High Court Of Delhi
CIT vs. Electric Construction Equipment Co. Ltd.
Sections 37, 37(1), 256(2)
Leila Seth & Arun B. Saharya, JJ.
ITC No. 129 of 1983
11th October, 1988
R.C. Pandey & K.K. Wadheral, for the Revenue : C.S. Aggarwal & Anil Sharma, for the Assessee.
BY THE COURT :
The CIT, by this application under s. 256(2) of the IT Act, 1961, prays that the Tribunal be directed to state a case and refer the following three questions of law pertaining to the asst. yr. 1971-72 for the opinion of this Court :
” 1. Whether, on the facts and in the circumstances of the case, there was any evidence before the Tribunal to hold that the sum of Rs. 6,80,850 paid to six parties as commission was expended exclusively for the purpose of the business and was thus an allowable deduction under s. 37(1) of the IT Act ?
Whether, on the facts and in the circumstances of the case, the Tribunal had erred in ignoring the material evidence on record, collected by the ITO during the course of the assessment proceedings, in coming to the conclusion that the commission payments made by the assessee to six parties represented genuine payment to these parties ?
Whether, on the facts and in the circumstances of the case, the finding of the Tribunal that the six parties had rendered services for earning commission is perverse having regard to the evidentiary material ?”
The assessee is a public limited company engaged in the manufacture of certain electrical goods which it supplies mainly to the State Electricity Boards. It claimed certain deductions as commission payments.
The ITO held that commission payments of Rs. 6,80,850 was not expended wholly and exclusively for the purpose of the business and as such were not deductible.
The assessee appealed to the CIT and contended that the initiation of proceedings under s. 147 (a) of the IT Act, was invalid ; it also challenged the finding regarding disallowance of the sum of Rs. 6,80,850. The CIT held that the assessee had not disclosed fully and truly all material facts and as a result of the non-disclosure, income chargeable to tax had escaped assessment. Consequently, it upheld the initiation of proceedings under s. 147(a) of the IT Act. The CIT also confirmed the disallowance of the entire amount of Rs. 6,80,850.
The assessee preferred an appeal against both these findings to the Tribunal. The Tribunal upheld the validity of the initiation of proceedings under s. 147(a) of the IT Act. However, on the question of merits, the Tribunal examined the matter in great detail with regard to the payment of commission to six parties totalling Rs. 6,80,850. Thereafter, it came to the conclusion that the commission paid to each of the six parties was genuine and that the expenditure had been laid out wholly and exclusively for the purpose of the business.
Consequently, the CIT moved an application under s. 256(1) of the IT Act, for referring the above mentioned questions for the opinion of this Court. On January 13, 1982, the Tribunal rejected the reference application as it was of the view that the conclusion of the Tribunal regarding the genuineness of the commission payments was arrived at after appraisal of the entire evidence and material on record and they were essentially findings of fact not giving rise to an interpretation of any legal principles.
It appears to us that the three questions which the CIT wants to be referred are basically different aspects of the same question. The first relates to whether there was any evidence before the Tribunal to come to the conclusion that the commission was expended exclusively for the purposes of the business ; the second relates to whether material evidence was ignored in coming to the conclusion that the commission payments were genuine and the third relates to whether the finding of the Tribunal that the six parties had rendered services for earning commission was perverse.
Mr. R. C. Pandey, learned counsel for the CIT, contended that the findings of the Tribunal are perverse as five of the six parties were not traceable and were not income-tax assessees. He also contended that there is no proof that services were rendered, and since bank accounts were opened in places far away from the given addresses and amounts withdrawn and accounts closed thereafter, the genuineness of the transactions was in dispute. There is no doubt that if there was no evidence before the Tribunal to come to the conclusion that the payments made as commission to the six parties were genuine and expended exclusively for the purposes of the business, the findings of the Tribunal would be perverse. However, we find from the order of the Tribunal that it has dealt with each of the six cases separately and in detail. It has also dealt with the general argument of the parties and has examined the correspondence exchanged between the assessee and the commission agents. It has noticed that the payments were made by account payee cheques and drafts which were cleared through banks. It has also noticed that the total amount of deduction claimed as commission was Rs. 10,17,288 and the ITO doubted the genuineness of only Rs.6,80,850. Dealing with the commission paid to Emjay Trading Co., an income-tax assessee, the Tribunal held that the genuineness of the payment could not be doubted as it was clearly proved that it had been paid and had been included by the payee in its profit and loss account.
The Tribunal rejected the observations “that since public sector undertakings place orders through tenders, there is absolutely no necessity for securing the services of a middleman”. In fact, it observed that such “services become necessary for several purposes such as passing information to the assessee about the likely demand for their goods by the purchasers, helping the assessee in submitting tenders, to prepare, submit, follow and to inform at all stages the position of tenders and to help the assessee in getting the payments from buyers and also in case of dispute to get the matter settled”.
After considering all the material, the Tribunal came to the conclusion that the payments made to the six parties were genuine and that the expenditure had been laid out and expended wholly and exclusively for the purposes of the assessee’s business.
These findings are based on, inter alia, the correspondence between the parties and are findings of fact. This is not a case of no evidence. The Tribunal is the final fact- finding authority, and, if there is some evidence to support the Tribunal’s findings, it cannot be a case of perversity. No interpretation of any legal principle is involved.
Consequently, we reject the application, but make no order as to costs.
[Citation :182 ITR 510]