M/S GANAPATHY & CO.BANGALORE vs. COMMR.INCOME TAX,BANGALORE

Page 1 JUDGMENT 1 REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURI ICTION CIVIL APPEAL NO.1964 OF 2008 M/S GANAPATHY & CO., BANGALORE ...APPELLANT VERSUS THE COMMISSIONER, INCOME TAX BANGALORE

...RESPONDENT J U D G M E N T RANJAN GOGOI, J.

Page 2 JUDGMENT 2

the Income

Tax Appellate Tribunal was right in law in deleting the disallowance

of service charges paid to M/s Universal Trading Company made under Section 40A(2)? ii. Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that the loss shown by the assessee in the film business amounting to Rs.31,48,670/-

was allowable? iii. Whether on the facts and in the circumstances of the case, the Tribunal was justified in allowing the assessee's

claim

for deduction

under Section 35(2A) in respect of donation to Aparna Ashram?”

Page 3 JUDGMENT 3

Page 4 JUDGMENT 4 of a Chartered Accountant contained in a Note which was found in the course of a search proceeding. The said Note contained an advise to the assessee to include service charges to UTC as one of the methods to reduce the incidence of Income Tax. The aforesaid conclusions of the Assessing Officer were upheld in Appeal by the CIT. Aggrieved, the Revenue filed an appeal before the Income Tax Appellate Tribunal (“ITAT” for short) which reversed the findings and conclusions of the Primary and First Appellate Authority primarily on the ground that the order of the CIT (Appeals) in the earlier assessment proceeding, relied upon by the Assessing Officer, was reversed in appeal by the ITAT and also that in the course of said earlier assessment proceeding the legal effect of the advice tendered by the Chartered Accountant to reduce the incidence of Income Tax was found to be

Page 5 JUDGMENT 5 permissible in law. The High Court reversed the said conclusion of the ITAT which has been challenged by the assessee in the present appeal. A reading of the order of the ITAT in favour of the assessee which has been reversed by the High Court would indicate that the learned ITAT did not address itself to a very fundamental issue that had arisen before it, namely, effect of the failure of the assessee to produce evidence in support of the services claimed to have been rendered by UTC during the Assessment Year in question i.e. 1984-1985. The answer given by the assessee in response to a specific query made by the Assessing Officer in this regard was that explanations in this regard had already been submitted for the previous Assessment Year i.e. 1983-1984. If service had been rendered to the assessee by UTC during the Assessment Year

Page 6 JUDGMENT 6 in question and service charges had been paid for such service rendered, naturally, it was incumbent on the part of the assessee to adduce proof of such service having been rendered during the period under assessment. There is no dispute on the issue that the assessee did not, in fact, offer any proof of the service rendered during the Assessment Year in question. In such circumstances, the High Court was perfectly justified in reversing the eventual conclusion of the learned ITAT on the basis that the findings and conclusions recorded in the course of the assessment proceedings of the previous year cannot foreclose the findings that are required to be arrived at for the Assessment Year in question i.e. 1984- 1985. We, therefore, can find no fault with the order of the High Court on the aforesaid score.

Page 7 JUDGMENT 7

untenable

and,

therefore, interfered with the reliance placed by the ITAT on the aforesaid decision in the

Page 8 JUDGMENT 8 present case. There was no legal bar for the High Court in taking the aforesaid view. Taking into account the above and the facts of the case which have been set out by the High Court in paragraphs 29 and 30 of its order, we do not see how the same can be faulted. Having regard to the facts and circumstances in which the “investment” was made and “loss” claimed, we can find no fault in the view taken by the High Court that the entire transaction was a sham transaction and was a calculated device to avoid tax liability.

Page 9 JUDGMENT 9 Ashram) had complied with the conditions subject to which registration was granted to it under Section 35(2A) of the Act was not produced by the assessee so as to entitle it to the claim of deduction of the donation made. The learned ITAT took the view that the aforesaid conditions were not material. The High Court on due consideration found that the said conditions were necessary preconditions to the grant of statutory registration and had to be satisfied. There is no dispute on the fact that no such certificate had been furnished by the assessee and also that all Authorities have consistently held that if and when such certificate is produced the consequential benefit can be afforded to the assessee. In the aforesaid circumstances, we do not see how the view taken by the High Court that the assessee was not entitled to the benefit of donation made to Aparna Ashram can be

Page 10 JUDGMENT 10 faulted.

Page 12 JUDGMENT 12 reference before the High Court.

Page 13 JUDGMENT 13 Court construed certain facts as, for example, compliance of the conditions subject to which registration was granted to the Aparna Ashram under Section 35(2A) of the Act to be of significance as against the contrary/different view of the learned Tribunal on this score. There was no departure from the basic facts found by the learned Tribunal in the two illustrative situations cited above, namely, that (i) the assessee had not adduced any proof of service rendered by UTC in the Assessment Year 1984-1985; (ii) that Aparna Ashram had not complied with the conditions

subject

to which registration had been granted to it under Section 35(2A) of the Act.

Page 14 JUDGMENT 14 but was merely one of emphasis on facts on which there is no dispute. This is surely an exercise that was within the juri iction of the High Court in the exercise of its reference power under the provisions of the Act as it then existed.