COMMISSIONER OF INCOME TAX Vs. UDHOJI SHRIKRISHNADAS

JUDGEMENT

(1.) THIS is a reference made by the I.T. Appellate Tribunal, referring for our answer the following question of law :

(2.) THE relevant assessment year is 1971-72, the accounting period for which ended on Diwali, 1970. THE facts briefly are that the assessee appointed another firm, M/s. Lalchand Shyamsunder, as the sole selling agent for the bidis manufactured by it. THEre is yet another firm bearing the name M/s. Mohanlal & Company from which the assessee purchased tobacco. It was conceded before the Tribunal that both these firms could be persons within Section 40A(2)(a) in the light of Section 40A(2)(b).

(3.) THE Tribunal's finding is that in addition to the payment of 10% of commission to the firm of M/s. Lalchand Shyamsunder, the assessee sold the bidis at a rate less than the market rate to enable that firm to earn additional profit. THE finding that there was a sale of bidis by the assessee to the firm of M/s. Lalchand Shyamsunder is a finding of fact. It is only by accepting this finding that we have to answer the question referred. On the finding so reached, it is clear that the amount of profit earned by M/s. Lalchand Shyamsunder on the sale of bidis cannot be taken to be an expenditure incurred by the assessee within the meaning of Section 40A(2)(a). THE expenditure incurred by the assessee was the commission. Even if the assessee sold bidis to the sole selling agents at a price less than the market rate, the difference between the market rate and the price at which the bidis were sold cannot, in our opinion, be termed as expenditure incurred by the assessee. On the finding reached by the Tribunal, it has to be held that the ITO was not right in adding Rs. 6,81,987 under Section 40A(2)(a).