ASHOKA MARKETING LTD. vs COMMISSIONER OF Income Tax.

S. N. P. SINGH J. - The Income Tax Appellate Tribunal has stated the case on the following question of law u/s 66(1) of the Income Tax Act :

"Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the profit of Rs. 14,30,561 on jute transactions were the profits of the assessee-company liable to be included in its total income ?"

The assessee is a limited company acting as selling agent of various companies and also carrying on business in shares, jute and speculation. The question referred to relates to the assessment year 1952-53. During the accounting year ending on 31st August, 1951, the assessee-company transacted business in jute which resulted in a profit of Rs. 59,91,721. The assessee claimed that out of the profit a sum of Rs. 14,30,561 was in respect of various transactions of purchase and sale of jute on account of Dalmia Cement Paper Marketing Co. Ltd., hereinafter referred to as "D. C. P. M. Ltd." The Income Tax Officer negatived the aforesaid claim of the assessee on several grounds. The assessee went in appeal before the Appellate Assistant Commissioner, but its claim was rejected. The question was also specifically raised in further appeal before the Appellate Tribunal but the Tribunal upheld the inclusion of Rs. 14,30,561 as the income of the assessee from business.

It appears from the order of the Appellate Tribunal that the claim of the assessee was not accepted on the following grounds, namely, (1) that there was no evidence, documentary or otherwise, contemporaneous with the transactions requiring the assessee to undertake transactions of sale and purchase of behalf of D. C. P. M. Ltd; (2) that no entries had been made in the books of the assessee as pertaining of D. C. P. M. Ltd. either immediately or periodically after the transactions; (3) that no money was advanced by D. C. P. M. Ltd., nor was any debit raised of any interest payable by D. C. P. M. in respect of the various purchase till the completion of the corresponding values; and (4) that the books of the assessee did not contain any record of brokerage, commission, or any benefit accruing to the assessee for the services rendered as the alleged agent of D. C. P. M. Ltd.

Learned counsel appearing for the assessee contended that having regard to certain admitted facts, the view which the Tribunal has taken is not correct and the Tribunal has erred in law in disallowing the claims of the assessee. The contention appears to be well-founded. It appears from the order of the Appellate Tribunal that a copy of the assessment order or D. C. P. M. Ltd. for the assessment year 1952-53, as well as the profit and loss account of that company, were produced before the Tribunal. It was the definite case of the assessee that D. C. P. M. Ltd. had already been assessed for the disputed sum of Rs. 14,30,561. It does not appear from the order of the Tribunal that the same was not accepted. The assessee also filed a copy of the credit advice dated the 31st August, 1951, sent by D. C. P. M. Ltd., crediting the assessee-company with Rs. 70,27,578 as representing the cost of 94,775 maunds and 39 1/4 seers of jute purchased on account of that company and adjusted as advised and bulls, etc., received. The Tribunal has not doubted the genuineness of that document but has not relied on the same because of the various grounds which I have already stated. I may state here that, according to the assessee, by a letter dated the 11th of February, 1952, the assessee sent cash books, ledgers, vouchers, contract bills, receipt book, and chalan book of the various agencies and also various advices in respect of purchases and sales to D. C. P. M. Ltd. A copy of the letter was produced before the Income Tax Officer at the time of assessment. The books of D. C. P. M. Ltd. were, however, not produced at the time of assessment. The explanation for non-production was that the books were not available as D. C. P. M. Ltd. were, however, not produced at the time of assessment. The explanation for non-production was that the books were not available as D. C. P. M. Ltd. had been amalgamated with another company. The Tribunal has not expressed any opinion on the above explanation for the non-production of the books of D. C. P. M. Ltd.

Learned counsel, appearing for the department, submitted that the mere fact that D. C. P. M. Ltd. has already been assessed for the disputed sum of Rs. 14,30,561 is no ground for holding that the assessee is not liable to be taxed on the said amount. Of course, there is force in the submission and the fact that D. C. P. M. Ltd. has been assessed cannot by itself be a ground for holding that the assessee is not liable to be taxed for the said amount. The credit advice dated the 31st of August, 1951, sent by D. C. P. M. Ltd., above-mentioned, however, the genuineness of which was not doubted by the Tribunal, was a strong piece of evidence which the Tribunal should have taken into consideration.

I now propose to deal with the comments made and the explanation given by learned counsel appearing for the assessee in respect of the four grounds given by the Tribunal for rejecting the claim of the assessee. As regards the first ground it was admitted that the Tribunal has not taken judicial notice of the fact that it is the usual practice in transactions of this nature to enter into agreement for purchase orally and the absence of documentary evidence to show that the assessee was required to undertake transactions on behalf of D. C. P. M. Ltd. should not have been made a ground for disallowing the claim of the assessee. The above contention has some force and it cannot be brushed aside. Regarding the second ground it was contended that, as it was the prevailing custom of the trade to debit the suppliers ledger with the actual payment, no entry was made in the books of account of the assessee immediately or periodically after the transaction, but adjustment entries were made after the relevant transactions of sale were completed. The above explanation was give on behalf of the assessee before the Tribunal but same was not accepted. The Tribunal has, however, not given any cogent ground for rejecting the explanation. The books of account are maintained by a business concern according to its own practice. There is nothing in the order of the Tribunal to show that the assessee had made immediate or periodical entries in respect of the transaction made on behalf of others and as such there was no valid ground for rejecting the explanation of the assessee. As regards the third ground, it was submitted that, as the purchase were financed by Albion Jute Company to the extent of Rs. 38, 94,050 and by New Central Jute Company to the extent of Rs. 30,22,040 and there was a credit balance of D. C. P. M. Ltd., to the extent of Rs. 7,48,396 there was no necessity of any advance by D. C. P. M. Ltd. The above facts are not new ones inasmuch as they are mentioned in the order of Income Tax Officer. The Tribunal has, however, not however not considered them. The third ground, therefor, which has been given by the Tribunal for rejecting the claim of the assessee loses much of its force. Regarding the fourth ground, namely the absence of entries of brokerage, commission, etc., in the books of the assessee for the service rendered as the agent of D. C. P. M. Ltd., it was submitted that as brokerage, etc. were directly paid to the assessee by Albion Jute Company and New Central Jute Company to whom the jute was ultimately sold, the assessee by Albion Jute Company and New Central Jute Company to whom the jute was ultimately sold, the assessee did not charge any brokerage or commission directly from D. C. P. M. Ltd. This was also not a new explanation of the assessee. The Tribunal has, however not expressed any view on the same and it was, therefore, rightly contended on behalf of the assessee that the ground given by the Tribunal is not cogent.

As we are concerned only with the ground given by the Tribunal for rejecting the claim of the assessee, I have not considered the various reasons which had been given by the Income Tax Officer and the Appellate Assistant Commissioner for rejecting the claim of the assessee. As I have already stated, the credit advice dated 31st August, 1951, sent by D. C. P. M. Ltd., crediting the assessee-company with Rs. 70, 27,578 as cost of the jute purchased, was a strong piece of evidence and the Tribunal has not given sufficient ground for ignoring the same. For the reasons stated above, I answer the question in favour of the assessee-company.

The reference is accordingly disposed of. The assessee-company will be entitled to a consolidated cost of Rs. 250 from the department.

MAHAPATRA J. - I agree.