1. We find it convenient to dispose of these five appeals relating to assessment years 1985-86, 1986-87 and 1987-88 by this consolidated order. For assessment years 1985-86 and 1986-87, there are cross-appeals by the assessee and the revenue. For assessment year 1987-88, the appeal is by the revenue. It has been stated before us that the assessee's appeal for assessment year 1987-88 is not pending before the Tribunal as none has been filed.
2. We have heard the rival contentions. For assessment years 1985-86 and 1986-87, the common controversy is relating to disallowance of commission. For assessment year 1985-86, the claim of commission was to the tune of Rs. 2,28,458 and for 1986-87, the claim of commission was Rs. 5,61,865. The commission was stated to have been paid on the sale of compressors. The assessee had furnished information regarding the supplies made in respect of which commission was paid and the parties to whom such commission was paid. The payment had been made by cheques and confirmations from the parties to whom commission was paid had also been furnished. The Assessing Officer made enquiries from the parties to whom assessee had sold compressors in respect of which commission was claimed to have been paid. The said purchasers gave in writing to the Assessing Officer that they had dealt with the assessee directly without there being any intermediary. After collection of the evidence from the purchasers, the Assessing Officer confronted the assessee with the material that was collected and asked the assessee to explain as to why commission may not be disallowed. The assessee made written submissions explaining the nature of service rendered by the parties and made a request to the Assessing Officer to summon parties by issue of notice under Section 131. In this connection, diet money was also offered to be deposited. The Assessing Officer did not issue any notices under Section 131 to the persons to whom commission was claimed to have been paid. On the basis of the information given by the purchasers, the Assessing Officer concluded that the assessee has failed to establish the fact of service having been rendered by the persons to whom commission was claimed to have been paid the disallowance of Rs. 2,28,458 was thus made for assessment year 1985-86 and of Rs. 5,61,865 for assessment year 1986-87. The assessee appealed to the CIT (A). The CIT (A) has set aside the issue to the file of the Assessing Officer with the direction to make independent enquiries with the agents to find about the truth or otherwise of the claim of the assessee. Reference has been made to the decision by the CIT (A) in the case of M/s. K.G. Khosla Compressors Ltd., a holding company of the assessee in which case also the CIT (A) has set aside the matter. It has been pointed out by the CIT (A) that in the case of M/s. K.G.Khosla Compressors Ltd. similar payments of commission had been allowed as a deduction whereas in the case of the assessee, the claim of commission had been disallowed for assessment year 1983-84 and moreover the parties to whom commission had been paid during assessment year 1983-84 are different than the parties involved in assessment years 1984-85 and 1985-86.
3. The assessee is aggrieved on the ground that when sufficient evidence had been furnished before the Assessing Officer, the CIT (A) should have allowed the claim and not remitted the matter to the file of the Assessing Officer giving him further time to make enquiries. The learned counsel contended that the assessee had explained the reasons for payment of commission and the service rendered by the parties to whom commission had been paid by means of cheques. The said parties are assessed to tax. They had confirmed the receipt of payments. Referring to the evidence collected by the Assessing Officer from the purchasers, the learned counsel contended that the purchasers had given their point of view regarding the agents of the assessee. As far as the purchasers are concerned, they did not appoint any agents and it was not necessary for the assessee to inform them about the agents having been engaged for procuring the orders. The Assessing Officer according to the learned counsel was duty bound to summon the parties for which a written request had been made by the assessee. According to Shri Vohra, the Assessing Officer having failed to issue notices under Section 131 to the parties, his action of disallowance of commission was unwarranted and the CIT (A) was not justified in setting aside the assessment. He should have according to the learned counsel deleted the addition. More so, for assessment year 1983-84, the Tribunal has deleted the addition made on similar grounds.
4. The learned Departmental Representative, on the other hand, contended that the decision of the CIT (A) is contrary to law in so far as the burden of proof has wrongly been held to be on the department.
The assessee had identified the parties to whom commission was stated to have been paid. The Assessing Officer had made enquiries from the purchasing parties in respect of which commission was stated to have been paid. The said parties had informed in writing that they had directly dealt with the assessee and that there was no agent in regard to the supplies made to them. The information collected by the Assessing Officer was confronted to the assessee. According to Shri Haldhar, the burden was on the assessee to rebut the evidence.
Moreover, it was for the assessee to establish the running of services and the Assessing Officer could not have issued notice under Section 131 as the parties to whom notices were required to be issued were living more than 250 kilometres away from the office of the Assessing Officer. Shri Haldhar further contended that the direction of the CIT (A) to make enquiries from the agents and to find out the truth of the claim of the assessee is erroneous as in this process, the burden has been rested upon the revenue. When in law, it is the assessee who is to establish the genuineness of the claim. Reliance was placed on the decision of the Hyderbad Bench of the Tribunal in the case of Drill Rock Engg. Co. (P.) Ltd. v. ITO  45 ITD 149 in support of the contention that the commission paid for undue influence is against public policy and not eligible for a deduction. It was accordingly urged that the order of the CIT (A) in respect of assessment years 1985-86 and 1986-87 may be set aside and the disallowance of commission restored.
5. We have given our careful consideration to the rival contentions and have perused the records. The dispute as is clear from the facts stated above is relating to disallowance of commission. Under the provisions of the Income-tax Act, the assessee is required to file the return of income from any source including business. Under Section 143(2), the Assessing Officer has the option to require the assessee to substantiate the return by any evidence. Once the assessee furnishes evidence in support of the return, the Assessing Officer on examination of the evidence has the option of either accepting the return or making further enquiries. The assessment has got to be based by the Assessing Officer on the basis of the evidence furnished by the assessee and on the basis of the evidence if any gathered by the Assessing Officer. In this case, the assessee had furnished the details of commission giving the names of the parties, order reference, name of the purchase, agreement reference and the amount of commission.
6. The Assessing Officer made enquiries from the parties to whom the assessee had sold goods and in respect of which commission was stated to have been paid. The results of the enquiry made by the Assessing Officer may be analysed as under : (a) Most of the payments had remained unpaid as on the close of the accounting year; (b) Most of the purchasers to whom the assessee had sold generators were Government undertakings and had specifically confirmed that they had directly dealt with the assessee and purchased the compressors without any assistance from third parties; (c) They are also confirmed that the purchases had been made on the basis of tenders/lowest quotations/DGSD rate contract basis and that no party was instrumental in getting orders to the assessee.
7. The assessee was, accordingly, confronted by the Assessing Officer vide letter dated 2nd December, 1987 with the information collected and asked: (a) to prove the genuineness of the parties to whom the commission was paid giving their permanent Account No. and income-tax ward, (b) documentary evidence about their having rendered services to the assessee leading to the sale of compressors, (c) the fact of their having received the commission allegedly to have been paid.
8. The assessee vide letter dated 5th January, 1988, explained that the details of the parties to whom commission was paid had been filed before the Assessing Officer and the correspondence relating to the services rendered by them had also been brought to the notice of the Assessing Officer. It was also stated that the payment had been made by A/c Payee cheques/Bank drafts details of which were stated to be available. The assessee claimed that the very fact that the amounts have been paid by A/c Payee Cheques would suggest that the amount has been credited in the accounts of the parties. At this stage, the assessee had furnished confirmations from M/s. Sony Tools, Bombay.
9. Vide letter dated 28th January, 1988, the assessee had further written to the Assessing Officer explaining the modus operandi followed by the assessee for marketing of its compressors. In this letter, the assessee claimed that the permanent account numbers of the parties and confirmations from various agents had been filed with the Assessing Officer along with the letter dated 5th January, 1988. The assessee had expressed its inability to furnish certified copies of the bank accounts of the agents. The Assessing Officer was, however, requested to summon the bank accounts of these parties under Section 131 and for that purpose, the assessee had also offered to deposit the diet money.
The Assessing Officer was, accordingly, requested not to make any disallowance. However, the Assessing Officer for the reasons recorded in para 3.3 onwards of the assessment order proceeded to disallow the commission by holding that the assessee had not established that the parties had rendered any services. The reasons broadly given by the Assessing Officer may be summarised as under : (a) The assessee has not established that services had been rendered by those parties to help the assessee to get orders from the organisations which according to Assessing Officer was absolutely necessary in view of the categorical denials from the purchasers and firm statement that they have made the purchases on the basis of open tenders, DGS&D rate contracts, etc.
(b) The parties who are alleged to have rendered services to the assessee are located at three places, i.e., Calcutta, Madras and Bombay where the holding company of the assessee namely M/s. K.G. Khosla Compressors Ltd. were by an agreement bound to assist the assessee in marketing for which substantial amounts were payable to the holding company.
(c) The correspondence produced by the assessee was a made-up affair as was clear from careful reading of the same.
(d) The correspondence between the agents' branch office and head office had been carried with electric speed. The instances have been referred to in para (i) at page 11 of the assessment order.
(e) The letters written by the so-called agents and branch office seem to have been typed on the same typewriter.
(f) The language used by almost all the agents in their communications is almost similar and the rate of commission is almost the same.
(g) From the correspondence obtained from M/s. Bharat Petrol Corporation Limited, it was clear that the said Corporation had dealt with the officers of the assessee directly and not with any agent of the assessee as claimed. Similarly the correspondence from M/s. Manganese Ore India Ltd., has been referred to in support of the finding that the company had directly dealt with the assessee company and not through agents.
10. It is thus seen that in this case, there is some evidence furnished by the assessee in support of the claim and the Assessing Officer has also collected evidence in rebuttal thereof. Appealing the rules of evidence, we have no doubt in our minds that it is the duty of the assessee to establish that the payment of commission has been made to the agents on account of business considerations for the services rendered. The fact that the payment has been made by A/c Payee Cheques and the parties have confirmed the payments, is a factor to be considered in support of the claim. However, that is not conclusive.
Rendering of services in respect of which payment is made has got to be established. The assessee had explained the circumstances under which commission is alleged to have been paid. However, with the evidence that the Assessing Officer has collected the evidences furnished by the assessee has become insufficient to be accepted for allowance of the claim. The burden of proof lies on those who would fail if no evidence is produced. In this case, the assessee had produced primary evidence.
But the Assessing Officer collected material in rebuttal which was provided to the assessee for availing the opportunity of substantiating the claim. We would have confirmed the disallowance but for the request made by the assessee to the Assessing Officer for issuing notices to the parties under Section 131 so that evidence in support of the claim could be collected. The Assessing Officer was unjustifiably failed to act upon the request of the assessee. The Assessing Officer is empowered to enforce the attendance of the witnesses when party requests the Assessing Officer to exercise the powers vested in him for enforcing the attendance. The latter is duty bound to do so as the assessee has no means to enforce the attendance of the witnesses. For that purpose, the matter was bound to be sent back to the Assessing Officer for the purpose of doing the needful in accordance with law. It has been stated before us by the learned Departmental Representative that the notices under Section 131 could not have been issued by the Assessing Officer concerned as the parties to whom such notices were required were more than 250 kilometres away from the city of the Assessing Officer. This contention of the learned D.R. is without any substance. The department is not powerless and it has sufficient machinery in enforcing the attendance of witnesses. The parties are regular taxpayers as claimed by the assessee and not refuted by the department. The concerned Assessing Officers of those parties can be asked to ensure attendance of the witnesses before them and their statements can be recorded and information collected without much difficulty. However, we agree with the contention raised on behalf of the revenue that basically it is the duty of the assessee to establish the rendering of the services by the agents and the notices issued under Section 131 would be merely to help the assessee in enforcing the attendance. The witnesses shall remain the witnesses of the assessee.
The assessee shall be free to adduce such evidence before the Assessing Officer in order to establish its claim and to rebut the evidence, available with the Assessing Officer as has been referred to in the assessment order. The appeal of the revenue to that extent is accepted and the order of the CIT (A) modified. The appeals of the assessee for both these years are accordingly dismissed and the appeals of the revenue are partly allowed.
11. In assessment year 1985-86, the revenue has raised two more grounds. One ground being Ground No. 4 is relating to the relief of Rs. 12,681 under Section 37(2A). The Assessing Officer had made disallowance of Rs. 32,385 under Section 37(2A). The CIT (A) has allowed a statutory deduction of Rs. 5,000 and expenses on annual day event of Rs. 7,681. We do not find any infirmity in the order of the CIT (A) in having allowed the aforementioned relief to the assessee.
The annual day expenses incurred on employees cannot be termed as entertainment expenses. The contention raised on behalf of the revenue that the expenditure relating to employees on account of food and beverages incurred at. the place of their normal work place alone is excludible by virtue of explanation under Section 37(2A) is not, in our view, well-founded. The employees of the assessee are required to attend the annual day event of the company. When it is the requirement of the company to attend the event, the place so chosen as venue becomes the place of work for the employees. When employees entertain the customers of the assessee at any restaurant or a hotel, the restaurant or the hotel becomes the place of work of the employees. We, therefore, do not see any merit in the claim of the revenue. This ground is accordingly dismissed.
12. The last ground of appeal in revenue's appeal for assessment year 1985-86 is relating to the deduction under Section 80-1. The assessee had made the claim under Section 80-1 before excluding the depreciation and investment allowance as permissible under the Income-tax Act. The Assessing Officer allowed the claim of the assessee in respect of profits computed after allowance of depreciation and investment allowance. The CIT (A) by following the decision of the Tribunal in the case of M/s. Digchemlndustriesv. ITO  27 TTJ (Jp.) 593 held that deduction is permissible in respect of profits before depreciation and investment allowance.
13. The learned counsel for the assessee relied upon the decision of the Tribunal in assessee's own case for assessment year 1984-85 as reported in 109 Taxman 1 (sic) in support of the contention that deduction under Section 80-1 is permissible with reference to the profits computed of the undertaking without deducting depreciation and investment allowance. We have gone through the decision of the Tribunal in assessee's own case for assessment year 1984-85 and the decision of the Tribunal in the case of Digchem Industries v. ITO  27 TTJ (Jp.) 593. The view expressed by the Tribunal is in accordance with the view expressed by the Orissa High Court in the case of CIT v. Tarun Udyog  191 ITR 688. The Orissa High Court considered the issue as to whether deduction under Section 80HH was to be computed with reference to the profits computed without deducting investment allowance under Section 32A. Their Lordships of the Orissa High Court held the deduction under Section 80HH is permissible in respect of profits and gains from the industrial undertaking and the computation of gross total income computed in accordance with the provisions contained in Sections 30 to 43A would not be relevant for the purposes of the deduction under Section 80HH. A reading of the decision does not indicate the assessment year with which Their Lordships of the Orissa High Court were concerned. It seems that the assessment year involved before their Lordships of the Orissa High Court in the aforementioned case was an assessment year prior to 1st April, 1981 as with effect from 1st April, 1981, Section 80AB has been specifically inserted to provide as under : 80AB. Deductions to be made with reference to the income included in the gross total income.--Where any deduction is required to be made or allowed under any section (except Section 80M) included in this Chapter under the heading 'C-Deductions in respect of certain incomes' in respect of any income of the nature specified in that section which is included in the gross total income of the assessee, then, notwithstanding anything contained in that section, for the purpose of computing the deduction under that section, the amount of income of that nature as computed in accordance with the provisions of this Act (before making any deduction under this Chapter) shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee and which is included in his gross total income.
14. The language of Section 80AB does not leave scope for any doubt.
This view also finds support from the decision of the Supreme Court in the case of CIT v. P.K. Javeri [1 990] 181 ITR 79. In this case, their Lordships of the Supreme Court have interpreted provisions of Section 80K and held the deduction under that section is permissible with reference to the net income as computed in accordance with the provisions of the Act. Their Lordships have also referred to the statutory provision of Section 80AB inserted with effect from 1 st April, 1981. In view of the clear provision of the Act namely Section 80AB and the decision of the Supreme Court in the case of P.K. Javeri (supra), we hold that the assessee is entitled to deduction under Section 80-1 with reference to the profits of the industrial undertaking computed in accordance with the provisions of the Act.
Since, Section 29 of the Act provides that income from profits and gains of business or profession shall be computed in accordance with provisions contained in Sections 30 to 43B, the depreciation and investment allowance permissible under Sections 32 and 32A are necessarily to be considered in arriving at the profits and gains of business for the purposes of computation of deduction under Section 80-1. We, therefore, set aside the order of the CIT (A) in this regard and restore that of the Assessing Officer. The appeal of the revenue on this ground is allowed.
15. For assessment year 1986-87, the revenue has raised a ground of appeal relating to cash payments on account of house rent allowance.
The Assessing Officer had treated the house rent allowance as perquisites within the meaning of section 40A(5). The CIT (A) has deleted the disallowance on the basis of the decision of Delhi High Court in the case of CIT v. Jay Engg. Works Ltd.  182 ITR 181.
The principle that cash reimbursements are part of the salary and not as perquisites falling under section 40A(5) have been reiterated by their Lordships of the Delhi High Court in the case of CIT v. Shriram Refrigeration Industries Ltd.  197 ITR 431 (Delhi). We, accordingly, do not find any merit in this ground of appeal of the revenue.
16. In assessee's appeal for assessment year 1986-87, there is a ground relating to disallowance of fees paid to Registrar of Companies for increase in the authorised capital of Rs. 22,500 and Rs. 500 for issue of bonus shares. The issue relating to disallowance of Rs. 22,500 is covered against the assessee by the decision of the Delhi High Court in the case of Bharat Carbon & Ribbon Mfg. Co. Ltd. v. CIT  127 ITR 239. The disallowance is accordingly confirmed. The claim of Rs. 500 is covered in favour of the assessee by the decision of the Bombay High Court in the case of Bombay Burmah Trading Corpn. Ltd. v. CIT  145 ITR 793. Respectfully following the decision of the Bombay High Court, the relief of Rs. 500 is allowed to the assessee.
17. For 1987-88, the first ground raised by the revenue is relating to the disallowance under Section 40A(5) in regard to cash payments of house rent allowance. We have dealt with this issue for assessment year 1986-87 as above. For the same reasons, this ground of appeal is dismissed.
18. The only other ground is relating to the relief of Rs. 3,76,473 on account of commission payments claimed by the assessee. We have dealt with the issue relating to the commission in the appeals for assessment years 1985-86 and 1986-87. The facts for this year are pari materia the same. The CIT (A) has deleted the addition on the basis of the explanation furnished by the assessee and on the basis of the fact that the earlier years' orders had been set aside by the CIT (A), whereas we agree with the findings of the CIT (A) that the certificate furnished by Mineral Exploration Corporation Ltd., denying having any knowledge of the representative will not be conclusive to dispute the claim of the assessee, yet fact remains that the assessee has not established the rendering of services by the parties in respect of which commission is claimed to have been paid. We would, in the interest of justice, set aside the order of the CIT (A) as well as that of the Assessing Officer on this issue and restore the matter to the file of the Assessing Officer. He is directed to follow our directions as for assessment years 1985-86 and 1986-87 above and dispose of this issue afresh accordingly.
19. In the result, the assessee's appeal for 1985-86 is dismissed whereas its appeal for assessment year 1986-87 is partly allowed. The appeals of the revenue for assessment years 1985-86, 1986-87 and 1987-88 are partly allowed.