COMMISSIONER OF INCOME TAX Vs. ROHIT MILLS LIMITED

JUDGEMENT

(1.) The Tribunal has, at the instance of the Revenue, referred the following questions under S. 256(1) of the IT Act, 1961, for the opinion of this Court:

(2.) THE relevant assessment year is 1976 77. The assessee filed return of income on 22nd June, 1976, for the calendar year 1977 and inter alia claimed a sum of Rs. 12,605 on account of bank guarantee commission. The ITO disallowed the same on the ground that the guarantee being given for the purchase of the capital asset of the company, the expenditure constituted capital expenditure. While disallowing the same, the ITO granted depreciation of it, treating it as an addition to the value of machinery. On appeal, the CIT(A) allowed the expenditure following the decision of the Andhra Pradesh High Court in Addl. CIT vs. Akkamamba Textiles Ltd. (1979) 117 ITR 294 (AP) : TC 17R.1023. The Tribunal opined that the guarantee commission was required to be allowed as a proper revenue deduction. The question is now settled by the decisions of the Hon'ble Supreme Court in Addl. CIT vs. Akkamamba Textiles Ltd. (1998) 144 CTR (SC) 172 : (1997) 227 ITR 464 (SC) and CIT vs. Sivakami Mills Ltd. (1998) 144 CTR (SC) 172 : (1997) 227 ITR 465 (SC). The Supreme Court has, while confirming the decision of the High Court in Akkamamba Textiles Ltd. vs. Addl. CIT (supra), held that guarantee commission paid to a bank was revenue expenditure and hence, was an allowable deduction in computing the total income of the assessee in the relevant assessment year. The Tribunal was therefore, right in allowing the claim of the assessee for deduction of Rs. 12,605 being Bank guarantee commission as revenue expenditure and the question No. 1 is accordingly answered in the affirmative against the Revenue and in favour of the assessee. Question No. 2 :

(3.) IT has been contended on behalf of the Revenue that after the first draft assessment order was prepared and forwarded on 16th Feb., 1979 under S. 144B of the Act to the IAC, directions were received from the IAC by the ITO under S. 144A(1) of the said Act as recorded in paragraph 14.1 of the order of assessment dt. 11th Sept., 1979 and it was pursuant to those directions that the ITO had made investigations and forwarded the second draft assessment order on 25th April, 1979, which fact is mentioned in the directions issued by the IAC which are part of the final order of the ITO and annexed to it. It was submitted that the Tribunal overlooked this aspect and proceeded on an erroneous footing as if the IAC had, for the first time in his directions under S. 144B(4) of the Act, come up with the addition of the said amount. It was contended that during pendency of a reference under S. 144B, the IAC's powers under S. 144A(1) of the Act to issue directions in respect of matters which were not covered under the objections of the assessee as contemplated by s. 144B of the Act, were not taken away. It was submitted that the directions which were issued by the IAC under S. 144A(1) of the Act were only indicative of the lines of investigation, which was in fact pursued by the ITO by making enquiries in respect of the transactions with the said three companies, and before the ITO the assessee had full opportunity of being heard in the matter. It was submitted that it was not incumbent upon the IAC to hear the assessee before issuing the directions of this nature under the proviso to S. 144A(1) of the Act, whereby the ITO was only asked to make enquiries in respect of the sales carried out by the engineering division of the assessee to the three private limited companies. Reliance was placed by the learned counsel on the decision of the Kerala High Court in CIT vs. N. Krishnan (1988) 67 CTR (Ker) 276 : (1988) 172 ITR 604 (Ker) : TC 11R.387, the Karnataka High Court in CIT vs. M.S.P. Exports Pvt. Ltd. (1992) 104 CTR (Kar) 40 : (1992) 196 ITR 762 (Kar) : TC 11R.351, the Calcutta High Court in Arrah Sasaram Light Railway Co. Ltd. vs. CIT (1993) 204 ITR 807 (Cal) : TC 11R.341 and Shankar Lahiri vs. CIT (1995) 78 Taxman 364 (Cal), in support of his contentions.