulwant Singh & Co. on 2 September, 1997
Equivalent citations: (1998)146CTR(P&H)669
JUDGMENT
N. K. AGRAWAL, J. :
This is a petition under s. 256(2) of the IT Act, 1961, by the CIT seeking a direction to the Tribunal to refer the following two questions of law to this Court for opinion :
"(1) Whether, on the facts and in the circumstances of the case, learned Tribunal is right in law in deleting the addition of Rs. 2,60,000 made by AO and confirmed by CIT(A) on account of unexplained credits in the capital accounts of partners ?
(2) Whether, on the facts and in the circumstances of the case, learned Tribunal is right in law in deleting the addition of Rs. 3,75,000 made by the AO and confirmed by the CIT(A), on account of fraudulent debit of licence fee in books of account on 30th August, 1988, and 31st August, 1988, as against actual payment on 28th March, 1988, 30th March, 1988 and 31st March, 1988 ?"
2. The respondent-firm, M/s Kulwant Singh & Co., L-14A, Chowk Kishanpura, Jalandhar, derived income from the sale of country liquor under L-14A licence. Return was filed, declaring income of Rs. 13,780 for the asst. yr. 1989-90 (year ending on 31st March, 1989). Income was, however, assessed on Rs. 7,08,000 under s. 143(3) of the IT Act, after making three additions as under :
Rs.
"(i) Addition in the trading account :
59,225
(ii) Addition on account of unexplained discrepancies in the payment of licence fee.
3,75,000
(iii) Addition on account of unexplained and ingenuine credits in the capital accounts of the partner.
2,60,000 The controversy raised in the present application, seeking reference, relates to the addition of Rs. 3,75,000 and, therefore, other additions are not required to be discussed here.
The assessee had shown the following three amounts by way of licence fee for the year relevant to the asst. yr. 1989-90 :
Rs.
(i) 28th March, 1988 1,00,000
(ii) 30th March, 1988 1,75,000
(iii) 31st March, 1988 1,00,000 Total 3,75,000 The petitioner had claimed the deduction of aforesaid amount in this year and, therefore, the AO disallowed the deduction of the aforesaid payment on the ground that the money was actually paid in the preceding year i.e., before 1st April, 1988. The assessee had shown the payment in August 1988, i.e., in this year.
The CIT upheld the addition but in second appeal the Tribunal deleted the same.
3. Shri R. P. Sawhney, learned senior counsel for the Department, has argued that the assessee had actually made certain interpolation in the dates in the challan of the licence fee. The amounts were not paid by the assessee to the Government in the month of August, 1988, but these were wrongly shown as having been paid in that month in the books of account.
4. Shri N. K. Sud, learned counsel for the assessee, has argued that money was actually paid by Kulwant Singh, partner of the firm, with 1/3rd share. The firm had come into existence on 1st April, 1988, whereas licence had been obtained before the beginning of the current financial year. Kulwant Singh had deposited an amount of Rs. 3,75,000 with the Government after making withdrawal from the account books of another firm, M/s Kulwant Singh & Co., Jalandhar. The assessee-firm recorded entries in its books of account crediting Rs. 3,75,000 in the account of Kulwant Singh on 1st April, 1988, and crediting AETC account on that day by the same amount. In the month of August, 1988, the amount of Rs. 3,75,000 was paid by the firm to Kulwant Singh and, therefore, the money was debited to his account. The corresponding entry was made in the AETC account. Thus, the account of Kulwant Singh, partner, and the AETC account were squared up by making adjustment entries. It was for that reason that the amount of licence fee was claimed as deduction in the current year. Shri Sud has argued that there was no forgery made by the assessee either in its books of account or in the challans. It was a method of accounting which was perfectly in order and there was no occasion to raise a suspicion about the payment of licence fee.
5. Looking to the facts of the case, it is apparent that, before the constitution of the partnership firm, a licence for the sale of country liquor was obtained by Kulwant Singh. The firm was constituted by Kulwant Singh and two other persons. Since money had been paid by Kulwant Singh to the Government by way of licence fee in the month of March, 1988, i.e., before the constitution of the partnership firm, necessary entries were recorded in the books of the firm on 1st April, 1988, crediting the amount so paid by Kulwant Singh to his account. The corresponding entries were made in the licence fee account (AETC account). The firm paid the amount to Kulwant Singh in the month of August, 1988, and thereupon corresponding entries were made in the two accounts, namely, account of Kulwant Singh and the licence fee account. Therefore, there appears no case giving rise to question of law. Since the assessee resorted to the system of accounting which was necessitated on account of advance payment of licence fee by the partner, the facts do not give rise to any question of law.
In the result, the application is rejected.