Hindusthan Tobacco Company v. CIT

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The Tax Publishers2013 TaxPub(DT) 0019 (Cal-HC) : (2014) 366 ITR 0282 : (2012) 211 TAXMAN 0111 : (2012) 077 DTR 0237 INCOME TAX ACT, 1961 --Assessment --Validity Violation of principles of natural justice--The assessee filed return of income in respect of assessment year 1994-95 showing total income. On perusal of profit and loss account, it was found that the assessee had debited a sum of Rs. 69,59,507 towards advertisement and sale. In the assessment year 1993-94, the amount so debited was Rs. 14,19,197 and in the assessment year 1992-93 was Rs. 2,03,507. In the course of scrutiny of such return, the assessee was called upon to furnish necessary details of expenditure as to how such steep rise had occurred on advertisement and sale promotion in that year. The assessee stated that the sale had gone up by nearly 17% in that year and hence, the sales promotion and advertisement expenses had to be increased correspondingly. It was found that although the sales in the said year had, in fact, gone up, net profit had suffered a drastic fall. Enquiry was made in the course of the assessment as to whether the assessee, who was a wholesale dealer of cigarettes of I.T.C. Ltd., was required to incur expenditure on advertisement and sales promotion and assessee was called upon to furnish a confirmation in this regard from its principal, namely, ITC. The assessee did not submit such confirmation whereupon the assessing officer wrote to ITC seeking clarification. Pursuant to the enquiries so conducted, the assessing officer in the course of assessment proceedings, pointed out to the material collected against the assessee and called upon him to respond thereto. This fact is evident from the order dated 11-3-1997 maintained by the assessing officer in the course of his assessment proceeding. Thereafter, by letter dated 12-3-1997 the assessing officer communicated to the assessee the materials collected against him in the course of such enquiry by the Inspectors and called upon the assessee to respond to the same. In reply to such letter, the assessee claimed that it had provided all information which was in its possession and control and also claimed that since the payments were made by account payee cheque such deduction of such expenditure as claimed ought to be allowed. With regard to the expenses relating to sampling and display of products, the assessee claimed that the cigarettes were distributed through hawkers, sales representatives and that they have no record in respect of each individual shop. It is relevant to note that in the aforesaid reply the assessee did not call upon the assessing officer to give a copy of the Inspector's Report or any other or further material. Nor did the assessee call upon the assessing officer to summon the individuals interrogated by the Inspector for cross-examination in the course of the assessment proceedings. The assessing officer, in conclusion of its assessment by the assessment order dated 31-3-1997, disallowed the various deductions claimed by the assessee, particularly deduction on account of expenses incurred through M/s. Grafic Circle, being expenses incurred for hiring of vehicles to the tune of Rs. 5,69,000, through M/s. U Printers to the tune of Rs. 15,56,658 on account of expenses incurred for printing through M/s. Ma T Enterprises to the tune of Rs. 5,93,900 on account of hiring manpower and on account of expenses incurred for sampling and displays to the tune of Rs. 27,68,607. The assessee, being aggrieved by such order of assessment, appealed before the CIT (A) wherein the assessee, inter alia, claimed that the assessing officer had proceeded with the assessment proceedings in violation of the principles of natural justice, inasmuch as copy of the Inspector's Report was not supplied to it and the persons who had been interrogated were not called for cross-examination. The assessee also claimed that the enquiries in the bank accounts of various entities through whom such expenditure were made, were undertaken behind back of the assessee and he was not given an opportunity to reout the same. Commissioner (Appeals), in its order, set aside the assessment order, inter alia, on the ground that the payments to M/s. M/s. G Circle, M/s. U Printers, and M/s. Ma T Enterprises were by account payee cheques and hence, the deduction of such expenditure ought not to have been disallowed. The disallowance of expenditure on the ground of display and sampling was also set aside by Commissioner (Appeals) on the ground that the assessing officer erred in law in rejecting such expenditure as unnecessary. The Third Member of the Tribunal upheld the disallowance of expenses by the assessing officer, inter alia, on the ground that the assessee was given adequate opportunity to rebut the materials collected against him and that it was the assessee who failed to discharge his initial onus to establish such claims for deduction. *Held:* Plea of violation of natural justice taken at the appellate stage appears to be belated and clearly an after-thought. It appears that no prejudice had been suffered by the assessee in the manner the proceeding was conducted by the assessing officer and the assessee was not aggrieved at that stage. Only when the assessment order went against it, the assessee conveniently raised such belated plea of denial of opportunity of fair hearing and breach of principles of natural justice. With regard to the enquiries made by Inspector in respect of the bank accounts of the entities through which expenditure had been made, no prejudice caused to the assessee, in as much as enquiries were made to ascertain the address of the said entities with a view to issue notice but neither any address was given in account opening forms nor was there any introducer to such account. Thus, enquiries made by Inspector were not in violation of principles of natural justice. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2013 TaxPub(DT) 0019 (Cal-HC) : (2014) 366 ITR 0282 : (2012) 211 TAXMAN 0111 : (2012) 077 DTR 0237

INCOME TAX ACT, 1961

--Assessment --Validity Violation of principles of natural justice--The assessee filed return of income in respect of assessment year 1994-95 showing total income. On perusal of profit and loss account, it was found that the assessee had debited a sum of Rs. 69,59,507 towards advertisement and sale. In the assessment year 1993-94, the amount so debited was Rs. 14,19,197 and in the assessment year 1992-93 was Rs. 2,03,507. In the course of scrutiny of such return, the assessee was called upon to furnish necessary details of expenditure as to how such steep rise had occurred on advertisement and sale promotion in that year. The assessee stated that the sale had gone up by nearly 17% in that year and hence, the sales promotion and advertisement expenses had to be increased correspondingly. It was found that although the sales in the said year had, in fact, gone up, net profit had suffered a drastic fall. Enquiry was made in the course of the assessment as to whether the assessee, who was a wholesale dealer of cigarettes of I.T.C. Ltd., was required to incur expenditure on advertisement and sales promotion and assessee was called upon to furnish a confirmation in this regard from its principal, namely, ITC. The assessee did not submit such confirmation whereupon the assessing officer wrote to ITC seeking clarification. Pursuant to the enquiries so conducted, the assessing officer in the course of assessment proceedings, pointed out to the material collected against the assessee and called upon him to respond thereto. This fact is evident from the order dated 11-3-1997 maintained by the assessing officer in the course of his assessment proceeding. Thereafter, by letter dated 12-3-1997 the assessing officer communicated to the assessee the materials collected against him in the course of such enquiry by the Inspectors and called upon the assessee to respond to the same. In reply to such letter, the assessee claimed that it had provided all information which was in its possession and control and also claimed that since the payments were made by account payee cheque such deduction of such expenditure as claimed ought to be allowed. With regard to the expenses relating to sampling and display of products, the assessee claimed that the cigarettes were distributed through hawkers, sales representatives and that they have no record in respect of each individual shop. It is relevant to note that in the aforesaid reply the assessee did not call upon the assessing officer to give a copy of the Inspector's Report or any other or further material. Nor did the assessee call upon the assessing officer to summon the individuals interrogated by the Inspector for cross-examination in the course of the assessment proceedings. The assessing officer, in conclusion of its assessment by the assessment order dated 31-3-1997, disallowed the various deductions claimed by the assessee, particularly deduction on account of expenses incurred through M/s. Grafic Circle, being expenses incurred for hiring of vehicles to the tune of Rs. 5,69,000, through M/s. U Printers to the tune of Rs. 15,56,658 on account of expenses incurred for printing through M/s. Ma T Enterprises to the tune of Rs. 5,93,900 on account of hiring manpower and on account of expenses incurred for sampling and displays to the tune of Rs. 27,68,607. The assessee, being aggrieved by such order of assessment, appealed before the CIT (A) wherein the assessee, inter alia, claimed that the assessing officer had proceeded with the assessment proceedings in violation of the principles of natural justice, inasmuch as copy of the Inspector's Report was not supplied to it and the persons who had been interrogated were not called for cross-examination. The assessee also claimed that the enquiries in the bank accounts of various entities through whom such expenditure were made, were undertaken behind back of the assessee and he was not given an opportunity to reout the same. Commissioner (Appeals), in its order, set aside the assessment order, inter alia, on the ground that the payments to M/s. M/s. G Circle, M/s. U Printers, and M/s. Ma T Enterprises were by account payee cheques and hence, the deduction of such expenditure ought not to have been disallowed. The disallowance of expenditure on the ground of display and sampling was also set aside by Commissioner (Appeals) on the ground that the assessing officer erred in law in rejecting such expenditure as unnecessary. The Third Member of the Tribunal upheld the disallowance of expenses by the assessing officer, inter alia, on the ground that the assessee was given adequate opportunity to rebut the materials collected against him and that it was the assessee who failed to discharge his initial onus to establish such claims for deduction. Held: Plea of violation of natural justice taken at the appellate stage appears to be belated and clearly an after-thought. It appears that no prejudice had been suffered by the assessee in the manner the proceeding was conducted by the assessing officer and the assessee was not aggrieved at that stage. Only when the assessment order went against it, the assessee conveniently raised such belated plea of denial of opportunity of fair hearing and breach of principles of natural justice. With regard to the enquiries made by Inspector in respect of the bank accounts of the entities through which expenditure had been made, no prejudice caused to the assessee, in as much as enquiries were made to ascertain the address of the said entities with a view to issue notice but neither any address was given in account opening forms nor was there any introducer to such account. Thus, enquiries made by Inspector were not in violation of principles of natural justice.