COMMISSIONER OF INCOME TAX Vs. RAJENDRA RICE MILL

JUDGEMENT

(1.) THIS is a reference under Section 256(1) of the Income-tax Act, 1961, at the instance of the Revenue and the following question of law has been referred by the Tribunal for answer by this court :

(2.) THE brief facts giving rise to this reference application are that the assessee is a partnership firm deriving income from rice milling, purchase and sale of foodgrains and pulses. A return of income was filed on July 30, 1982, showing income of Rs. 49,356 and the assessment was completed on a total income of Rs. 10,72,440. THE Income-tax Officer made a disallowance of Rs. 8,72,130 under Section 40A(3) represented by payments shown to have been made being purchase price of rice to 57 different parties. THE Income-tax Officer observed that the managing partner of the assessee-firm, Shri Kanhaiyalal Kothari, drew the cheques, encashed these from the banks and himself received the payments from the bank. Shri Kothari deposed before the Income-tax Officer that he drew bearer cheques, got them encashed and paid cash to the parties, as they demanded cash payment. It was further stated that the parties did not agree to receive crossed cheques or crossed drafts and hence he himself encashed the cheques and paid to them. THE Income-tax Officer observed that the assessee-firm did not purchase anything from the alleged sellers, he enacted this drama and pocketed the money himself. THE Income-tax Officer also observed that these cheques were impounded by the police authorities. Shri Nema, learned counsel for the assessee, informs that those proceedings were filed as there was nothing substantial coming out of them. In this view of the matter, the Income-tax Officer found that the payments were made otherwise than as provided in Section 40A(3) and he made the addition/disallowance of Rs. 8,72,130 and completed the assessment. He also observed that subsequently he came to know that the truck numbers through which the goods were claimed to have been transported were actually numbers of cars, scooters, motor cycles, etc. This fact came to the notice of the Income-tax Officer after the assessment. THE matter was taken up in appeal before the Commissioner of Income-tax (Appeals) who reversed the finding of the Income-tax Officer and observed that if the Income-tax Officer had received certain information, then it is always open for him to proceed against the assessee in accordance with law after complying with the principles of natural justice. THE matter was taken up by the Revenue before the Tribunal and the Tribunal also affirmed the finding of the Commissioner of Income-tax (Appeals) and it was observed that it is covered by Rule 6DD and also the Board's Circular No. 220 (see, [1977] 108 ITR (St.) 8), dated May 31, 1977. Hence, the Revenue approached the Tribunal for making reference before this court of the aforesaid question of law.

(3.) LEARNED counsel for the Revenue has strenuously urged before us to show that the trucks through which the goods were said to have been received were not genuine ones and the numbers of trucks were some of the cars and scooters. Therefore, the whole transaction is doubtful. It may be true but essentially it is a question of fact. The Commissioner of Income-tax (Appeals) and the Tribunal were satisfied with the explanation given by the assessee on each of the 57 items. Therefore, there is no ground for us to go into this factual aspect. Hence, we are of the opinion that the Tribunal and the Commissioner of Income-tax (Appeals) have correctly approached the matter and, hence, we answer the question against the Revenue and in favour of the assessee. This will not prevent the Income-tax Officer from proceeding against the assessee on the basis of the facts discovered later in accordance with law.