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G.W. Lawrie and Co. Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Allahabad
Decided On
Judge
Reported in(1983)4ITD273(All.)
AppellantG.W. Lawrie and Co.
Respondentincome-tax Officer
Excerpt:
1. the assessee has preferred this appeal against the order dated 22-2-1978 of the aac, who partly allowed the appeal against the order dated 23-3-1977 of the ito.2. we are disposing of this appeal as ex parte since the assessee failed to appear on the date of hearing of the appeal in spite of the service of the notice of the date fixed for hearing of the appeal on 11-9-1979 without sufficient cause and reason when the hearing of the appeal was adjourned to 11-9-1979 vide the order dated 2-8-1979 of the tribunal on the request of the assessee ; so much so that neither there is telegram or application for further adjournment.3. the relevant facts leading to this appeal are that the assessee is a registered firm. it filed the return of total income for the accounting period ended on.....
Judgment:
1. The assessee has preferred this appeal against the order dated 22-2-1978 of the AAC, who partly allowed the appeal against the order dated 23-3-1977 of the ITO.2. We are disposing of this appeal as ex parte since the assessee failed to appear on the date of hearing of the appeal in spite of the service of the notice of the date fixed for hearing of the appeal on 11-9-1979 without sufficient cause and reason when the hearing of the appeal was adjourned to 11-9-1979 vide the order dated 2-8-1979 of the Tribunal on the request of the assessee ; so much so that neither there is telegram or application for further adjournment.

3. The relevant facts leading to this appeal are that the assessee is a registered firm. It filed the return of total income for the accounting period ended on 30-6-1974 relevant for the assessment year 1974-75 showing therein income of Rs. 45,109 and thereby claimed deduction for the payment of commission amounting to Rs. 60,743 to Photo Colour Co., Lucknow (the recipient company).

4. The ITO asked the assessee to justify the payment of the aforesaid commission to the recipient company.

5. The assessee offered the explanation vide its written reply dated 18-3-1977 wherein it stated that the recipient company was a registered firm which was assessed to tax, separately ; that the amount of commission paid was in terms of an agreement entered with it ; that the payment had been made for ,,the services rendered by the recipient company to the assessee ; that the deduction for payment of the aforesaid commission to the recipient company was allowed in the years 1972-73 and 1973-74 respectively.

6. The ITO did not accept the said claim of the assessee as the explanation offered by the assessee was unsatisfactory and unjustified.

So, he disallowed the claim and thereby added a sum of Rs. 60,743 to the income of the assessee on the pleas that the payment of commission to the recipient company was not at all justified and it was not for the purpose of business and would be of other than business consideration ; that the argument that it had been allowed for earlier years did not hold good and the doctrine of res judicata did not apply to the income-tax proceedings, observing as under: After having considered the explanation of the assessee and the terms and conditions on which the commission has been paid to them, I am of the view that the payment of commission to Photo Colour is not at all justified and not for the purpose of business and will be of other than business consideration. The argument that it had been allowed in earlier years does not hold good and the doctrine of res judicata does not apply to income-tax proceedings. Photo Colour is a recipient firm consisting of the following partners: The first two partners are wives of the partners of this firm. The third partner, Shri C. L. Bhargava, who has a nominal share in the firm Photo Colour is also a partner in this firm. The work of Photo Colour is stated to be procurement of orders on which commission was being paid at 2 per cent and subsequently increased to 5 per cent.

The assessee does the work of monocartons from Mohan Meakin Breweries Ltd., Lucknow. The orders are not being procured from different individuals at different places in which any special attempt is needed. The special orders like that of Mohan Meakin Breweries Ltd. can be procured by the partners' own efforts and I do not see any reason/justification in taking the orders through another firm in which one of the partners and relatives of other partners are partners. Further, the books of the assessee show an opening balance of Rs. 1,50,890 in the account of Photo Colour and the payment made during the year amounts to only Rs. 31,565. This shows that the so called commission credited to this account is not being paid to the firm regularly and no interest is being paid on the outstanding balance. This also castes shadow of doubt on the genuineness of the commission payment. So far as the agreement is concerned, I am of the opinion that as both the parties are common and interested and related to each other, they can draw any agreement for diverting the profits of the firm with a view to avoid proper taxation. This agreement has no valid sanction and is not acceptable. Thus, the amount paid as commission to Photo Colour is not for business consideration nor it is justified by any business expediency in this case. The commission paid is much more than the profit earned by the assessee. I, therefore, add back this amount to the total income of the assessee.

7. The assessee went in appeal before the AAC who upheld the action of the ITO and confirmed the aforesaid disallowance of Rs. 60,743 made by the ITO, observing as under: I have given my anxious thoughts to the submissions made by the learned counsel for the appellant and I have also gone through the records of the case. I find that the ITO's action was fully justified in making the said disallowance and for this finding, apart from the reasonings given by the ITO in the order, I add the following reasoning supporting my finding.

As far as the form of transaction is concerned, probably the form is complied with and probably that might support the appellant's case but considering the substance of the transactions the allowance cannot be made. Each year is a separate entity under the Income-tax Act and in each year it has to be shown that the payment (sic) for the business considerations. For this year it is noted that the firm to which the payment has been made and the appellant firm have some of the common partners and even those persons which are not common are intimately connected and related with each other. Shri C. L.

Bhargava is only male member in the recipient firm and the other partners of the recipient firm are ladies. It is not on record whether any significant role was played by those lady partners of the recipient firm, it is significant that Shri C.L. Bhargava holds one-third share in this firm and he has decided to work in the recipient firm at 6 per cent share of profits only. This underlines the ITO's view that this payment is simply a diversion of income so that the income rate of Shri C.L. Bhargava should not shoot up very high. It is not known whether the commission paid was commensurate with the profits earned by the assessee on the orders alleged to have been received through the recipient firm. In view of the relationship existing amongst the partners of both the firms, in view of the excessive payments, I hold that the claim was not allowable. The payment also appears to be farce because the amount due to the recipient firm goes on piling up in the books of the appellant firm as can be seen from the fact that there was opening balance of Rs. 1,50,890 in this year. For these reasons as well as for the reasons given by the ITO not much of credence can be attached to the agreement and, therefore, the disallowance is confirmed. The point is decided against the appellant.

8. The assessee being aggrieved and dissatisfied with the order of the AAC, has preferred this appeal.

9. We are not having the benefit of assistance from the assessee or his counsel and, as such, we have to look the memorandum of appeal and the same is reproduced hereinafter: 1. The learned AAC of Income-tax erred on facts and in law in confirming the addition of Rs. 60,743 representing commission paid to Photo Colour (firm) during the present year, which is on old accepted basis and which have always been allowed as a valid deduction in the past years.

2. On the facts stated in the statement of facts already filed before the learned AAC of Income-tax and in the peculiar circumstances of the present case the learned AAC ought to have held that the entire payment of Rs. 60,743 representing commission paid to Photo Colour was a deductible expenditure particularly when the following commissions were paid to Photo Colour and also allowed as a deductible expenditure by the income-tax authorities after enquiry and due consideration: --Commission claimed 96,496.81 60,427.68 60,743Commission allowed 96,496.81 60,427.68 Nil 3. The learned AAC's present order cannot be said to be a speaking order as much of what has been stated in the appeal does not find any mention in the body of order.

4. Without prejudice to the aforesaid grounds the disallowance of Rs. 60,743 made and confirmed by the learned AAC is very highly excessive and contrary to facts and laws of natural justice.

10. From the memorandum of appeal, it is clear to us that the assessee has reiterated the same stand which was taken by it before the authorities below ; while on the other hand, Shri Chandra Bhushan has contended that the impugned order is justified and merited no interference.

11. We have heard Shri Chandra Bhushan and gone through the record of the case.

12. We are of the opinion that the assessee .should fail and its appeal is to be dismissed.

13. The reason is that the authorities below have given the assessee proper or reasonable opportunity of being heard and its explanation and contentions and submissions are rejected by the authorities below by assigning cogent and relevant reasons. There is neither any fresh contentions or submissions or material before us on the basis of which we may be in a position to interfere with the findings of the AAC ; rather the assessee has reiterated the same stand vide its memorandum of appeal which was there before the AAC who met it on assigning convincing and relevant reasons with which we not only agree but also adopt in concluding that the claim for the deduction for payment of commission to the recipient company amounting to Rs. 60,743 is unjustified ; since the explanation offered by the assessee for the claim is unsatisfactory and unjustified and was rightly rejected by the ITO and the AAC.14. Apart from it, as the each assessment year is an independent assessment year and the revenue is within its right to part with the past record of the case because the principles 6f estoppel or res judicata are not applicable to the cases of proceedings under the Income-tax Act, 1961 ('the Act'), and it rightly parted with it as there is no material on the record for the year under consideration to bring it on the assessment year I973.74. So much so that even the copy within past record of the explanation is not filed but merely assessment that explanation is the same as in the past.

15. Besides, there is no proof on the record that the recipient company rendered services to the assessee that entitled the said commission agreed upon and, as such, the assessee was bound to make payment regarding the aforesaid commission ; hence is entitled to claim for the payment of the said commission; rather the recipient company consists of only one male member and others are lady members who are closely related to the partners of the assessee-firm, and as such it was for the assessee to prove its claim as well as that the contract was there and acted upon in the year under consideration.

16. In view of our above discussions and totality of the facts and circumstances of the case, we hold that the explanation offered by the assessee for the aforesaid claim was unsatisfactory and unjustified and that authorities below were justified in rejecting it so much so that the AAC has rightly confirmed the disallowance made by the ITO for the claim for deduction for the amount of Rs. 60,743 for payment of commission to the recipient company by the assessee ; as the recipient company has neither rendered any service for its claim nor the assessee proved that it rendered service and the payment of commission is for the services rendered for business purposes to the assessee by the recipient company ; hence, we confirm the order of the AAC as we do not see any infirmity or illegality in it.

1. I have gone through the order of my learned brother, the Hon'ble Judicial Member II. As I am not able to persuade myself to agree with his reasoning and conclusions, I am writing a separate order as below.

2. The assessee-firm had entered into an agreement with Photo Colour, Lucknow on 2-9-1969. The preamble of the said agreement clearly states that: Whereas Photo Colour has been able to obtain work order for Mono Cartons from Mohan Meakin Breweries Ltd., Lucknow on certain terms and conditions and hope to obtain more such orders, and whereas Photo Colour desires the work to be executed through G.W. Lawrie & Co. on certain terms and conditions, and whereas G.W. Lawri & Co.

have agreed to undertake the execution of such work orders taken by Photo Colour on the terms and conditions agreed between the aforesaid two parties.

Photo Colour will procure and obtain orders for supply of cartons, labels and other items of printing and packaging material with their efforts and such orders will either be in their own name or in the name of G.W. Lawrie & Co. or any other names as may be decided upon.

Photo Colour were to be paid commission at 2 per cent on bills 'raised by G.W. Lawrie & Co. up to 31-8-1970 on supplies made to the parties on the orders procured by Photo Colour' and at 5 per cent on 'bills raised' after 1-9-1970.

3. It is common ground that this agreement has been acted upon, and that on its basis Photo Colour did procure orders for the assessee, and the latter did pay to the former commission at the stipulated rates all along, and that the department did not question the arrangement in any of the earlier years, i.e., in respect of the assessment years 1970-71 to 1973-74. In fact, as the assessee emphasized payments as high as Rs. 96,496.81 and Rs. 60,427.68 were allowed as commission in respect of the assessment years 1972-73 and 1973-74 and it was never the department's case in those years that the arrangement was either a sham or prompted by extra-commercial considerations. The constitutions of the two firms in those years were similar to those as obtained in the year under consideration, and yet the revenue had never suggested that the arrangement was collusive and aimed at diverting the assessee's income.

4. What has then happened during the year under consideration to stage a volte face Are there any new factors or new pieces of evidence to warrant a departure from the established and admitted position The record of the ITO shows that the following query was put to the assessee on this subject on 31-1-1977 through order sheet: This query was replied to by the assessee by making the following submissions: Photo Colour, Lucknow is a registered firm and they are assessed in B-Ward, Cir. I. The commission has been paid in terms of an agreement entered with us. There has been no change in the nature or rate of commission. This issue has already been discussed in earlier years, i.e., 1972-1973 and 1973-74 and our explanation and submission for this payment are the same as in the previous years.... The commission has been paid for exclusive services rendered by them this year also.

5. After considering the above reply of the assessee, the assessment was completed on 23-3-1977--no further material or evidence is on record. Thus, the true position is that on identical facts and bearing identical submissions, the ITO has changed his position and has justified it by quoting the maxim that the principle of res judicata does not apply to the income-tax proceedings. This may be true, and yet the fact remains that the established positions are not disturbed and departed from unless there are change either in fact or in law or in reasoning. In this case, it appears to me that there is change in respect of none of the above factors. Therefore, I see no justification to make a departure this year from the stand taken by the revenue earlier prove that Photo Colour did not render the services contracted for. They have been rendering services in the earlier years, there is an assertion from the assessecthat they rendered the services this year. There is no contradiction from the revenue of this stand, nor did it ever ask the assessee to prove if services were rendererd by Photo Colour. Once the contracted services have been rendered the contracted for payment has to be made. If payment is made for genuine services, it does not amount to diversion of profit. How an assessee will manage its affairs has to be left to it--it is not for the revenue to run its business. What it has to ensure is that the arrangement is genuine and real and is in fact acted upon. In the present case, the authorities below have placed no evidence on record to prove that the facts stated in it are not correct or that the terms of it have not been acted upon.

In the circumstances, it is hardly material that the partners of the two firms are inter-related. That may be so, but in law there is no prohibition against the relatives doing business inter se. The agreement specifically stipulates that Photo Colour have obtained contracts from Mohan Meakins. There is nothing on record to show that it was no so. Once it is shown that Photo Colour got the contracts from Mohan Meakins, it was open to get them executed through the firm of their choice. They chose the assessee-firm for this purpose. There is nothing abnormal or wrong in it. For passing on these contracts, they are bound to ask for payment. Not asking for it would be unnatural, not asking for it. It is not the case of the authorities below that the payments are excessive and they have not invoked Section 40A(2) of the Act for this purpose. As such, I am of the opinion that the disallowance of commission is not justified. I, therefore, delete the years, and that too without giving to the made out against it. (sic) The main burden of the ITO's reasoning is (1) that Photo Colour consists of partners who happen to be wives of two of the partners of the assessee-firm, and the third partner is partner in the assessee-firm also, (2) that the business procured is of Moban Meakin Breweries only and that this could be procured by the partners of the assessee-firm and there was no justification in taking the orders through another firm, and (3) that the books of the assessee show an opening balance of Rs. 1,50,890 in the account of Photo Colour and the payment made during the year amounts only Rs. 31,565. This shows that the so called commission credited to this account is not being paid to the firm regularly and no interest is being paid on the outstanding balance. This also casts shadow of doubt on the genuineness of the commission payment, (4) that "as both the parties are common and inter-related to each other, they can draw any agreement for diverting the profits of the firm".

The true position in law is that the apparent is real, unless proved to the contrary. It is the averment of the ITO that there is collusion that the genuineness of commission payment is under a 'shadow of doubt', that the partners of the firm themselves could have procured the business from Mohan Meakins and that there was no need to take the help of Photo Colour. Was any opportunity given to the assessee to make its submissions on these points Was it faced with any evidence supporting the above inferences Is there any evidence on record to support these inferences or they are mere impsi dixit of the ITO To me it appears that there is no evidence on record whatsoever to addition made and allow the appeal.

1. The above case has been referred to me by the President of the Tribunal under Section 255(4) of the Act, as there was difference of opinion between the two members, who had earlier heard the appeal: 2. I may briefly narrate the facts of the case. The assessee had entered into an agreement with Photo Colour, Lucknow on 2-9-1969. The relevant clauses of this agreement are as under: (1) That Photo Colour will procure and obtain orders for supply of cartons, labels and other items of printing and packaging material with their efforts and such orders will either be in their own name or in the name of G.W. Lawrie & Co. or any other names as may be decided upon from time to time.

(2) That all such orders obtained with the efforts of or by Photo Colour in the names noted above shall be passed on for the execution to G.W. Lawrie & Co. only, whereas job of such nature which cannot be executed by G.W. Lawrie & Co. will be passed on to other parties.

Photo Colour were to be paid commission at the rate of 2 per cent on bills raised against the assessee up to 31-8-1970. The commission was raised to 5 per cent on the bills raised after 1-9-1970.

3. Photo Colour procured orders to the following extent in the respective years: Commissions paid to Photo Colour in the above years were also duly allowed in the case of the assessee by the ITO. However, I will refer only to the assessment years 1972-73 and 1973-74, in particular, as these assessment orders have also been commented upon in the respective orders of the learned members who had heard the appeal. In the assessment year 1972-73, the assessee was specifically required to prove its claim with regard to the payments of commission amounting to Rs. 96,496.81. The assessee gave a detailed reply on 6-2-1973 justifying its claim. It was stated that Photo Colour was a partnership, which dealt in supplies of packaging material of all types with its Head Office at 4, Lal Bagh, Lucknow, that Photo Colour had entered into an agreement with the assessee for offset printing jobs for which they were remunerated by payment of commission at specified rates, that the payment to Photo Colour was strictly in accordance with the terms of the agreement entered into on 2-9-1969 and finally that the commission paid was either low or reasonable keeping in view the practice in the trade. The assessee also produced before the ITO entire correspondence beginning from 22-5-1969 onwards to 29-12-1969 to prove the genuineness of the agreement referred to above. On the basis of the above detailed reply, the ITO passed the following order: The assessee has submitted that he had to pay commission because the orders were actually procured by Photo Colour and this is a business expenditure. It has further been argued that the rate of commission is 5 per cent and is reasonable under the agreement. I have considered the assessce's argument and I feel that due to special circumstances this year, as discussed above, no addition to the Trading Account is called for.

4. A similar enquiry was made in the assessment year 1973-74, and the assessee's claim was accepted by the ITO himself to the extent of Rs. 60,427.68 paid as commission to Photo Colour.

5. Tn the assessment year 1974-75, which is now under consideration before us, the ITO vide an entry in the order sheet on 31-1-1977 again required the assessee to justify the payment of commission to Photo Colour. The assessee vide his letter dated 18-3-1977 gave the following reply: Justification of commission paid to Photo Colour: Photo Colour, Lucknow is a registered firm and they are assessed in 'B' Ward, Circle II. The commission has been paid in terms with an agreement entered with us. There has been no change in the nature or rate of commission. This issue has already been discussed in earlier years, i.e., 1972-73 and 1973-74 and our explanation and submission for this payment are the same as in the previous year. Copy of agreement is attached herewith for your kind verification. The commission has been paid for the exclusive services rendered by them this year also.

6. The ITO, however, did not accept the claim of the assessee. He observed that the payment to Photo Colour was not at all justified and was also not for the purpose of the business of the assessee as it was made for consideration other than those relating to the business of the assessee. He also observed that the contention that the claim had been allowed in the earlier years did not hold good as the principle of res judicata did not apply to income-tax proceedings. He then gave his own reasons for not allowing the commission, which are as under: 1. That the firm of Photo Colour consisted of two lady partners and one male partner, namely, Shri C. L. Bhargava. The lady partners were the wives of the partners of the assessee-firm, while Shri C. L. Bhargava was also a partner in the assessee-firm.

2. That the orders were secured only from Mohan Meakin Breweries Ltd., which could be procured with the efforts of the partners of the assessee-firm itself and that there was no reason or justification in securing the orders through another firm in which the relatives of the partners were interested.

3. That the agreement dated 2-8-1969 had no sanctity as the partners of the two firms, who were inter-related, could draw any such agreement for diverting the profits of the assessee-firm with a view to avoid proper taxes.

The ITO also made certain comments about the actual payment of the commission to Photo Colour. We may straightaway reject this contention as from the copy of account of Photo Colour as appearing in the assessee's books of account and as included on page 14 of the paper book shows that regular payments from time to time have been made to them. With the above observations, the ITO disallowed the claim of the assessee for payment of commission of Rs. 60,743 to Photo Colour of Lucknow. His finding was upheld by the AAC. He merely, reiterated the arguments and observations made by the ITO.7. The assessee then came in appeal to the Tribunal. The learned Judicial Member confirmed the findings of the lower authorities mainly for the following reasons as contained in para 15 of his order: Besides, there is no proof on the record that the recipient company rendered services to be assessee that entitled the said commission agreed upon and, as such, the assessee was bound to make payment regarding the aforesaid commission ; hence is entitled to claim for the payment of the said commission ; rather the recipient company consists of only one male member and others are lady members who are closely related to the partners of the assessee-firm and as such it was for the assessee to prove its claim as well as that the contract was there and acted upon in the year under consideration.

8. The learned Accountant Member passed a separate and dissenting order. He was of the view that there was no fresh evidence on record to warrant a departure from the established and admitted position, namely, that Photo Colour had been rendering services to the assessee as per the agreement dated 2-9-1969, and that the arrangement entered into between the assessee and that concern was neither sham nor was prompted by extra commercial considerations, He observed that on identical facts and bearing identical submissions, which were available in the assessment years 1972-73 and 1973-74, in which years the assessee's claim had been admitted, the ITO had changed his position and had justified the disallowance by relying on the principle of res judicata as not applicable to the income-tax proceedings. According to him yet the fact remained that the established positions were not disturbed and departed from unless there was change either in facts or in law or in the reasoning. According to him, there was no change in respect of either of the above factors and, therefore, departure from the past practice was not called for and that too without giving the assessee an adequate opportunity of meeting the case on various issues. He then commented upon the findings of the ITO and observed that there was no evidence to any such inferences as was done by the ITO. According to him, there was no evidance to prove that Photo Colour had not rendered the services contracted for and further it was not for the revenue to tell the assessee how it was to run its business. He also held that the authorities had placed no evidance on record to prove that the agreement dated 2-9-1969 was either sham or not genuine or that its terms had not been acted upon further according to him, the relationship of the partners inter se was immaterial in deciding the issue as in law there was no prohibition against the relatives doing business inter se. He also observed that the ITO had not invoked the provisions of Section 40A(2). He was finally of the view that the commission was an allowable deduction.

9. As there was difference between the two learned members, the following question has beer referred to me for my opinion: Whether, on facts and in the circumstances of the case, the AAC was justified in sustaining the disallowance of commission of Rs. 60,743 paid by the assessee to Photo Colour in terms of its agreement with the said firm, dated 2-9-1969 10. I have heard the parties. The learned counsel for the assessee first took me through the findings given by the ITO in the assessment years 1972-73 and 1973-74 and then through the explanation submitted by the assessee in the assessment year under appeal. He also referred to the agreement dated 2-9-1969. He then pointed out that Photo Colour had been procuring orders from time to time, i.e., regular orders were procured by it and that it was not the case of the department that there was one single order with a view to divert any part of the assessee's income. With the help of the above evidence, he submitted that there was an agreement between the parties, that it had been acted upon, that Photo Colour had rendered services to the assessee since 2-9-1969 and that it was also entitled to commission. The learned counsel also referred to the decision of the Bombay High Court in the case of H.A. Shah & Co. v. CIT [1956] 30 ITR 618 and contended that although the doctrine of res judicata or estoppel by record did not apply to the decisions of income-tax authorities, yet a previous finding or decision of such an authority could be re-opened or departed in subsequent years only in the following circumstances, namely: (c) if fresh facts come to light which on investigation would entitle the officer to come to a conclusion different from the one previously reached.

The Court also observed that in the absence of such circumstances, the ITO could not arbitrarily depart from the findings reached after due enquiry by his predecessor in office simply on the ground that the succeeding officer did not agree with those findings. According to the counsel, in the light of the above test the ITO could not depart from the earlier findings as the decision of the ITO arrived at in the assessment years 1972-73 and 1973-74 was after due enquiry and that it was not arbitrary and further no fresh facts had come to light, which could entitle the ITO to take a different view. He also referred to the decision of the Allahabad High Court in Jaswant Sugar Mills Ltd. v. CIT [1970J 78 ITR 154 that a commission was allowable, if there was termination of the selling agency agreement if the validity of the agreement was not in dispute and it remained in force at all material times.

11. The learned departmental representative, on the other hand, submitted that it was for the assessee to prove in which years whether it was entitled to the deduction of a particular expenditure, inasmuch as the principle of res judicata had no application to the income-tax proceedings. He next submitted that on the facts as found by the ITO or those discussed by the learned Judicial Member in his order the claim of the assessee could not be admitted. He also submitted that procurement of the orders from time to time also did not go to show that Photo Colour had actually obtained those orders and had rendered any services to the assessee. According to him, a mere agreement also did not establish rendering of any services.

12. I have carefully considered the submissions placed before me. I am inclined to agree with the finding of the learned Accountant Member. I have already traced the history of the case in some detail and have shown that the assessee's claim was admitted at least in the assessment years 1972-73 and 1973-74 after full enquiry. In its explanation dated 18-3-1977 quoted above, the assessee had again explained its position and had stated that Photo Colour was a registered firm, that it was separately assessed and that the commission paid to it had beed allowed in the earlier years. The ITO did not bring any evidence on record, as pointed out by the learned Accountant Member, to take a different view.

As argued by the learned counsel for the assessee and as laid down by the Bombay High Court in the case of H. A. Shah (supra) the previous decision of the ITO had been arrived at after due enquiry that it was not arbitrary and that no fresh facts had come to light, which on investigation would entitle the ITO to come to a conclusion different from the one previously reached. In the absence of such circumstances, the ITO could not arbitrarily depart from the finding reached after due enquiry by his predecessor.

13. Even on facts I agree with the findings of the learned Accountant Member. Except doubting that the firm Photo Colour was not a genuine concern or that it had not rendered any services, there is no evidence on record to suggest that the services had not been rendered or that it was not genuinely constituted. The learned Accountant Member has rightly pointed out that there is no prohibition in law against the relatives doing business inter se. The ITO has not made any enquiry to find out whether the lady members were also actively engaged in the conduct of the business or that they were responsible for procuring the orders from time to time from Mohan Meakin Breweries Ltd. He has also made any enquiry from Mohan Meakin Breweries Ltd. I do not agree with the finding of the learned Judicial Member that there is no proof on the record to show that Photo Colour had not rendered any services to the assessee or that it was not entitled to the commission agreed upon.

I need not repeat here that such evidence was produced before the ITO in the earlier two years and after having been satisfied that the services had been rendered he had allowed the assessee's claim.

14. In the result, I agree with the findings of the learned Accountant Member and answer the question in the negative and in favour of the assessee.

15. The case will now go back to the Bench for passing the order in conformity with my above view.


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