Delhi High Court

Dy. Cit vs Maya Machinery (P) Ltd. on 9 February, 2004

Equivalent citations: (2004) 90 TTJ Del 309

ORDER

DIVA SINGH, J.M.:

This is an appeal filed by the revenue against the order dated 5-1-2000, of Commissioner (Appeals), Muzaffarnagar, pertaining to 1996-97 assessment year. The ground raised reads as under :

"The learned Commissioner (Appeals) has erred in law and on facts in deleting the addition of Rs. 1,25,800 on account of disallowance of consultancy charges ignoring the fact that the expenditure claimed under this head was held by the assessing officer to be non-genuine and the facts of the case are discussed by the assessing officer in detail in the body of the assessment order. The assessing officer was, therefore, justified in making above addition on the facts and circumstances of the case."

2. The assessed-company derives its income by sale of sugar machinery equipments. It filed its return declaring a loss of Rs. 2,003 and the assessment was completed on an income of Rs. 1,23,800. The assessing officer observed that the assessed claimed to have paid consultancy charges of Rs. 1,85,800 to Mr. Ashok Bhardwaj (building architect), proprietor of M/s. Bhardwaj and Associates, Saharanpur. The details of payments as per the assessed were as under :

S. No.

Dateof Bill

Amt. of Bill

Mode of payment date & Cheque No.

Date of cheque

Amt. Of cheque

Person who has encashed the cheque

30-8-1995

42,500

Bearer Chq. No. 1033 dt. 22-2-1997

22-2-1997

1,460

Ashok Bhardwaj

1-11-1995

27,500

Bearer chq. No. 1107

26-5-1997

25,000

Rupish Rana

12-12-1995

30,800

Bearer Chq. No. 1109, dt. 26-5-1997

29-5-1997

40,000

Anil

20-2-1996

15,000

Bearer Chq. No. 1451, dt. 19-2-1998

28-2-1998

20,000

(name not clear)

28-1-1996

25,000

Bearer Chq. No. 1452, dt. 21-2-1998

21-2-1998

20,000

S.K. Gaur

20-2-1996

15,000

Bearer Chq. No. 1453, dt. 23-2-1998

23-2-1998

20,000

Mahesh Kumar

Bearer chq. No. 1454, dt. 28-2-1998

28-2-1998

20,000

Mahesh Kumar

The assessing officer observed from the perusal of the balance sheet of the assessedcompany that the entire amount of Rs. 1,85,800 remained payable at the close of the year. He observed that although the assessed-company has claimed to have raised the bill of Rs. 1,85,800 under the head consultancy charges in the name of Mr. Ashok Bhardwaj, however, not a single penny was paid to the said Ashok Bhardwaj and in fact the assessed- company has made the payment in respect of all the accounts debited in the P&L a/c during the year itself. Thus, this amount of Rs. 1,85,800 has in fact been claimed in the balance sheet under the head creditor/current. The assessing officer observing the fact that such consultancy charges have never been claimed by the assessed in the earlier years and the fact that a person who is supposed to have rendered the services has never claimed it disbelieved the assessed's version. He further noted that in fact Mr. Ashok Bhardwaj who is not assessed to tax has also never earned so much consultancy income and moreover Shri S.K. Gaur, the director of the assessed-company, who used to run the same business in the capacity of proprietary concern has also never claimed such expenditures in the subsequent years. Thus, the facturn of Mr. Ashok Bhardwaj of raising rendered consultancy services for framing the plant and machinery was questioned. The assessing officer being of the view that Mr. Ashok Bhardwaj did not know even the A, B, C, D of the contents of the bills which have supposedly been raised on his letter paid. Noting the fact that this was admitted by Mr. Ashok Bhardwaj himself in his statement recorded during the course of his assessment proceedings in the presence of the chartered accountant and director of the company, thus the assessed's version was not accepted. The assessing officer further observed that the assessed-company has not paid any amount out of the above consultancy charges to Mr. Bhardwaj in the financial years 1995-96 and 1996-97. He took note of the fact that Mr. Bhardwaj has accepted a payment of Rs. 1,460 by way of bearer cheque on 22-2-1997, No. 1033 and even the rest of the amount has been claimed to have been paid by the assessed-company by way of bearer cheques in the subsequent years. Accordingly, he was of the view that where was the necessity to issue bearer cheques in a gap of three years. On the perusal of the photocopy of the bearer cheques, it was noticed that the same have been encashed by the persons as mentioned in the details to the persons introduced by the director of the company. On enquiry, the assessing officer found that none of the persons who had encashed the above bearer cheques was found to be working with Mr. Ashok Bhardwaj. He further observed that the cheques in sequence number had been issued for different dates. When the payments were to be made by way of bearer cheques after a gap of almost three years, then where was the need to issue bearer cheques, the assessing officer questioned. He was of the view that if the work was actually carried out by Mr. Ashok Bhardwaj, building architect, in the relevant year then how have the payments been delayed for such a long period. He further was of the view that why the payment could not be made in the relevant financial year. Accordingly, he was of the view that the assessed-company has issued bearer -cheques and got them encashed through its own persons.

3. In the circumstances he was of the view that the entries have been purchased in the name of Mr. Ashok Bhardwaj and reliance was placed on the fact that Mr. Ashok Bhardwaj himself claimed that he has never rendered any services for installing/erecting any plant and machinery for sugar factory. From the facts of the case and considering the background of Mr. Ashok Bhardwaj, the assessing officer concluded that Mr. Bhardwaj was a petty man and a habitual drinker. Accordingly, for petty consideration, in the state of intoxication, he has signed these papers prepared on his letter pad without reading any bill. A perusal of the assessment order shows that relying on his statement and categorical denial regarding rendering of any consultancy services made in the presence of Mr. S.K. Gaur, Director of the assessed- company and his counsel, the authorised representative of the assessed-company, preferred a petition under section 144A before the learned Additional Commissioner, Dehradun, on 6-1-1999, for issue of directions to the assessing officer on the following points :

(i) Payment of Rs. 1,85,800 on account of consultancy charges for the relevant assessment year to the architect M/s. Bhardwaj & Associates, Saharanpur, be treated as genuine expenditure, and

(ii) The investment made by one of the directors of the company, viz., Smt. Meenakshi Gaur be treated as explained.

4. The Assistant Commissioner, Dehradun, after taking into account the contents of the facts, has asked my comments in respect of the above two points. In compliance to this, the undersigned, vide letter F. No. 144A/Dy. CIT/Cir-I/SRE/98-99/2273, dated 18-1-1999, has submitted a detailed report in respect of above points.

5. The Assistant Commissioner, Dehradun, after taking into account, the contents of the petition of the assessed- company and the comments of the undersigned passed an order under section 144A of the Income Tax Act, 1961, on 10-3-1999, and decided both the issues as per Annex. 'A' and the same is the part of this assessment order.

"I have carefully gone through the findings of the learned Assistant Commissioner, Dehradun, and accordingly I hereby disallow an amount of Rs. 1,25,800 out of the total consultancy charges of Rs. 1,85,800 and add it back to the total income of the assessed- company. "

6. Aggrieved by this, the assessed came in appeal before the first appellate authority. Various submissions were made on behalf of the assessed. It was submitted that the assessed had done fabrication of plant and machinery which was to be installed at the premises of M/s. Shakumbari Sugar & Allied Industries, village Todarpur, by M/s. Krup Industries India, Pune and the work did not involve installation. The services of Mr. Ashok Bhardwaj architect of M/s. Bhardwaj & Associates were hired for detailed drawings, designs, visit at site for taking correct dimension for fabrication, etc. It was further contended that the contract was genuine and all the bills have been raised by M/s. Bhardwaj & Associates for which reliance was placed upon copies of the bills. It was further contended that the assessed is maintaining regular books of account which have duly been audited. Thus, to say blank letters have been signed, is not correct. It was further contended that the Asstt. Commissioner (Appeals) in his order under section 144A has accepted that services have been rendered, as such, relief to the extent of Rs. 60,000 was directed. This fact it was argued proves that the contract was genuine and work has been undertaken by Mr. Ashok Bhardwaj. The contention was putforth that the assessed had offered Mr. Ashok Bhardwaj payment through crossed cheques. However, since he was not an income-tax assessed, he insisted on cash payment. In the said circumstances bearer cheques were issued. It was further contended that the certificate issued by the Manager, Central bank of India, would clearly indicate that payments have been received by M/s Ashok Bhardwaj & Associates by encashing the cheques and all the cheques have been signed by Mr. Ashok Bhardwaj himself. Reliance was also placed on the statement of Mr. Ashok Bhardwaj that he has undertaken the job of the assessed where he has admitted that he has rendered work for others for Rs. 60,000. Thus, it was argued that he has not denied that services have not been rendered to the assessed.

7. Considering the submissions, the Commissioner (Appeals) proceeded to delete the addition of Rs. 1,25,800 in the following manner :

"2.2 I have carefully considered the assessment order as well submissions made on behalf of the appellant. From the submission of the appellant and from analysis of the facts of the case, it becomes clear that :

(1) During the relevant period fabrication of sugar plant and machinery of the appellant was done by the concerns of village Todarpur and Pune who were not responsible for the installation and errection of the machinery.

(2) The services of Mr. Ashok Bhardwaj, architect, were obtained for detailed development of the drawings, designs and visit at the site of the appellantcompany. The design and visit to site were required for taking the correct dimensions for fabrication work.

(3) The contract was genuine one for which all bills have been raised by the said M/s. Bhardwaj & Associates. The appellant has maintained regular books of account which have been audited by the chartered accountant on 16-8-1998. No defects have been found in the books of account and there is no evidence to the effect that the bills were raised by Mr. Ashok Bhardwaj under the state of intoxication. As a matter of fact, the bills were typed and then signed by Ashok Bhardwaj. In his direction under section 144A, the Additional Commissioner, Dehradun, has accepted the genuineness of the payments made to Mr. Ashok Bhardwaj partly which indicate that the arrangement between the appellantcompany and consultant Mr. Ashok Bhardwaj was genuine.

(4) The payments were offered to Mr. Ashok Bhardwaj through crossed account payee cheques. However, Mr. Ashok Bhardwaj insisted on bearer cheques for payment. The cheques have been signed at the back of the cheques by Mr. Ashok Bhardwaj himself. This is contrary to the observation of the assessing officer in his order.

2.3 All these factors suggest that the genuine payments have been made to Mr. Ashok Bhardwaj for rendering consultancy charges as per bills raised by M/s. Bhardwaj & Associates. Having regard to the facts of the case, I am of the view that the consultancy charges to the tune of Rs. 1,25,800 are genuine because the same has been admitted to have been received by Mr. Ashok Bhardwaj who has signed the bearer cheques in this regard and on whose letter head bills were raised before the assessing officer. The appellant will get relief of Rs. 1,25,800 in this regard."

8. Aggrieved by this, the revenue is in appeal before us.

9. Learned Departmental Representative, placing reliance on the assessment order and referring to the paper book filed by the assessed which included the statement recorded by the assessing officer himself of Mr. Ashok Bhardwaj, vehemently contended that Mr. Ashok Bhardwaj has categorically denied that the bills had been signed by him or in fact raised by him. Referring to the same it was contended that Mr. Ashok Bhardwaj in fact stated that he is a habitual drinker and in the said state blank papers had been putforth before him which he had signed without going through their contents. It was further contended that in fact that he has admitted his signatures only on cheque No. 0063, dated 22-2-1997, and all the others as per his statement had been got signed by him when he was not in his senses. Referring to the statement recorded and relying upon it the learned Departmental Representative contended that the relief had been granted by the Commissioner (Appeals) without referring to the categorical denial of Mr. Ashok Bhardwaj, as such the issue has been decided in a cursory manner.

10. Learned authorised representative appearing on behalf of the assessed contended that Mr. Ashok Bhardwaj has admitted that he has given some services and has received Rs. 60,000 for it. As such, there was no reason or basis for the revenue to disallow Rs. 1,25,800 which has rightly been deleted by the Commissioner (Appeals). It was contended that unnecessary attention has been given to the fact that Shri Bhardwaj has signed the bills in an intoxicated state, on the contrary, it was argued that in an intoxicated state a person is likely to sit quietly at home and not sign documents. Accordingly, it was argued the statement of Mr. Ashok Bhardwaj to that extent deserves to be ignored. The contention was that when part of the payments have been held to be genuine then there is no reason or basis to disallow a part of it.

11. We have heard the rival submissions and perused the material available on record, and taken into consideration the orders of the tax authorities as well as the various pages of the paper book to which our attention, was invited. In the course of the hearing, learned authorised representative has placed reliance on the bank certifying that payments were received by M/s. Ashok Bhardwaj & Associates. After giving careful consideration to the entire facts and circumstances, we are of the view that in the peculiar facts of the case, the learned Commissioner (Appeals) was not justified in deleting the addition merely going on the fact that some services have been rendered by Mr. Ashok Bhardwaj. It is seen that the deletion has been made without referring to the statement recorded by the assessing officer of Mr. Ashok Bhardwaj. It is also seen from a perusal of the impugned order that there was no evidence before the Commissioner (Appeals) to come to the conclusion that Mr. Ashok Bhardwaj was offered crossed cheques which were refused by him. Without referring to the said evidence the Commissioner (Appeals) has come to the said conclusion disregarding the statement recorded by the assessing officer in the presence of the director and the authorised representative of the assessed-company of Shri Bhardwaj. The factum of the director, Shri S.K. Gaur encashing a crossed cheque No. 1452 dated 21-2-1998, of Rs. 20,000 has also not been considered. The fact that Shri S.K. Gaur was the Director of the company whose signatures are appended at p. 6 of the paper book filed before us which is the statement recorded of Mr. Ashok Bhardwaj in the presence of Shri S.K. Gaur, Director of the company, has also been completely ignored. It is seen that bearer cheque No. 1452 does not indicate any name so as to see who encashed and the certificate of the bank manager merely states that bearer cheque number has been encashed by M/s. Ashok Bhardwaj & Associates issued by the assessed. As such, it does not support the case of the assessed in any manner. The fact that a person supposedly a petty man, who has rendered services worth Rs. 1,85,000 has made no effort to claim it and the assessed-company relying on bearer cheques spread over a few years claims that the expenditure is genuine, in the face of the reasons discussed hereinabove, do not inspire confidence. Accordingly, for the reasons discussed above the grounds raised by the revenue deserve to be allowed. Ordered accordingly.,

12. In the result, the appeal filed by the revenue is allowed.