THE COMMISSIONER OF INCOME TAX,COCHIN vs. EASTERN CONDIMENTS (P)LTD., ADIMALI

The assessee-company is part of a group engaged in manufacture and export of spices, spices powder, curry powder, etc., under the common brand name "Eastern". Export is done by the proprietorship concern of the Managing Director which is located at 2 Okkal in Ernakulam Dist. whereas the assessee's manufacturing and packing unit is at Adimaly in Idukki Dist. Normal commission paid by the assessee for marketing it's products is 5%. However, for the sales effected to the proprietorship concern of the Managing Director the assessee paid higher discount of 10% which is double the normal rate. The Assessing Officer noticed that the purpose is to evade payment of tax in respect of 5% because the Managing Director's concern being engaged in export is entitled to deduction under Section 80HHC of the I.T. Act. Even though the assessee put forward a claim that sales to Managing Director was in bulk and the packing was done by the Managing Director, the assessing officer noticed that during assessment year 2001-02 export sales were made by the Managing Director from the very beginning of the previous year 2000-01 and he purchased certain machinery for packing only in December, 2000. Further it was established by him in the assessment order that goods immediately on receipt from the assessee were exported by the Managing Director. The assessing officer based on these findings disallowed 5% discount which was confirmed in first appeal. However, on second appeal, the 3 Tribunal allowed the appeal for the assessment year 2001-02 and for the remaining years also, following the said order, the Tribunal allowed the claim, against which these appeals are filed by the revenue.

On going through the Tribunal's order and after hearing both sides, we are unable to sustain the order of the Tribunal because the Tribunal assumed the claim of the assessee that the additional discount is attributable to the packing cost incurred by the Managing Director as true. In order to prove that the Managing Director was left with packing for export and sale of the commodity locally, it was for the assessee to prove that sales were in bulk quantity and the Managing Director was engaged in packing. In this case, the finding by the assessing officer is that the Managing Director purchased certain machinery only in December, 2000 whereas goods purchased from the respondent were from April, 2000 onwards. It is the further finding of the assessing officer that the goods while in transit from assessee to the Managing Director straightaway went to the export stream which is impossible unless the goods were in packed conditions. It is seen from the order of the Tribunal that Tribunal has not cared to consider any of 4 these findings, nor was there any finding by the Tribunal that the Managing Director maintained even a facility for packing. We notice that the Tribunal assumed certain facts which were contrary to the facts found by the assessing officer and confirmed in first appeal. We

As already stated, other issues pertaining to disallowance of small items of expenditure like vehicle expenditure, advertisement charges, do not give rise to any substantial question of law. We