WARTEX PHARMACEUTICALS (P) LTD. vs COMMISSIONER OF INCOME TAX

N. V. Balasubramanian, J.:

The assessee is a company. In the previous year ended 31-3-1979, relevant to the assessment year 1979-80, the assessee had placed an order on

6-4-1978, with one Kodiyar Chemical Corporation of Bombay for a supply of 10 kgs. of vitamin B-12 crystals at Rs. 85 per gram to be supplied

during the month of November and December, 1978 and in January 1979.

The offer was also accepted on 11-4-1978. However, this contract was cancelled on 30-10-1978, on the ground that the assessee did not require

the material at that time. By a letter dated 4-11-1978, the supplier protested against the cancellation and on 10-1-1979, an agreement was

reached, wherein, the assessee agreed to pay a compensation towards the breach at the rate of Rs. 20 per gram and there was a debit of Rs. 2

lakhs which was sent by a demand draft on 31-3-1979, and the supplier acknowledged it on 9-5-1979. It is also stated that there was another

transaction by which the assessee agreed to purchase goods on import entitlement of the value of Rs. 10 lakhs for a premium of Rs. 8 lakhs under

an agreement dated 7-8-1978, with one Ashwin Trading Company. On 29-11-1978, the assessee stated that it was arranging for funds and on

19-12-1978, this agreement was repudiated. This transaction was also settled by payment of Rs. 3 lakhs on 2-2-1979, the amount being sent by a

telegraphic transfer to the credit of Ashwin Trading Company and acknowledged by it on 15-5-1979. It is relevant to note that the company is a

proprietary concern of one Mr. Zatakia and when he was examined by the Asstt. Director of Inspection, he stated that the money was immediately

drawn from the bank and handed over back to Mr. Mohanchand Dada, the director of the assessee-company and that he had received only a sum

of Rs. 10,000 as commission. The Income Tax Officer, on the basis of the material came to the conclusion that the payments were not genuine and

he rejected the assessee''s claim for deduction of the amount on the ground that the assessee had not established that the transactions were true

and genuine. The Commissioner (Appeals) was of the view that the statement of Zatakia, could not be believed as it was a self-serving statement,

but however, he held that the deduction could not be allowed as the transaction was to be regarded as a speculative transaction.

The assessee filed an appeal against the order of the Commissioner (Appeals) and has produced documentary evidence in support of the two

transactions to show the transmission of money through banking channels and that the assessee had incurred expenditure and there was no

evidence contra to the statement of one Zatakia that he withdrew the money from the bank and gave it back to a director of the assessee-

company. The Tribunal found that this issue was not properly considered by marshalling the necessary evidence to test the veracity of the charge

because the CIT(A) had brushed aside the statement of Zatakia as a self-serving statement by repudiating the receipt of money. Mr. Zatakia stood

to gain as he need not pay tax on it. The Tribunal felt that the statement of Zatakia requires close scrutiny as there were contradictions in his

statement and his IT returns and the manner in which he had received the amount were not clarified. There was also no clarifications from the

assessee. The Tribunal also felt that to consider question whether the alleged suppliers were actually in the trade of supplying ''chemicals and the

Tribunal, therefore, remitted the matter to the Income Tax Officer for fresh consideration in accordance with law.

The assessee filed an application to state a case to this Court and the Tribunal has stated a case and the following question of law has been

referred to us for our consideration at the instance of the assessee:

Whether, on the facts and in the circumstances of the case, the Tribunal was right in setting aside the order of the Commissioner (Appeals) and

remitting the matter back to the Income Tax Officer for fresh disposal in respect of payments made by the applicant to Ashwin Trading Company

and Kodiyar Chemicals Corporation, Bombay when the question of genuineness of the transactions had become final and accepted by the

department as admittedly the department has neither filed appeal or any cross- objections ?

The learned counsel for the assessee submitted that the payment to Ashwin Trading Company and Kodiyar Chemical Corporation Ltd., have

been accepted as genuine and the Tribunal was not correct in remitting the matter back to the Income Tax Officer for fresh disposal. We are of the

view that the Tribunal is correct in directing the matter back to the Income Tax Officer for fresh disposal as the question whether the payments

made by the assessee were genuine and certain aspects in the question regarding the payments were required to be examined. The Tribunal came

to the conclusion that the evidence of Mr. Zatakia required close scrutiny as statements made by Mr. Zatakia were conflicting. The Tribunal also

felt that the transactions between the assessee and Ashwin Trading Company and Kodiyar Chemicals Corporation Ltd., Bombay, have not been

looked into as to whether they received the commission or not. Therefore, according to the Tribunal, the question as to whether the transactions

were genuine or not has to be decided and in this view, directed the Income Tax Officer to verify the question as to whether the transactions were

genuine or not. In our opinion that the Tribunal has exercised its discretion properly and directed the Income Tax Officer to consider the question

afresh. The Tribunal had before it the entire assessment and it is well settled that it has the jurisdiction and powers to pass such orders thereon as

the circumstances of the case would warrant. The question whether the payments should be allowed or not was the issue before it and, the

Tribunal has the necessary jurisdiction to remit the matter whether the payments can be regarded as genuine or not. In the circumstances of the

case, the view of the Tribunal that the entire transactions should be looked into including the question of genuineness cannot be faulted with as it felt

that there was no full and proper investigation of the facts. We find that there is no error in the order of the Tribunal in remitting the matter-back to

the Income Tax Officer to consider the question afresh as to whether the transactions are genuine or not.

Accordingly, we answer the question of law referred to us in the affirmative and against the assessee. The Revenue shall be entitled to costs in

the sum of Rs. 750 (rupee seven hundred and fifty only).

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