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Bhilai Motors Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMadhya Pradesh High Court
Decided On
Case NumberM.C.C. No. 25 of 1981
Judge
Reported in(1984)41CTR(MP)125
ActsIncome Tax Act, 1961 - Sections 40A(3) and 256(1)
AppellantBhilai Motors
RespondentCommissioner of Income-tax
Excerpt:
..... clause (j) of this rule provides that no disallowance shall be made where the assessee satisfies income-tax officer that the payment c mid not be made by a crossed cheque (i) due to exceptional or unavoidable circumstances, or (ii) because payment in the manner aforesaid was not practicable or would have caused genuine difficulty to the payee and also furnishes evidence to the satisfaction of the income-tax officer as to the genuineness of the payment and the identity of the payee. he has further to show that due to exceptional and unavoidable circumstances or because payment by cheque was not practicable cash payments. it was not the case of the assessee that these purchases were covered under any exceptional or unavoidable circumstances or by any of the circulars issued by the..........not pertain to the business of the assessee. the income-tax officer also added rs. 50,000 in the income on account of on money for out-of-turn supplies of tata mercedez benz chassis which were in short supply. the income-tax officer found certain irregularities in the books of account which supported his findings that the assessee was taking on money and not accounting for the same. he found that the assessee sold 30 vehicles out of turn in the year in question and earned rs. 2,000 per vehicle as on money. the assessee had in all sold 187 vehicles and the sale memos were not in serial order. although the assessee had sold 187 vehicles during the year, it was numbered up to 158 only making up the other sales memos by adding 1a, 2a, etc. the assessee did not produce the booking register.....
Judgment:

C.P. Sen, J.

1. At the instance of the assessee, the Income-tax Appellate Tribunal, Nagpur Bench, Nagpur, has referred the following questions of law for the opinion of this court under Section 256(1) of the Income-tax Act, 1961:

' 1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in sustaining the disallowance of Rs. 24,110 under Section 40A(3) of the Act ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in sustaining the disallowance of the motor car expenses to the extent of Rs. 15,621 ?

3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in vacating the orders of the authorities below with reference to the addition of Rs. 50,000 and in issuing a direction to the Income-tax Officer as detailed in para. 12 of the Tribunal's order?'

2. The assessee, M/s. Bhilai Motors, is a partnership firm dealing in Tata Mercedez Benz chassis vehicles and spare parts having its head office at Tatibandi, Raipur, and a spare parts shop at K.K. Road, Raipur. It has also a branch at Jagdalpur dealing in spare parts and a petrol pump at Tatibandi. The assessee showed income of Rs. 52,626 for the assessment year 1975-76 for the accounting year 1974. The Income-tax Officer added Rs. 34,396 under Section 40A(3) of the Income-tax. Act consisting of certain purchases on cash payments on bills exceeding Rs. 2,500. The only explanation was that the sellers were insisting on cash payments which was not accepted. The Income-tax Officer disallowed Rs. 15,621 towards motor car expenses. The Income-tax Officer, out of a total claim amounting to Rs. 58,116 towards car expenses, found that only Rs. 27,524 could be considered to be expenditure, out of which Rs. 9,175 was deducted as personal expenditure of the partners not incidental to the business of the firm and a sura of Rs. 6,086 did not pertain to the business of the assessee. The Income-tax Officer also added Rs. 50,000 in the income on account of on money for out-of-turn supplies of Tata Mercedez Benz chassis which were in short supply. The Income-tax Officer found certain irregularities in the books of account which supported his findings that the assessee was taking on money and not accounting for the same. He found that the assessee sold 30 vehicles out of turn in the year in question and earned Rs. 2,000 per vehicle as on money. The assessee had in all sold 187 vehicles and the sale memos were not in serial order. Although the assessee had sold 187 vehicles during the year, it was numbered up to 158 only making up the other sales memos by adding 1A, 2A, etc. The assessee did not produce the booking register and the original order forms. The Income-tax Officer found that in some cases the office copy of sale memos did not tally with the sale memos to the customers pertaining to a particular sale. It was also noticed that some of the vehicles were registered with the Regional Transport Authority before the date of their sale, no account books were maintained for the branches in the assessee's cash books and balances were not drawn daily but on alternate days and in pencil which has been finalised sometimes in ink. The Income-tax Officer assessed the income at Rs. 1,89,237.

3. The assessee preferred an appeal before the Commissioner of Income-tax (Appeals). The Commissioner found that out of Rs. 34,396 disallowed under Section 40A(3) of the Act, two purchases made on December 31, 1974, amounting to Rs. 10,277 on cash payment, could be accepted since it was a bank holiday and cash payment was justified. Regarding the remaining amounts, the explanation of the assessee that the sellers insisted on cash payments is not supported by any evidence, or even the confirmatory letters of the sellers were not produced to show that they were insisting on cash payments. Regarding the deduction of motor car expenditure, the finding of the Income-tax Officer was confirmed that these expenses did not pertain to the business of the assessee. Regarding-addition of Rs. 50,000 on account of on money received by the assessee by selling chassis out of turn to the customers, it was held to be unjustified. The Commissioner found that the discrepancy pointed out by the I ncome-tax Officer in the books of account of the assessee to be pretty serious but they do not in any way establish that the assessee was charging on money and the Income-tax Officer took upon himself the responsibility of proving something which is not possible to prove. The sale price realised by the assessee is fully verifiable, the assessee is not a small dealer or a grocer and the finding of the Income-tax Officer is based on surmises and conjectures and it cannot be sustained. Therefore, the addition of Rs. 50,000 was deleted and the Income-tax Officer was directed to revise the assessment accordingly.

4. On further appeal by the assessee to the Tribunal, a cross-objection was preferred by the department regarding deletion of income of Rs. 50,000 by the Commissioner on account of on money received by sale of chassis out of turn to the customers. The addition of Rs. 24,110 under Section 40A(3) of the Act was held to be justified. Though some of the bills on cash payments were less than Rs. 2,500 each, it was evident that the bills were split up in order to avoid the rigour of Section 40A(3) of the Act because the bills bore consecutive numbers, being purchases of the same date. Regarding disallowance of Rs. 15,621 in the matter of car expenses account, it has been found that the motor car was also used for the personal use of the partners and there was no material to controvert this finding. However, the Tribunal set aside the order of the Commissioner regarding deletion of income of Rs. 50,000 on account of on money received by the assessee by sale of chassis out of turn to the customers. The Income-tax Officer found several defects in the books of account of the assessee. The main piece of evidence which would establish whether the assessee was indulging in malpractices in supplying chassis to the customers is the booking register supported by the original order forms of the customers. These documents were not produced before the Income-tax Officer and the Commissioner and were, for the first time, produced before the Tribunal. On scrutiny of these documents, it was found that the assessee indulged in malpractices in supplying chassis to the customers and so the Income-tax Officer was fully justified in making addition on this ground. The observations of the Commissioner that the Income-tax Officer had undertaken an impossible task is not justified. In the circumstances, the Income-tax Officer was directed to ascertain the actual dates of the booking of the orders for various vehicles and whether the chassis were supplied to the customers in that chronological sequence. If it is found on scrutiny that the assessee had indulged in irregularity in the sales to the customers, it will be conclusive proof that the assessee had indulged in malpractices of charging on money on out-of-turn deliveries. In respect of these sales, if the assessee had shown even one day's favour to a customer over the previous customer, the Income-tax Officer would be justified in estimating suppressed profits. In the result, the appeal filed by the assessee was dismissed and the cross-objection of the Department was allowed. On an application being made for reference, the aforesaid questions have been referred to this court by the Tribunal.

5. Regarding the first question, Section 40A(3) of the Act provides that where the assessee incurs any expenditure in respect of which payment is made in a sum exceeding Rs. 2,500 otherwise than by a crossed cheque, such expenditure shall not be allowed as a deduction. However, the second proviso provides that no disallowance under this sub-section shall be made where any payment in a sum exceeding Rs, 2,500 is made, 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. The rigour of the section was fuither relaxed by framing Rule 6DD of the Rules. Clause (j) of this rule provides that no disallowance shall be made where the assessee satisfies Income-tax Officer that the payment c mid not be made by a crossed cheque (i) due to exceptional or unavoidable circumstances, or (ii) because payment in the manner aforesaid was not practicable or would have caused genuine difficulty to the payee and also furnishes evidence to the satisfaction of the Income-tax Officer as to the genuineness of the payment and the identity of the payee. According to Shri H. S. Shrivastava, learned counsel for the assessee, Section 40A(3) and Rule 6DD(j) have been misconstrued and purchases on cash payments even below Rs. 2,500 have been disallowed because there were a number of purchases on the same day and the total purchases for the day exceeded Rs. 2,500. He also submitted that the rigour of the section has been further relaxed by various circulars issued by the Central Board of Direct Taxes. It is not sufficient for the assessee merely to show that the purchases were genuine and the payees were identifiable. He has further to show that due to exceptional and unavoidable circumstances or because payment by cheque was not practicable cash payments. were made. The Commissioner has allowed two purchases made on December 31, 1974, which were made on a bank holiday, which is covered by the circular. Regarding the other purchases, the only explanation of the assessee was that the sellers were insisting on cash payments. No evidence was produced to substantiate this contention. It was not the case of the assessee that these purchases were covered under any exceptional or unavoidable circumstances or by any of the circulars issued by the Central Board of Direct Taxes. The Allahabad High Court in CIT v. Satish Chandra : [1983]143ITR330(All) has held that primarily the question whether a payment in cash exceeding Rs. 2,500 was made in exceptional circumstances was a question of fact. So the finding of the Tribunal is a finding of fact and no question of law arises.

6. Regarding the second question, the Tribunal has found as under : ' The next objection is to the disallowance of Rs. 15,621 in the motor ca'r expenses account. It is submitted on behalf of the assessee that the findings of facts recorded by the Income-tax Officer are contrary to the factual position involved and no element of personal nature was involved. The Income-tax Officer and the Commissioner of Income-tax have held that the motor car was used for the personal use of the partners. The assessee has not produced any material to controvert the findings of the lower authorities. We see no reason why the order of the Commissioner of Income-tax (Appeals) should be interfered with on this ground.'

7. This is a pure finding of fact and there is no question of law involved.

8. Regarding the third question, the learned counsel for the assessee contended that the Tribunal was not justified in reversing the finding of the Commissioner that the Income-tax Officer took upon himself the responsibility of proving something which was not possible to prove by holding that Rs. 50,000 was the income of the assessee made on account of on money for out-of-turn supplies of Tata Mercedez Benz chassis. According to the counsel, the Tribunal ought not to have based its conclusions on mere conjectures and surmises of the Income-tax Officer without any evidence but on suspicion [Dhakeswari Cotton Mills Ltd. v. CIT [1954] 26 ITR 775] and a criminal practice of selling at prices in excess of the controlled price cannot be attributed to the assessee in the absence of any evidence to show that the assessee followed such a practice [A.S. Sivan Pillai v. CIT : [1958]34ITR328(Mad) ] He further contended that the observations already made in this regard by the Tribunal left no scope to the Income-tax Officer to come to his own conclusion after the reconsideration of the matter and the Tribunal has made too sweeping a statement by concluding that if the assessee has shown one day's favour to a customer, the Income-tax Officer would be justified in estimating suppressed profits. We are unable to accept the contentions. The finding of the Income-tax Officer was based neither on surmises nor on conjectures nor on suspicion. He had drawn certain inferences in view of the serious irregularities found in the books of account of the assessee coupled with out-of-turn supplies to some customers when there was acute shortage of truck chassis. The Commissioner was not justified in brushing aside the finding of the Income-tax Officer on wrong premises even after finding that the irregularities in the assessee's accounts to be pretty serious and there have been out-of-turn supplies. The Tribunal, in fact, could have restored the finding of the Income-tax Officer but for the fact that the relevant documents, i.e., the booking register and the original order forms, were for the first time produced by the assessse only before the Tribunal and so the case has been remanded, giving fresh opportunity to the assessee to rebut the inferences drawn and to further enable the Income-tax Officer to re-examine the matter in the light of these basic documents. The Tribunal has kept at large the whole matter before the Income-tax Officer, no final conclusions have been reached, but only guidelines were drawn for the Income-tax Officer in case a set of circumstances are found against the assessee. It would be open to the assessee to explain how and why 30 vehicles were supplied out of turn. However, the concluding observation of the Tribunal that even for one day's favour shown to a customer, the Income-tax Officer would be justified in estimating the suppressed profits is too wide. It is doubtful if for one day's out-of turn supply of a chassis, a customer would pay substantial on money. So this observation is not conclusive on the Income-tax Officer. What the Tribunal wanted to convey was that there cannot be even one day's out of turn supply without some valid reason and it is for the assessee to explain the same. So no question of law arises.

9. Accordingly, we refuse to answer the questions since no question of law arises from the statement of the case submitted by the Tribunal. There shall be no order as to costs.


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