Commissioner of Income-tax Vs. Electric Construction and Equipment Co. Ltd. (No. 1) - Court Judgment

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- - 2. whether, on the facts and in the circumstances of the case, the income-tax appellate tribunal was correct in allowing bad debts of rs. the income-tax officer did not allow the said amount as bad dent as the assessed failed to furnish a certificate from the debtor company that it had debited this amount from the company's bills and the correspondence relating to this debit was not traceable. 14. the commissioner of income-tax (appeals) noted that, in respect of the 'bad debt/trading loss' relating to meenakshi engineering corporation, copies of the letters dated march 24, 1976, and november 3, 1977, were brought on record. he noted that this was new evidence with required verification as well as due consideration.leila seth, j.1. by this application under section 256(2) of the income-tax act, 1961, the petitioner prays that the tribunal be directed to draw up a statement of case and refer the following two question of law pertaining to the assessment year 1973-74 for the opinion of this court: '1. whether, on the facts and in the circumstances of the case, the income-tax appellate tribunal was correct in law in holding that the commission of rs. 3,62,325 was eligible for deduction in the hands of the assessed, although the identity of the recipient could not be established? 2. whether, on the facts and in the circumstances of the case, the income-tax appellate tribunal was correct in allowing bad debts of rs. 17,390 for which the assessed could not furnish any details?' 2. the assessed is a public limited company engaged in the manufacture and sale of heavy electrical equipment which it supplies to the electricity boards. it claimed certain deductions as commission payable to one mr. madan lal jain. it also claimed a deductions of rs. 17,398 towards amounts written off in the account of meenakshi engineering corporation. 3. the income-tax officer disallowed the commission as he was of the opinion that the payments alleged to have been made to mr. madan lal jain as commission were not genuine. the commissioner of income-tax (appeal) ii, new delhi, affirmed the order. the assessed then appealed to the income-tax appellate tribunal. 4. the tribunal dealt with this matter in some detail. in paragraphs 10 to 17 of its order dated 30, 1982, it analysed the facts and came to the conclusion that the identity of mr. madan lal jain had been established, that services had been rendered and that the commission payments were genuine. in paragraph 18, it decided as under: 'we have already dealt with the various points in detail. we have held that the identity of shri madan lal jain was established and that he had also rendered services to the assessed for which he had received payment through account-payee cheques. we may again repeat that our above finding is based on various receipts issued by madan lal jain, on the basis of certificate issued by the assistant engineer, u. p. state electricity board, and on the basis of the bank account maintained by him in the union bank of india, chandni chowk, delhi.' 5. it also mentioned the admission of the income-tax officer in his letter dated march 12, 1976, that the correspondence exchanged between the assessed and mr. madan lal jain was produced before the income-tax officer on january 8, 1976. 6. before closing the matter, the tribunal observed that similar payments of commission were allowed by the commissioner of income-tax (appeals) in the assessment year 1974-75 and 1975-76. it further observed that the rate of commission appears to be quite reasonable. 7. the main contention of mr. pandey, learned counsel for the revenue, is that the tribunal has taken into consideration extraneous reasons, i.e., similar payments of commission for the assessment year 1975-76 and rate of commission being reasonable. he submits that a referenced to the assessment year 1975-76 with regard to similar payments of commission is erroneous. 8. we have seen the order of the commissioner of income-tax (appeals) dated march 28, 1981, wherein he has stated in paragraph 9 that for the assessment year 1975-76, the income-tax officer disallowed the commission payment of rs. 1,74,106. but, on the basis of evidence produced before the commissioner of income-tax (appeals), in the form of correspondence exchanged between the company and the parties, a sum of rs. 89,963 was allowed. consequently, it appears to us that this submission of mr. pandey is not tenable. 9. on the aspect of the rate of commission being reasonable, being an extraneous factor which the tribunal considered in coming to its conclusions, it appears to us that the tribunal had, on a detailed analysis of the facts, come to the conclusion that the identity of mr. madan lal jain had been established and that the he had rendered services and the payment made to him were genuine, and the reasonableness of the rate of commission was only an additional and severable observation made by the tribunal and not the basis reason in arriving at its conclusion. 10. in homi jehangir gheesta v. cit : [1961]41itr135(sc) , hon'ble mr.justice s. k. das, speaking for the court, has observed that the order of the tribunal must be read as whole (at p. 141) 'to determine whether every material fact, for and against the assessed, has been considered fairly and with due care; whether the evidence pro and con has been considered in reaching the final conclusion; and whether the conclusion reached by the tribunal has been coloured by irrelevant considerations or matters of prejudice.' 11. mr. pandey next urged that the decision of the tribunal was based on conjectures and surmises. he referred to a number of decisions most of which have been referred to in cit v. biju patnaik : [1986]160itr674(sc) . after noticing the various earlier decisions, the court felt that ignoring certain relevant facts was a vital matter which had influenced the decision and the conclusion had to be judged in its proper perspective. according to the court, ignoring the facts as to who made the donations and their capacity to make it was a vital fact which gave rise to the question of law. 12. in the present case, the tribunal has held that the identity of mr. madan lal jain has been established from the correspondence, the bank account in the union bank of india and the certificate issued by the assistant engineer, u. p., and various receipts issued by mr. madan lal jain. this cannot be said to be a perverse finding or a finding based on no material. consequently, we are of the opinion that question no. 1 is not a question of law in the facts and circumstances of the case. 13. coming to the second question, the relevant facts are that an amount totalling rs. 17,398 was due from meenakshi engineering corporation to the assessed. the income-tax officer did not allow the said amount as bad dent as the assessed failed to furnish a certificate from the debtor company that it had debited this amount from the company's bills and the correspondence relating to this debit was not traceable. the deductions had been claimed on the basis of certain amounts debited from the company's bills because of the supply of some defective motors. 14. the commissioner of income-tax (appeals) noted that, in respect of the 'bad debt/trading loss' relating to meenakshi engineering corporation, copies of the letters dated march 24, 1976, and november 3, 1977, were brought on record. he noted that this was new evidence with required verification as well as due consideration. 15. on appeal, the tribunal, while dealing with this matter, held that the assessed was entitled to the deduction as it was in the 'nature of a trading loss under section 28(1) of the act as it was duly supported by the two letters dated march 24, 1976, and november 3, 1977, written by meenakshi engineering corporation.' 16. in view of the fact that these letters were filed for the first time before the commissioner of income-tax (appeals) and he noticed that they required verification and due consideration and had remanded the matter so that, inter alia, these could be verified, it would appear to us that reliance on this material without due verification raises a question of law. consequently, we reframe question no. 2 as follows: 'whether, on the facts and in the circumstances of the case, the income-tax appellate tribunal was correct in permitting deduction of rs. 17,398 on the basis of the letters dated march 24, 1976, and november 3, 1977, produced for the first time, without due verification of the said letters?' 17. accordingly, we reject the reference application with regard to question. no. 1, but we direct the tribunal to draw up a statement of case and refer question no. 2 as reframed for the decision of this court. in the facts and circumstances of the case, we make no order as to costs.