COMMISSIONER OF INCOME TAX Vs. PREMIER BREWERIES LIMITED

JUDGEMENT

(1.) PURSUANT to the direction given by this court in an application under Section 256(2) of the Income-tax Act, 1961 (in short, "the Act"), the following question has been referred for opinion by the Income-tax Appellate Tribunal, Cochin Bench (in short, "the Tribunal") :

(2.) THE factual position, as set out in the statement of facts, is as follows : THE assessee, a public limited company, is engaged in the manufacture and sale of beer. THE assessment year involved is 1985-86, the relevant previous year being the calendar year 1984. In the course of assessment proceedings', the Assessing Officer noticed a sum of Rs. 9,89,200 under the head "Machinery and electrical repairs". Details were called for. THE asses-see supported its claim by producing 16 bills of various dates from December 2, 1984, to December 31, 1984, issued by one Elgi Equipments Ltd., Coimbatore. THE Assessing Officer found that the said bills issued to the assessee did not figure in their ledger and the trade balance with the asses-see was only Rs. 5,583.20 as on December 31, 1984, as against Rs. 9,98,200 appearing to their credit in the books of the assessee. THE assessee, by its letter dated February 24, 1988, contended that the bills are genuine and bona fide and that they have made payments to them only in discharge of those bills. THE Assessing Officer called upon Elgi Equipments to explain its stand. According to them, Elgi Equipments did not do any repairs, but had supplied one new unit of pastueriser to the assessee. THE Assessing Officer had also obtained a statement from one Shri P. E. Menon, a labour contractor, attached to Elgi Equipments, stating that the old pastueriser was dismantled and after dismantling, the new unit was installed. THE Assessing Officer also obtained a statement from the production engineer of Elgi Equipments in support of their stand. THE Assessing Officer also collected gate passes from Elgi Equipments and referred to certain expenses claimed by Shri Menon, the labour contractor, and also certificates filed by Elgi Equipments to the effect that new pastuerising unit supplied by it on July 31, 1985, was commissioned on November 23, 1987. From these facts, the Assessing Officer concluded that no repair work was done as alleged by the assessee before December 31, 1984, and that there was a capital expenditure on a new plant incurred after the end of the account ing year and that the assessee had tried to take undue advantage of tax benefit by setting up a claim of revenue expenditure. THE Assessing" Officer, thus, disallowed the sum of Rs. 9,98,251. THE assessee filed an appeal against the disallowance and contended that the assessee was not given reasonable opportunity to rebut the materials collected and that there was violation of the principles of natural justice. THE assessee also produced certain evidence in its defence. THE Commissioner of Income-tax (Appeals) (in short, "the CIT(A)"), declined to admit the evidence on the ground that they were produced for the first time before him. He sustained the assessment on the basis of material gathered by the Assessing Officer holding that it is not necessary for him to decide the issue whether the assessee had purchased a new plant in the subsequent year. In second appeal, the Tribunal held that the Commissioner of Income-tax (Appeals) did not entertain some material which was contained in the paper book filed in the course of appeal hearing, but the lapse on the part of the Commissioner of Income-tax (Appeals) was venial and did not go to the root of the matter. As for failure of natural justice in not providing copies of sworn statements and the result of the private enquiries made by the Assessing Officer, the Tribunal observed that "we would like to state that in the depositions made by Sri Amirthalingam before the Assessing Officer, he had stated only that which was conveyed to the Assessing Officer in the earlier correspondence and this earlier correspondence was shown to Sri Venkataraman, chief executive of the assessee. In such circumstances, it is difficult to conceive how the assessee could claim that there had been violation of natural justice". In addition, the Tribunal proceeded to take notice of a letter filed by Elgi Equipments in the course of penalty proceedings, in which it was alleged that the assessee wanted that party to make 16 bills to match exactly with the amount raised in the invoice. This letter was obtained in the course of penalty proceedings. This letter was not put to the assessee. THErefore, the assessee vehemently objected in the quantum appeal to the Tribunal considering that letter. But the objections were brushed aside. Thus addition was sustained by the Tribunal. THE Deputy Commissioner of Income-tax (Appeals) by letter dated March 21, 1988, called upon the assessee to show cause why penalty should not be levied for concealment of income or for having furnished inaccurate particulars of income. THE assessee denied the allegation and contended that certain statements were taken behind its back and used against it and it had not been furnished with copies of the same. Overruling the objection, the Deputy Commissioner of Income-tax (Appeals) levied penalty under Section 271(1)(c) of the Act. On appeal, the Commissioner of Income-tax (Appeals) after referring to its earlier findings, observed that the explanation offered by the assessee was false and the amount added to its income represented its concealed income and the levy of penalty was justified. THE assessee went in appeal before the Tribunal.

(3.) FIRST, we shall deal with the conclusions of the Tribunal vis-a-vis the question relating to natural justice. On that aspect, it is necessary to take note of certain observations made by this court while dealing with the reference relating to the quantum appeal. They are as follows :