Flour and Food Ltd. Vs. Jt. Cit - Court Judgment

Excerpt:
direct taxation - deduction - interest -petitioner engaged in business of manufacture and sale business - petitioner gave sum advance amount to x for supply material but as x neither supply the material nor returned the interest over said amount, petitioner claimed some deduction over said amount - assessing officer, however, disallowed the deduction and reduced some amount from the interest payable by petitioner on borrowed fund - petitioner filed appeal before appellate authority - allowed - respondent filed appeal before tribunal - appeal allowed and order of appellate authority set aside - hence, present petition - whether tribunal right in disallowing interest on ground that no interest was charged on the trade advance? - held, once tribunal records finding on transaction in question.....orderthis is an appeal filed by the assessee under section 260a of the income tax act against the order, dated 10-1-2001, passed by learned members of income tax appellate tribunal, indore bench, indore in appeal no. 971/ind./95 for the assessment year 1992-93. it was admitted for final hearing on following substantial question of law :'1. whether in the facts and circumstances of the case, the itat was right in law in disallowing interest to the extent of rs. 2,70,000 on the ground that no interest was charged on the trade advance of rs. 15 lakh ?2. whether in the facts and circumstances of the case, the income tax appellate tribunal has erred in holding that under section 80hhc of the income tax act no deduction was allowable on the amount of rs. 10,80,571 on the ground that there was.....

Judgment:
ORDER

This is an appeal filed by the assessee under section 260A of the Income Tax Act against the order, dated 10-1-2001, passed by learned Members of Income Tax Appellate Tribunal, Indore Bench, Indore in Appeal No. 971/Ind./95 for the assessment year 1992-93. It was admitted for final hearing on following substantial question of law :

'1. Whether in the facts and circumstances of the case, the ITAT was right in law in disallowing interest to the extent of Rs. 2,70,000 on the ground that no interest was charged on the trade advance of Rs. 15 lakh ?

2. Whether in the facts and circumstances of the case, the Income Tax Appellate Tribunal has erred in holding that under section 80HHC of the Income Tax Act no deduction was allowable on the amount of Rs. 10,80,571 on the ground that there was no direct nexus between these receipts and the export business of the appellant-assessee ?'

2. The dispute relates to assessment year 1992-93. The assessee is engaged in manufacture and sale of Suji, Aata, Rawa, Maida, etc. In the year 1989, the assessee claimed that they had advanced a sum of Rs. 15 lakhs from their C.C. Bank Account to one party - M/s. Central India High Tech, Bhopal for supply of 'Soya Meal' to them. It was the case of assessee that party to whom the advance was given did not supply the goods and, therefore, the amount of advance given by the assessee amounting to Rs. 15 lakhs was returned to assessee by the said party on 6-6-1992 without any interest on the said amount. The assessee while justifying this transaction claimed certain benefits by way of deductions. However, assessing officer did not consider this transaction to be a genuine one. In the opinion of assessing officer the transaction in question was not genuine, but it was a bogus one. He held this to be a case of diversion of borrowed funds for non-business purpose and, accordingly, disallowed the sum of Rs. 2,70,000 out of interest payable by assessee on the borrowed fund. The ClT (Appeals) in the appeal filed by the assessee reversed the order of assessing officer but the Tribunal in an appeal filed by the revenue went into the facts and while reversing the order of CIT (Appeals) restored that of assessing officer. The Tribunal held that the transaction in question is not genuine and hence, no benefit of such transaction can be given to assessee. It is against this order of Tribunal; the assessee has filed this appeal in addition to other questions. As stated supra, the appeal was admitted for final hearing on this issue by framing question No. 1.

3. Heard Shri G.M. Chafekar, learned senior counsel with Shri D.S. Kale, learned counsel for the appellant and Shri R.L. Jain, learned senior counsel with Ku. V. Mandlik for respondent.

4. Having heard learned counsel for the parties and having perused record of the case, we are inclined to dismiss the appeal by answering question No. I against the assessee and in favour of revenue.

5. Coming to the question No. 1. In our considered opinion, once the Tribunal records a finding on the transaction in question as not genuine then in such eventuality, it being a finding of fact, the same is binding on this Court. In other words, the question whether transaction entered into by the appellant with a particular party, namely, Central India High Tech Ltd. for supply of certain raw material is genuine or bona fide or whether it is bogus Is essentially a question of fact. It can be examined by assessing officer, CIT (Appeals) and lastly by Tribunal on facts but not by this court in an appeal filed under section 260A ibid. The Tribunal in this case did go into the facts and examined the nature of transactions, the manner of its execution and then returned a categorical finding of fact that it is not genuine transaction but a bogus one. This finding being pure finding of fact it cannot be disturbed. Rather it binds this court while hearing this appeal. No attempt is made by the assessee to assail this finding in this appeal on merits nor there is any question of law framed to examine this finding on facts.

6. In our view, therefore, the question of law, i.e., (question No. 1) framed, do not empower us to examine the factual issues relating to transaction in question. The position would have been different, if the transaction had been held as genuine and then benefit of amount of interest claimed had been denied to the assessee. In that situation, this court would have been in a position to examine the legal issue regarding disallowance of interest claimed.

7. In view of foregoing discussion, in our view, we cannot reverse the finding of fact recorded by the Tribunal on this issue, nor we wish to examine the same due to restrain on our.powers under section 260A ibid. As a consequence, we answer the question No. 1 against the appellant (assessee) and in favour of respondent, i.e., revenue.

8. Coming to the second question, the Tribunal decided the issue against the appellant by recording following finding in para 19 of the impugned order :

'If the facts of the instant case are viewed in the light of the ratio laid down by the Apex court and various High Courts in the aforementioned cases, we would find that nothing has been placed on record on behalf of the assessee to prove that the profit/income derived from the service charges and commission received on imports amounting to Rs. 6,13,989 and Rs. 4,66,581 as forwarding charges, weighment charges, cash discounts, octroi refund and other incomes, is intricably connected with the export activities of the assessee. Until and unless the nexus between these profits and the export activities of the assessee is proved, the same cannot form part of the profit of a business eligible for the purpose of deduction under section 80HHC of the Act. We are, therefore, of the view that the aforesaid receipts are hit by Explanation (bad) below sub-section (4B) of section 80HHC of the Act and do not form part of the profit of business. As such, we do not find ourselves in agreement with the findings of the Commissioner (Appeals) on this count and restore the matter to the file of the assessing officer to recompute the deduction under section 80HHC in view of clause (baa) of Explanation below sub-section (4B) of section 80HHC of the Act.'

9. In our view, the Tribunal having noted that for want of any material, not on record and having been filed in support of the claim of the assessee to prove that there exists any direct nexus between export activities of industrial undertakings with the profit/income derived from service charges/Commission/Forwarding Charges/ Weighment Charges/Cash Discount/Octroi Refund and other income, the Tribunal cannot decide the question in favour of assessee. We fail to see then how this court can give any definite finding on the same question in favour of assessee. In other words, again it being a question of fact, it was necessary for the assessee to have proved by documentary evidence before the departmental authorities that there exists direct nexus with their income derived from an industrial undertaking with that of claim made under various heads enumerated supra, then only they were entitled to claim the benefit of the profit/income earned, else not. Since the Tribunal itself failed to give any finding on facts so far as these issues are concerned, this court is equally unable to give any finding on these issues. As observed supra, when the Tribunal felt handicapped in recording finding on facts then how can this court record any finding on facts for the first time.

10. This court can examine the issue of law either on admitted facts or when the finding of fact is already recorded by the Tribunal. But as observed supra, when the Tribunal itself declined to record the finding on facts may be on the ground of non-availability of documents and/or material on record then in such circumstances, this court cannot first record a factual finding and then examine the legal issues arising out of the said finding. Firstly, no such substantial question of law is framed and secondly, no such exercise can be undertaken in an appeal filed under section 260A ibid and thirdly, on the question of law framed, the issue on facts cannot be examined.

11. We, therefore, find no merit in this appeal so far as second question of law is concerned and hence, finding no merit in this appeal, we dismiss the appeal on both the questions resulting in upholding of the impugned order.