Madhya Pradesh High Court
Commissioner Of Income-Tax vs Achal Alloys (P) Ltd. on 13 November, 1995
Equivalent citations: [1996]218ITR46(MP), 1995(0)MPLJ494
Author: S.B. Sakrikar
Bench: S.B. Sakrikar
JUDGMENT A.R. Tiwari, J.
1. This is an application under Section 256(2) of the Income-tax Act, 1961, seeking direction to the Income-tax Appellate Tribunal, Indore, to refer the case to this court arising out of its order dated September 9, 1993, passed in ITA No. 609/IND of 1990.
2. The facts lie in a narrow compass.
3. The Assessing Officer made an addition of Rs. 2,16,268 under Section 40A(3) of the Income-tax Act, 1961 (for short "the Act"). On appeal, the Commissioner of Income-tax (Appeals) deleted the addition on the conclusion that the payments were made under exceptional circumstances provided under the law. The Tribunal upheld the finding of the Commissioner of Income-tax (Appeals), by order dated September 9, 1993. The applicant (Commissioner of Income-tax, Bhopal), then filed the application, RA No. 290/IND of 1993, in connection with the aforesaid order for the assessment year 1987-88 seeking reference of the case to this court, but the Tribunal rejected the application by order dated December 12, 1994. The applicant has, therefore, filed this application in this court. By the aforesaid application, the applicant has proposed the undernoted two questions :
"1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in deleting the addition of Rs. 2,16,268 under Section 40A(3) made by the Assessing Officer ?
2, Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the capital subsidy received by the assessee is not deductible from the cost of assets for the purpose of depreciation allowance, when there is a nexus between the cost of the assets and the subsidy ?"
4. On hearing at the motion stage, learned counsel for the applicant did not press the aforesaid question No. 2, in view of the point settled by this court and the Supreme Court, but pressed the application as regards question No. 1. This court on hearing the submissions issued show-cause notice to the assessee-non-applicant on July 28, 1995.
5. We have heard Shri D.D. Vyas, learned counsel for the applicant, and Shri K.G. Maheshwari, learned counsel for the non-applicant, on the question of admission.
6. On appeal, the Commissioner of Income-tax (Appeals) deleted the addition made by the Assessing Officer under Section 40A(3) of the Act observing as under :
"The assessee in the case before us purchases scrap collected by small kabadies. The kabadies do not have bank account at the place of payment and also come from different places. In these circumstances, the Commissioner of Income-tax (Appeals) (sic) has rightly appreciated the assessee's nature of business and deleted the disallowance. After all, the provisions of Section 40A(3) are not revenue gathering Sections, but are intended to check the evasion of tax. The assessee in the material produced before us has produced the identity of the payee and also exigencies of business necessitating cash payment. Under these circumstances, in our view, the disallowance had rightly been deleted, we decline to interfere."
7. The aforesaid conclusion was upheld by the Tribunal. Section 40A(5) provides as under :
"Where the assessee incurs any expenditure in respect of which payment is made, after such date (not being later than the 31st day of March, 1969) as may be specified in this behalf by the Central Government by notification in the Official Gazette, in a sum exceeding ten thousand rupees otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft, such expenditure shall not be allowed as a deduction."
8. It contains the proviso as under :
"Provided further that no disallowance under this sub-section shall be made where any payment in a sum exceeding ten thousand rupees is made otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft, in such cases and under such circumstances as may be prescribed, having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors."
9. The Appellate Tribunal found that the genuineness of the payee has not been doubted by the Assessing Officer. It was found that the payment of the sum exceeding the limit was made under exceptional and unavoidable circumstances. Placing reliance on Porwal Udhyog (India) v. CIT [1982] 135 ITR 591 (MP) it was found that no disallowance was permissible.
10. Why should every exercise begin with mistrust or no trust ? In 1979, Ireland abolished wealth-tax, Germany, substantially lowered it. The U.S.A. cut capital gains tax and the U. K. reduced its maximum rate of personal tax from 83 to 60 per cent. In 1982, Sweden reduced its marginal rate of personal income-tax from 85 to 50 per cent. In this country, the Government purports to simplify the income-tax law but pursues the course, may be due to compulsions, in the opposite direction. The provision on hand is intended to destroy intentions of dealing with unaccounted moneys the purpose behind insistence on cross-cheque or cross-draft is to assure and ensure "genuineness" of dealing and proper assessment of taxable income. Even this provision has a proviso to mitigate the hardships.
11. We notice from the appellate order that the appellate authority found that all the purchases were duly entered in the register through inwards and the production has been accepted. It further found that the genuineness of the payment was not exposed to any doubt. Payments in cash were duly signed by the payees and the insistence on making the cash payments is founded on the fulcrum that the payees did not have any bank account and that, being illiterates, required the payment in cash.
12. The Tribunal was thus satisfied that no disallowance ought to be made in view of the facts and features fully covered by the proviso to the aforesaid section.
13. It is in the area of legislative ambiguities, yet not receding, that courts have to fill gaps, clear doubts and mitigate hardships. From the words of Judge Learned Hand, spoken in Cabell v. Markhan [1945] 148 F 2d 737, 739, we get enough light to locate the correct path.
"It is one of surest indexes of a mature and developed jurisprudence ... to remember that statutes always have some purpose or object to accomplish whose sympathetic and imaginative discovery is the surest guide to their meaning."
14. There is no doubt about the purpose or object of the relevant provision. To accomplish it, we cannot ignore the second proviso engrafted to fill gaps and mitigate hardships. The Tribunal on appreciation of facts applied this proviso and held that disallowance of payments made to the sellers and consequent addition of equivalent amount to the income as returned were steps hostile to the purpose and object and that the assessee was required to be given the benefit of such payments made in exceptional circumstances. Law lives on logic and as such illogicality, resting on technical view, is to be spurned.
15. This finding of fact, not shown to be perverse or perishable, reached by the Tribunal did not give, as held in CIT v. Ashoka Marketing Ltd. [1976] 103 ITR 543 (SC) and CIT v. Kotrika Venkataswamy and Sons [1971] 79 ITR 499 (SC), rise to any question of law and as such the Tribunal rightly rejected the reference application. Recourse to Section 256(2) of the Act is thus not justified and is acarpous.
16. In the circumstances, we find that the finding of the Tribunal is based on a proper appreciation of facts and does not give any rise to the question of law.
17. We are, thus, satisfied with the correctness of the view taken by the Appellate Tribunal. We accordingly reject this application summarily, but without any order as to costs.