M/S HARISH CLAYS vs. ASST COMMISSIONER OF I T

IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR. D.B. Income Tax Appeal No.211/2005 M/s. Harish Clays vs. The ACIT, Circle, Jaipur & Anr.

DATE OF ORDER ::: 23.11.2016 HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE MAHENDRA MAHESHWARI Mr. T.C. Jain, for the appellant. Mr. Anuroop Singhi, for the respondent. ***** BY THE COURT:- (Per Hon'ble Jhaveri, J.) 1. By way of this appeal, the assessee has challenged the judgment and order of the Tribunal whereby Tribunal has partly allowed the appeal. 2. The facts of the case are that the appellant M/s. Harish Clays is a partnership firm having its place of business presently at Golecha Gardens, Agra Road, Jaipur. During the assessment year under reference, the appellant assessee had incurred expenditure Rs.63,205/- as Commission on sales. Out of this amount, Rs.52,895/- was paid to M/s Sir Enterprises, a Proprietorship concern run by Smt. Suraiya Rahi. The ld. ACIT disallowed the said expenditure of Rs.52,895/-. The assessee had produced copy of account of said concern and various other documents to prove the actual incurring of the expenditure. It was also submitted that Smt. Suraiya Rahi, Proprietor M/s. Sir Enterprises is itself a regular Income Tax assessee. On request of appellant assessee, summons were also issued to Smt.

Suraiya Rahi u/s 131 of the IT Act for appearance. However, Smt. Suraya Rahi did not appear and letter was filed under the signature of her husband Sh. M.A. Rahi stating that as the lady is Pardanashin, she will not be able to attend in response to summons. The ld. AO did not care to examine the factual position even from the assessment records of Smt. Suraiya Rahi. The ld. ACIT disallowed the expenditure u/s 37 of the IT Act simply on the ground that if the lady is Pardanashin, then question arises how could she conduct business and came to the conclusion that payment made by the assessee is not actually commission payment and hence the expenditure was disallowed. 3. This Court while admitting the appeal framed the following substantial questions of law vide order dated 6.9.2005:- “Whether in the Facts and circumstances of the case, the Hon'ble Tribunal was legally correct in confirming order of CIT(A) and coming to the conclusion that appellant could not prove expenditure of sales commission of Rs. 52,895/- solely for the reason that Smt. Suraiya Rahi did not appear before the Assessing officer,being pardanashin lady, despite evidence on record that Payment was duly made to Smt. Suraiya Rahi and similar payment to her was duly allowed in the earlier years under scrutiny assessments under section 143(3) of Income Tax Act.” 4. Counsel for the appellant Mr. Jain has taken us to the order of AO, CIT(A) and Tribunal and mainly contended that in spite of voluminous record available which was produced before this court, the agreement between M/s Harish Clays

the appellant and Agent SIR Enterprises right from 1986 and which was revised year to year, the payment was made continuously to the proprietary firm which was also reflected in his reply filed before the assessing officer on 16.10.1991, 27.11.1991, 24.06.1992 and 25.9.1992 in spite of that the expenses allowed in the previous year. The CIT(A) in this regard held as under:- “It is the submissions on the part of the assessee that Mrs. Rahi was regularly assessed to tax by the I.T. Depertment on her commission income. The similar commission had been paid in earlier years and the same have been allowed as under: 1986 Rs. 52,318.04 1987 Rs. 68,870.19 1988-89 Rs. 52,895.04 Evidence of lady being assessed to tax was filed. It was also submitted that she was not related to any partners of the Firm. It was also urged that if Mrs. Rahi did not appear before the Assing Officer in response to notice under action 131, it was not fault of the assessee. In the end it was claimed that M/s sir Enterprises had rendered services as commission agent, may be that the work may have been handled by any representative or employee of Mrs. Rahi.” 5. Counsel for the appellant has relied upon the decision of Bombay High Court in Commissioner of Income Tax vs. Creative World Telefilms Ltd. reported in (2011) 333 ITR 100 (Bom) wherein it has been held as under:- “In the case in hand, it is not disputed that the assessee had given the details of name and address of the shareholder, their PAN/GIR number and had also given the cheque number, name of the bank. It was expected on the part of the AO to make proper investigation and reach the shareholders. The AO did nothing except issuing summons which were ultimately returned back with an endorsement "not traceable". In our considered view, the AO ought to have found out their details through PAN cards, bank account details or from their bankers so as to reach the share holders since all the relevant

material details and particulars were given by the assessee to the AO. In the above circumstances, the view taken by the Tribunal cannot be faulted. No substantial question of law is involved in the appeal. In the result, the appeal is dismissed in limine with no order as to costs.” 5.1 In case of Union of India and others vs. Kaumudini Narayan Dalal and another reported in 249 ITR 219 holding as under:- “It is not open to the Revenue to accept that judgment in the case of the assessee in that case and challenge its correctness in the case of other assessees without just cause. For this reason, we decline to consider the correctness of the decision of the High Court in this matter and dismiss the civil appeal.” 5.2 In case of Union of India vs. Satish Panalal Shah reported in 249 ITR 221 held as under:- “It is not open to the Revenue to accept that judgment in the case of the assessee in that case and challenge its correctness in the case of other assessees without just cause.” 5.3 In case of CIT vs. Shivsagar Estate (S.C.) reported in 257 ITR 59 holding as under:- “Having regard to the fact that no appeal has been carried against the orders of identical assessment for the previous year, the civil appeals and special leave petitions are dismissed. ” 5.4 Decision of Delhi High Court in Commissioner of Income Tax vs. A.R.J. Security Printers reported in 264 ITR 276 which reads as under:- “We find substance in the contention urged by learned counsel for the assessed. True that each assessment year being independent of the other, as a general rule, the principle of res judicata or estoppel by record, which applies to civil Courts, does not apply to income-tax

proceedings but, yet for the sake of consistency and for the purpose of finality in all litigations, including litigation arising out of fiscal statutes, earlier decisions on the same question should not be reopened unless some fresh facts are found in the subsequent year. The Supreme Court in Radhasoami Satsang v. CIT observed that where a fundamental aspect permeating through different assessment years has been found as a fact one way or the other and the parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year.” 5.5 He has relied upon the decision of Supreme Court in Sudarshan Silks and Sarees vs. Commissioner of Income Tax reported in (2008) 300 ITR 205 (SC) held as under:- “The only contention raised by the learned counsel for the appellant is that the Tribunal is the final fact- finding authority and its decision on the facts can be gone into by the High Court only if a question has been referred to it which says that the finding of the Tribunal on facts is perverse, in the sense that it is such as could not reasonably have been arrived at on the material placed before the Tribunal. In the absence of such a question having been claimed, the High Court was obliged to accept the findings of fact arrived at by the Tribunal and then proceed to decide the question of law referred to it. Relying upon the two judgments of this Court in K. Ravindranathan Nair v. Commissioner of Income Tax, (2001) 247 ITR 178 (SC) and T. Ashok Pai v. Commissioner of Income Tax, (2007) 292 ITR 11 (SC), it was contended that the High Court exceeded its jurisdiction in coming to the conclusion that the finding recorded by the Tribunal were perverse as no question of law to that effect had been either claimed or referred by the Tribunal to the High Court for its opinion. ” 5.6 Decision of Madras High Court in Commissioner of Income Tax vs. Madras Refineries Ltd. reported in 266 ITR 170 held as under:- “The concept of business is not static. It has evolved over a period of time to include within its fold the concrete expression of care and concern for

the society at large and the people of the locality in which the business is located in particular. Being known as a good corporate citizen brings goodwill of the local community, as also with the regulatory agencies and the society at large, thereby creating an atmosphere in which the business can succeed in a greater measure with the aid of such goodwill. Monies spent for bringing drinking water as also for establishing or improving the school meant for the residents of the locality in which the business is situated cannot be regarded as being wholly outside the ambit of the business concerns of the assessee, especially where the undertaking owned by the assessee is one which is to some extent a polluting industry. “ 5.7 In case of Commissioner of Income Tax vs. Rajasthan Spinning and Weaving Mills Ltd. reported in (2006) 281 ITR 408 (Raj.) holding as under:- “It is well-settled that expression 'wholly and exclusively' does not denote 'necessarily'. The word 'wholly' refers to quantum of expenditure. The word 'exclusively' refers to motive, objective or purpose with which the particular expense has been incurred. Ordinarily, it is for the assessee to decide whether any expenditure should be incurred in the course of its or his business. Such expenses can be incurred voluntarily and without necessity. If it is incurred for promoting the business and to earn the profits, the assessee can claim the deduction." 5.8 In Commissioner of Income Tax vs. Dalmia Cement (B.) Ltd. reported in 254 ITR 377 held as under:- “Ordinarily, it is for the assessed to decide whether any expenditure should be incurred in the course of its business. Such expenditure may be incurred voluntarily and without any necessity and if it is incurred for promoting the business and to earn profits, the assessed can claim deduction under the relevant provision even though there was no compelling necessity to incur such expenditure. The fact that somebody other than the assessed is also benefited by the expenditure should not come

in the way of an expenditure-being allowed by way of deduction under Section 37 of the Act if it otherwise satisfies the tests laid down by law.” 5.9 Counsel for the respondent Mr. Singhi has relied upon the decision of Supreme Court in Municipal Corporation of City of Thane vs M/S Vidyut Metallics Ltd. & Anr reported in (2007) 8 SCC 688 wherein it has been held as under:- “So far as the proposition of law is concerned, it is well-settled and needs no further discussion. In taxation-matters, the strict rule of res judicata as envisaged by Section 11 of the Code of Civil Procedure, 1908 has no application. As a general rule, each year's assessment is final only for that year and does not govern later years, because it determines the tax for a particular period. It is, therefore, open to the Revenue/Taxing Authority to consider the position of the assessee every year for the purpose of determining and computing the liability to pay tax or octroi on that basis in subsequent years. A decision taken by the authorities in the previous year would not estop or operate as res judicata for subsequent year.” 6. He contended that the view taken by the CIT(A) is just and proper. 7. We have heard counsel for the appellant. 8. Taking into consideration the fact that the payment pursuant to agreement was made by account payee which is reflected in the books of accounts of the assessee. Merely because commission agent has not appeared, expenses cannot be disallowed. 9. In our view the view taken by the tribunal is required to be reversed. The expenses which are incurred by assessee is required to be allowed. The issue is required to

be answered in favour of the assessee and against the Department. 10. The appeal is accordingly allowed. (Mahendra Maheshwari), J. (K.S. Jhaveri), J. Brijesh107.