1980 (8) TMI 56 - HC - Income Tax

High Court Upholds Revenue in Section 147 Case, Disallows Salaries

Birla Jute Manufacturing Company Limited Versus Commissioner Of Income-Tax

The High Court ruled in favor of the revenue regarding the validity of proceedings under section 147 of the Income-tax Act, 1961, allowing fresh evidence ... Business Expenditure, Reassessment, Remand, Restricted Remand Issues Involved:1. Validity of proceedings under section 147 of the Income-tax Act, 1961.2. Justification of disallowance of salaries paid to Mrs. Kamala Devi Saboo.3. Justification of disallowance of salaries paid to Mr. S. P. Chhaochharia.4. Competence of the Tribunal to decide the allowability of salaries after remanding the appeal to the AAC.5. Whether the findings of the Tribunal were perverse and beyond the scope of enquiry under sections 28 and 37 of the Income-tax Act, 1961.Detailed Analysis:1. Validity of Proceedings under Section 147 of the Income-tax Act, 1961:The Tribunal admitted the additional ground regarding the initiation of proceedings under section 147, which was contended to be without jurisdiction and illegal. The Tribunal remanded this issue to the AAC for decision, restricting the investigation to facts already available on record. The High Court affirmed this decision, allowing both parties to adduce fresh evidence subject to admissibility by the appropriate authority.2. Justification of Disallowance of Salaries Paid to Mrs. Kamala Devi Saboo:The ITO disallowed the salary paid to Mrs. Saboo, citing lack of evidence of services rendered and her qualifications. The AAC partially allowed the salary as revenue expenditure, but the Tribunal restored the full disallowance. The Tribunal relied on the Supreme Court's decision in CIT v. Calcutta Agency Ltd., emphasizing the burden of proof on the assessee. The High Court upheld the Tribunal's decision, noting the absence of substantial evidence to prove that the salary was laid out wholly and exclusively for business purposes.3. Justification of Disallowance of Salaries Paid to Mr. S. P. Chhaochharia:The ITO disallowed the salary paid to Mr. Chhaochharia, stating he did not render any service to the company. The AAC upheld this disallowance, and the Tribunal agreed, citing lack of evidence of services rendered or practical training. The High Court affirmed the Tribunal's decision, as the assessee failed to justify the high remuneration paid to Mr. Chhaochharia.4. Competence of the Tribunal to Decide the Allowability of Salaries after Remanding the Appeal to the AAC:The High Court addressed whether the Tribunal was competent to decide the allowability of salaries after remanding the matter to the AAC. The Court held that the Tribunal was competent to decide the allowability of salaries, subject to the condition that parties could adduce fresh evidence before the appropriate authority.5. Whether the Findings of the Tribunal were Perverse and Beyond the Scope of Enquiry under Sections 28 and 37 of the Income-tax Act, 1961:The High Court examined whether the Tribunal's findings were perverse and beyond the scope of enquiry. The Court concluded that the Tribunal's findings were not perverse and were within the scope of sections 28 and 37, as the disallowance of salaries was justified due to lack of evidence of services rendered.Conclusion:The High Court answered the questions as follows:- For the assessment years 1961-62 to 1963-64 and 1964-65 to 1966-67, Question No. 1 was answered in the affirmative and in favor of the revenue, allowing fresh evidence subject to admissibility.- For the assessment years 1967-68 and 1968-69, Question No. 1 was answered in the affirmative and in favor of the revenue.- Question No. 2 for all assessment years was answered in the affirmative and in favor of the revenue.- Question No. 3 for all assessment years was answered in the negative and in favor of the revenue.Each party was ordered to pay and bear its own costs.