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Attorney(S)
  • Mr. BB Naik with Mrs. Mauna M. Bhatt 1,
  • Mr. JP Shah for Applicant: 1,
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  • D.A Mehta
  • S.R Brahmbhatt, JJ.
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Attorney(S)
  • Mr. BB Naik with Mrs. Mauna M. Bhatt 1,
  • Mr. JP Shah for Applicant: 1,
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  • D.A Mehta
  • S.R Brahmbhatt, JJ.
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Smart Summary

Structured Summary of the Oral Judgment (Per: Hon'ble Mr. Justice D.A. Mehta)

Factual and Procedural Background

This consolidated reference arises under Section 256(1) of the Income Tax Act, 1961 from the Income Tax Appellate Tribunal, Ahmedabad Bench “B”. The Tribunal forwarded:

  • Reference Application No. 86.Ahd/1998 — at the instance of the assessee (Assessment Year 1985-86), raising two questions about taxation of agent commission and estimation of scrap sales outside books;
  • Reference Application No. 103 and 104.Ahd/1998 — at the instance of the Revenue (Assessment Years 1981-82 and 1985-86) raising questions about disallowance under Section 37(3A) (advertisement expenses) and allowability of consultation payments (Rs. 2,00,000 to a sister concern).

Key factual matrix (as recorded in the impugned orders): The assessee company (a public company) filed returns and later revised a return. The Assessing Officer, on information from the Department of Revenue, found that foreign companies had paid various sums described as agent commission to persons (not directly to the company) — principally sums received or retained by Shri R.N. Amin (Managing Director) and Shri R.P. Jadeja — and subsequent remittances/transfers into the company’s bank accounts occurred in 1987. The Assessing Officer made additions on account of (a) agent commission (taxed in AY 1985-86) and (b) sale of scrap outside books (estimated additions). Commissioner (Appeals) and thereafter the Tribunal considered appeals, with mixed results; the present references raise the legal questions radiating from those findings.

Legal Issues Presented

  1. Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the commission was received by the assessee company in assessment year 1985-86?
  2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee had sold the scrap outside the books of account and in estimating the same at Rs. 3,00,000/-?
  3. Whether the Tribunal was justified in law in holding that the sum of Rs. 8,93,653/- (advertisement expenses) should be deleted for the purpose of computing disallowance under Section 37(3A)? (Reference No. 104.Ahd/1998)
  4. Whether the Tribunal was justified in law in holding that the payment for consultation services amounting to Rs. 2,00,000/- to a sister concern was allowable? (Reference No. 103.Ahd/1998)

Arguments of the Parties

Appellant's (Assessee's) Arguments

  • The assessee followed a cash system of accounting for receipts; commission was actually returned and taxed in Assessment Year 1988-89 on actual receipt from Shri R.N. Amin, and therefore could not be taxed in AY 1985-86.
  • Shri R.N. Amin had retained the commission funds personally (or in accounts controlled by him) and the company had no knowledge of those funds; evidences cited included statements under Section 131, letters (e.g., letter dated 1.4.1985 by Shri R.P. Jadeja), a letter dated 16.5.1987 by Shri R.N. Amin to the Chairman owning up retention, Board minutes (15.6.1987) criticising retention, and a declaration under the Voluntary Declaration Scheme (FERA) showing Amin’s personal declarations.
  • Reliance was placed on the principle (as invoked from Associated Banking Corporation of India Ltd. v. CIT) that knowledge of embezzlement or unauthorized retention is material, and only when company knowledge emerges can it be treated as company receipts.
  • On the scrap issue, the assessee contended there was no evidence that scrap beyond that recorded in books was sold; Commissioner (Appeals) had disallowed application of Section 145(2) in part and the Tribunal erred in sustaining an estimated addition without evidential basis. To support this, the assessee relied on six authorities (listed in the opinion) to contend that additions cannot be made without evidence.

Respondent's (Revenue's) Arguments

  • The Revenue relied on the communication dated 16.5.1987 (Annexure-18) where Shri Amin accepted he was Managing Director, had entered commission agreements on behalf of the company, and had received funds on behalf of the company; retention was for company working/enhancement of business rather than unauthorized personal retention.
  • The Revenue emphasised agency principles: Shri R.P. Jadeja was an authorised signatory and the company cannot distance itself from acts of an agent/authorized person. Therefore the receipts were in substance company receipts and taxable accordingly.
  • Regarding scrap, the Revenue pointed to the admitted poor state of accounts and the recorded admissions by company representatives which permitted the Assessing Officer to make an addition; therefore Commissioner (Appeals) and the Tribunal were justified in upholding a token estimated addition.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Associated Banking Corporation of India Ltd. v. Commissioner of Income-tax, Bombay (1956) ITR 1 Cited by assessee to contend that company knowledge is vital; only when embezzlement/unauthorised retention is known to the company can the funds be treated as company receipts. The Court considered this authority but found on the facts that the company, through its authorized persons and communications, was aware/connected with the receipts; therefore the principle did not tilt the outcome for the assessee and the Court rejected the submission based on this precedent.
Mrs. Hirabai D. Desai & Sons v. Commissioner of Income Tax, Bombay (1936) 4 ITR 95 (Bom) One of several authorities relied upon by assessee to support the proposition that additions cannot be made without evidence (in contesting estimated additions for scrap). The Court acknowledged the propositions in the cited authorities but held that, on the specific facts (state of accounts and admissions), a token estimated addition was justified and therefore sustained the Tribunal's approach.
Pandit Bros. v. Commissioner of Income-tax, Delhi (1954) 26 ITR 159 (Punjab) Cited by the assessee to support the contention that estimation/additions require evidential basis and cannot be made arbitrarily. As with the other precedents cited for this proposition, the Court noted the legal position but found the factual record in the present case (inherent lacunae in accounting and admissions) warranted upholding a token addition.
Bombay Cycle Stores Co. Ltd. v. Commissioner of Income-tax (1958) 33 ITR 13 (Bom) Invoked by assessee to challenge the Tribunal's sustaining of estimated additions without direct evidence. The Court accepted the general propositions from such cases but, applying them to the present facts, did not reverse the Tribunal's conclusion that a token addition should be sustained.
R.B. Bansilal Abirchand Spinning & Weaving Mills v. Commissioner of Income-tax, Poona (1970) 75 ITR 260 (Bom) Relied on by the assessee regarding limits on making estimated additions absent evidence. The Court reiterated that though the legal propositions are sound, the factual findings (poor record keeping and admissions) permitted the token addition; hence the precedent did not mandate reversal.
International Forest Co. v. Commissioner of Income-tax, Patiala (1975) 101 ITR 721 (J&K) Cited by the assessee for the principle that estimation without evidence is impermissible. The Court observed the precedent but found the facts here distinguishable because both the Commissioner (Appeals) and Tribunal recorded the poor state of accounts and admissions — thus sustaining the Tribunal's estimate.
Malani Ramjivan Jagannath v. Assistant Commissioner of Income-tax (2007) 207 CTR (Raj.) 19 Cited by the assessee among authorities to challenge estimated additions. The Court noted the authority but concluded that the Tribunal's factual findings justified the limited/token addition; the precedent did not require interference.
Commissioner of Income-tax v. Torrent Laboratories Pvt. Ltd. ((2000) 245 ITR 29) Cited by the assessee before this Court (for Reference No. 104) to support the deletion of the sum treated as advertisement expense for computation under Section 37(3A). The Court applied the ratio of this High Court decision, accepted the Tribunal's finding that the expenditure was technical literature distributed to dealers (not general advertisement), and answered the revenue's question in favour of the assessee (i.e., deleted the sum for computing disallowance u/s 37(3A)).

Court's Reasoning and Analysis

The Court proceeded by examining the documentary record and the findings recorded by the Assessing Officer, Commissioner (Appeals) and the Tribunal. The reasoning unfolded in distinct steps:

  1. On the contention that the Tribunal's order was vitiated by inadvertent errors (wrong names/descriptions in Paragraph 6 of the impugned order), the Court held that typographical or descriptive mistakes, when read in context and in the light of the overall order, do not vitiate the Tribunal’s decision. The assessee had sought rectification but had not raised vitiation on this ground earlier.
  2. On the commission receipts (first issue), the Court closely reviewed statements and communications from Shri R.N. Amin (statement dated 9.3.1989 under Section 131 and other communications such as the letter of 16.5.1987) and found:
    • Amin admitted entering into commission agreements as Managing Director and that such agreements were binding on the company (answers to Question Nos. 13 and 14 in his statement).
    • In Amin’s communications he did not state that funds were retained for his personal use; rather, he described retention as for working capital/rehabilitation or to enhance company business, and the funds were brought back due to changed market conditions.
    • The letter of 1.4.1985 (from Shri R.P. Jadeja to the Japanese corporation) used the company letterhead, identified Jadeja as an authorised signatory and described the Singapore office as a representative office — circumstances consistent with agency/authority on behalf of the company.
    • There was no evidence that the company took steps to recover alleged outstanding commissions after the accounting period; the inaction suggested company awareness and linkage to the receipts.
    On the basis of the above, the Court concluded that receipts described as commission were attributable to the company (received by Amin and/or Jadeja in relation to agreements entered into for and on behalf of the company) and could not be treated as personal receipts of those individuals. Thus, the Tribunal's finding that the commission amount was taxable in the hands of the assessee in AY 1985-86 was upheld.
  3. On the scrap estimation issue (second question in the assessee's reference), the Court acknowledged the legal propositions cited by the assessee (authorities restricting estimation without evidence). However, factual findings by both Commissioner (Appeals) and the Tribunal recorded that the company's books and controls were deficient and that admissions by company representatives showed the absence of adequate records and internal control. Commissioner (Appeals) had expressly retained a token addition of Rs. 3,00,000 "as suggested by the appellant" to meet inherent lacunae. Given these recorded factual circumstances, the Court found no reason to disturb the token estimated addition and therefore upheld the Tribunal.
  4. Reference No. 104 (advertisement expenses): The Tribunal had found that the expenditure (Rs. 8,99,653/- as recorded by the Tribunal) related to technical literature distributed to dealers and not to advertisement to the general public; the Court accepted this view and applied the ratio of Torrent Laboratories. Accordingly, the Court directed deletion of the sum for computing disallowance under Section 37(3A).
  5. Reference No. 103 (consultation services of Rs. 2,00,000 to a sister concern): The Tribunal found (Paragraph 19.1 of its order) that the expenditure was incurred for expansion of an existing project and was of a revenue nature. This factual conclusion was not disputed by Revenue’s counsel, and the Court found no reason to interfere; the payment was held allowable.

Holding and Implications

Summary of the Court's final answers and immediate consequences:

  • On the two questions referred at the instance of the assessee (Reference No. 86.Ahd/1998): Both questions are answered in the affirmative — i.e., in favour of the Revenue and against the assessee. Concretely:
    • The commission receipts (as described in the record and received via Shri R.N. Amin / Shri R.P. Jadeja) were held to be taxable in the hands of the assessee company for AY 1985-86.
    • The Tribunal’s estimate of Rs. 3,00,000 as an addition on account of sale of scrap outside the books was upheld (a token estimate justified by the recorded poor state of accounts and admissions), and sustained by the Court.
  • Reference No. 104.Ahd/1998 (advertisement expenses): The question whether Rs. 8,93,653/- (recorded by the Tribunal as Rs. 8,99,653/-) should be deleted for computing disallowance under Section 37(3A) is answered in the affirmative — i.e., in favour of the assessee and against the Revenue. The Tribunal’s finding that the expenditure was technical literature distributed to dealers (not public advertisement) was accepted and the sum deleted for the purpose of computing disallowance.
  • Reference No. 103.Ahd/1998 (consultation services): The question whether payment of Rs. 2,00,000/- to a sister concern for consultation services was allowable was answered in the affirmative — i.e., in favour of the assessee and against the Revenue. The Tribunal’s factual conclusion that the expenditure was for expansion and revenue in nature was not disturbed.

Implications: The direct effects are (a) the assessee-company is held liable to tax the commission receipts in AY 1985-86; (b) a token estimated addition of Rs. 3,00,000 towards sale of scrap outside books is sustained; (c) the advertisement-related disallowance under Section 37(3A) (approx. Rs. 8.9 lakh) is deleted; and (d) the consultation fee of Rs. 2,00,000 to a sister concern is allowed as revenue expenditure. The Court did not purport to lay down any novel legal precedent beyond applying existing authorities to the facts; several precedents were discussed but the Court’s answers turned significantly on its factual findings (authority/agency of Amin/Jadeja and the admitted poor state of record-keeping). The reference(s) were disposed of with no order as to costs.

Disposition: Reference stands disposed of accordingly with no order as to costs.

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    Jyoti Limited v. Income Tax

    ORAL JUDGMENT

    (Per: HONOURABLE MR. JUSTICE D.A MEHTA)

    1. The Income Tax Appellate Tribunal, Ahmedabad Bench “B”, Ahmedabad has forwarded a consolidated statement of case under Section 256(1) of the Income Tax Act, 1961 (the Act) in relation to Reference Application No. 86.Ahd/1998 at the behest of the assessee applicant for Assessment Year 1985-86, and in relation to Reference Application No. 103 and 104.Ahd/1998 at the behest of Revenue for Assessment Years 1981-82 and 1985-86.

    2. In case of the Reference, wherein the assessee is the applicant, Tribunal has referred the following two questions:

    (i) Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the commission was received by the assessee company in assessment year 1985-86?

    (ii) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee had sold the scrap outside the books of account and in estimating the same at Rs. 3,00,000/-?

    The assessee, a Company, in which public are substantially interested, filed its income of return originally on 28.6.1985, which was revised upward as per revised return of income filed on 30.09.1981 The Assessing Officer has recorded in Paragraph No. 4.2 of the assessment order dated 13.3.1989 that on receipt of certain information from the Department of Revenue, Ministry of Finance, Government of India, New Delhi vide letter No. F. No. 504/5/87-FTD dated 4.3.1987 it came to knowledge that the assessee Company had received a sum of US dollars 47,242 on 16.4.1985 as agent commission from a Japanese Company named Nisrbo Iwai Corporation, Tokyo, Japan.

    3. The Assessing Officer thereupon initiated necessary inquiries as to whether such commission had been entered in the books of accounts by the assessee Company. After seeking various adjournments the assessee Company vide letter dated 7.5.1987 stated “no agent commission from Nissho Iwai Corporation was either been received or credited in company's account in Singapore. We have, however, received an amount of Rs. 5,94,996 from Shri R.N Amin on 4.5.1987, which has been credited to the company's account in Baroda as commission received from Nissho Iwai Corporation, Japan by Shri R.N Amin.”. Ultimately after completion of the inquiries, the Assessing Officer came to the conclusion that the assessee Company had received the following amounts from different companies situated in Japan and West Germany.

    Name of the Company Date of receipt Amount received

    Toyo Denki Seizo K.R, Japan

    24.8.1983 2.10.1985 2.12.1985 June 1986

    Y 3,872,800 Y 1,074,000 Y 10,478,000

    Y 18,000,000

    Nissho Iwai Corporation, Japan 17.4.1985 DM 8669.19

    Ringfeder Gmbh, West Germany 22.11.1983 22.2.1984 20.7.1984 23.8.1984 7.12.1984 2.8.1985 19.11.1985 DM 8669.19 DM 1615.04 DM 2799.55 DM 1861.70 DM 1150.25 DM 2967.91 DM 10925.10

    This finding had been recorded by the Assessing Officer on the basis of the various evidences including statement of Shri Rahul N. Amin, the Managing Director of the Company. The Assessing Officer also further recorded that, as accepted by Shri R.N Amin, the following amounts were transferred to the account of the assessee Company in May and June, 1987.

    4.5.1987 5,94,996

    16.5.1987 22,90,406

    12.6.1987 2,28,240

    --------------------

    31,13,642

    US $ 47,242

    US $ 1,81,858

    US $ 18,000

    ---------------------

    US $ 2,47,100

    The Assessing Officer thus came to the conclusion that a sum of Rs. 2,60,568.towards agent commission was taxable in hands of the assessee Company for the year under consideration.

    0. When the matter was carried in Appeal, Commissioner (Appeals) accepted the stand of the Assessing Officer and dismissed the Appeal. The assessee therefore carried the matter in second appeal before the Tribunal and the Tribunal upheld that findings recorded by the Commissioner (Appeals) as Date of letter Amount in Indian Rupees Amount in foreign currency recorded in impugned order dated 13.10.1999

    1. In so far as the second issue regarding sale of scrap outside books, generated during the course of manufacturing activities, is concerned, the Assessing Officer made an addition to the tune of Rs. 61,74,512/- comprised of a sum of Rs. 30,87,256/- shown as sale of scrap in books of accounts of the Company and further addition of the balance amount. The assessee carried the matter in appeal in relation to the further addition, namely the amount of Rs. 30,87,256/-, which was added on application of provisions of Section 145(2) of the Act. Commissioner (Appeals) granted partial relief by holding that there was no basis for making addition to the tune of Rs. 30,87,256/- towards estimated sale of scrap as the admission made by Shri R.N Amin would not bind the company because Shri Amin was not a Managing Director at relevant point of time when such admission was made. However, Commissioner (Appeals) was of the opinion that the state of record maintained by the assessee was not full proof so as to enable the Assessing Officer to properly deduce the correct income for the year under consideration. Commissioner (Appeals) in this context recorded that - However, as admitted by the appellant itself that there is no control and/or check on the generation of scrap and discrepancy on such count is inherent in the very nature on account of the volume of business, size and organization, No. of units and No. of personnel handling the matter. To cover such inherent lacuna in the system as such it would be in order if a token addition of Rs. 3,00,000/- as suggested by the appellant is made which would be approximately little less than 10% of miscellaneous income on account of sale of scrap is added it would meet the ends of justice.”

    2. The assessee carried the matter in appeal before the Tribunal and the Tribunal upheld the findings recorded by the Commissioner (Appeals) by not only recording what Commissioner (Appeals) had recorded, but it was also recorded that “at the same time there is no denial of the fact that it has not been possible for the assessee to maintain complete records in this regard. There is no dispute that the assessee must have earned some profit on the sale of scrap. We are therefore of the opinion that the estimate of Rs. 3 lakhs sustained by the CIT(A) is justified. The same is accordingly upheld”.

    3. The learned counsel appearing for the applicant assessee assailed the impugned order of the Tribunal in relation to the first question principally on the ground that in so far commission receipts are concerned, assessee was constantly following Cash System of Accounting and the amount was returned as income in Assessment Year 1988-89, on the basis of actual receipt of the said amount from Shri R.N Amin. That in fact the assessee Company was not having any knowledge as to the amount of commission having been received by Shri R.N Amin. In support of the submissions made attention was invited to statement dated 9.3.1989 of Shri R.N Amin recorded under Section 131 of the Act to submit that the said gentleman had accepted in terms that he had entered into commission agreements with three foreign companies in his capacity as a Managing Director and hence when the commission was paid by the three foreign companies, Mr. Amin temporarily retained the amount with him by depositing the same in the account of one Shri R.P Jadeja, who was under control of Shri Amin. Reliance was placed on letter dated 1.4.1985, stated to be a copy of the communication from Shri R.P Jadeja to the Japanese Corporation as appearing at Annexure - 17 (Page No. 151). Reliance was also placed on letter dated 16.5.1987 addressed by Shri R.N Amin to the Chairman of the Company where Shri Amin had owned up having retained the funds. Attention was also invited to the minutes of the meeting of the Board, which took place on 15.6.1967, to point out that the Board itself had come to the conclusion that retention of funds by Shri R.N Amin with him personally, was unwise and imprudent. Thereafter, learned advocate pointed out a copy of the declaration made under the Scheme of Voluntary Declaration of foreign currency assets etc. to contend that such a declaration was made by Shri Amin in his personal capacity and said documents categorically reveal that the amounts had been retained by Shri Amin, either in the account of Shri Jadeja or younger brother of Shri Amin at Singapore or in U.S.A, and therefore, the assessee Company was nowhere in picture nor did the assessee company have any knowledge about such funds being retained by Shri Amin. That in fact the declaration made for violation of Foreign Exchange Regulation Act, 1973 as it stood at the relevant time, was accepted and violation condoned by Reserve Bank of India by granting the amnesty under the said Scheme. Mr. Shah therefore submitted that the entire evidence indicated that the Company had at no point of time any knowledge about the commission payment by the foreign companies, nor was the company in actual or constructive receipt of the amount in question, and the assessee company being governed by Cash System of Accounting in so far as receipts are concerned, cannot be taxed in the year under consideration.

    4. Shri Shah read extensively from the impugned order of the Tribunal to submit that on reading of the said order, it became clear that the Tribunal had taken into consideration irrelevant facts in Paragraph No. 6 of the order and therefore, the order was vitiated. It was submitted that the Tribunal has failed to appreciate the fact that the company was not in receipt of the commission amount till the point of time Shri R.N Amin brought the funds into India, deposited the same in his own separate account, and thereafter, transferred the same to the account of the Company. In support of the submission made, reliance has been placed on Apex Court decision in case of Associated Banking Corporation of India Ltd. v. Commissioner of Income-tax, Bombay, reported in 1956 (56) ITR p.1 to contend that only when the fact about embezzlement came to the knowledge of the Company, can it be stated that the Company is in any manner connected with such funds and thus, knowledge was a very important ingredient.

    5. In relation to the second issue, it was submitted that both, Commissioner (Appeals) and Tribunal had committed an error in law in sustaining the addition on account of sale of scrap only on a estimated basis without there being any evidence in this regard. If application of provision of Section 145 of the Act was not approved by Commissioner (Appeals) there could be no addition made without any evidence in support of such addition. That there was no evidence that any sale of scrap, over and above what was shown by the assessee, was ever made by the Company and such sale could not be presumed in absence of any evidence of sale of scrap outside books. In support of the submissions made, following six decisions were pressed into service:

    (i) Mrs. Hirabai D. Desai & sons v. The Commissioner of Income Tax, Bombay, reported in (1936) 4 ITR 95 (Bom);

    (ii) Pandit Bros. v. Commissioner of Income-tax, Delhi, reported in (1954) 26 ITR 159 (Punjab);

    (iii) Bombay Cycle Stores Co. Ltd. v. Commissioner of Income-tax, Madhya Pradesh and Bhandara, Nagpur, reported in (1958) 33 ITR 13 (Bom);

    (iv) R.B Bansilal Abirchand Spinning and Weaving Mills v. Commissioner of Income-tax, Poona, reported in (1970) 75 ITR 260 (Bom);

    (v) International Forest Co. v. Commissioner of Income-tax, Patiala, reported in (1975) 101 ITR 721 (J&K);

    (vi) Malani Ramjivan Jagannath v. Assistant Commissioner of Income-tax, reported in (2007) 207 CTR (Raj.)19.

    10. On behalf of Revenue, learned counsel placed reliance on the communication dated 16.5.1987 (Annexure-18) to submit that Shri Amin had accepted that he was Managing Director of the company, he had entered into commission agent agreements with foreign concerns on behalf of the Company and he had received the funds on behalf of the Company. That mere retention of the funds by Shri Amin would not absolve the Company from offering the said amount for taxation because in the said letter, addressed by Shri Amin to the Board of Directors of the Company, there was categorical admission that the funds of the company were retained for working of the company and for benefit of enhancing the business of the company. In other words, according to Mr. Naik, it was not a case of unauthorized retention of the funds, as the funds belonged to the Company, Shri Amin was then the Managing Director, and Shri R.P Jadeja, being an authorized signatory of the Company, the principle of Agency was fully established and the principal cannot distance itself from acts of the agent in such circumstances. Mr. Naik therefore supported the impugned order made by the Tribunal.

    11. In so far as second issue is concerned, it was submitted that there was a categorical admission on the part of representative of the Company as regards the state of accounts maintained by the Company, which would permit the Assessing Authority to make an addition. That at no point of time, the admission recored by Commissioner (Appeals) and Tribunal was disputed. Therefore, on this count also, according to learned advocate, the order of the Tribunal was justified.

    12. In rejoinder, Mr. Shah submitted that in so far as the second issue is concerned, for all successive years estimated addition on account of sale of scrap outside books was being made in every succeeding year by applying the ratio of 10% to the amount of sale of scrap shown in the books without there being any evidence in this regard. It was therefore urged that at least on this count the assessee was entitled to relief considering the legal position.

    13. In so far as the first issue is concerned, it is not possible to accept the stand of the assessee Company. It is true that if one reads a few lines of Paragraph No. 6 of the impugned order of the Tribunal, wherein inadvertent error in description of the parties, namely, names, has occurred, it may give a distorted picture if considered in isolation and shorn out of context. But such mistakes cannot be termed to be of such a nature so as to conclude that entire order stands vitiated. Merely because instead of the name of foreign company, at couple of places, the name of assessee company appears, it cannot be stated that irrelevant factors have been taken into consideration by the Tribunal while passing the impugned order. The order has to be read as a whole and inadvertent errors of description cannot vitiate the order. In this context, it is necessary to note that the assessee had moved the Tribunal by way of Miscellaneous Application No. 53.Ahd/1999 filed on 20.7.1988 seeking rectification of apparent error appearing in the impugned order dated 13.3.1988, but the said application did not raise the issue of the Tribunal having committed any apparent error on this count.

    14. On merits, if one examines the documents on which reliance has been placed, and which were before the Tribunal, it becomes apparent that Shri R.N Amin has accepted, not only in his statement recorded on oath, but even in his communication addressed to the Board of Directors that in his capacity as a Managing Director, he was entitled to enter into the agreements with both, Indian and foreign Companies on behalf of the Company and no separate resolution for this purpose was necessary (Question and Answer number 13 of the statement dated 9.3.1989). In response to Question No. 14 as to whether agreements were binding on the Company, Shri Amin categorically replied in affirmative stating that the agreements are binding on the Company. It is further stated in the communication that Mr. Amin did not have any intention to retain the funds for any other purpose except for the working of the company and only idea was to use the funds for enhancing the business of the Company. It is further stated in the communication that the funds were brought back considering the changed market situation in Malaysia and also the need of the Company for funds for rehabilitation. It is nowhere stated by Shri Amin in the said communication that funds were retained by Shri Amin for his personal purpose. Had it been so, the retention of funds by Shri Amin would have assumed a different colour.

    15. The communication dated 1.4.1985 calling upon the Japanese Corporation by Shri R.P Jadeja to make payment of commission to the account of Shri R.P Jadeja in Singapore, when read as a whole, indicates that the letter pad of the company was used, Shri R.P Jadeja has appended his signature as Authorized Signatory of the Company and the office of the Company at Singapore has been described in the said communication as representative office. Therefore, on overall reading of the entire evidence on record, it is not possible to accept the contention raised on behalf of the Company that the Company had no knowledge about the commission amount having been received by Shri Amin/Shri Jadeja for and on behalf of the Company.

    16. In fact when one examines the entire record, it becomes apparent that the entire exercise has been undertaken by the Company to absolve Shri Amin from violation of Foreign Exchange Regulation Act. There is nothing on the record to show as to what were the commission agent agreements about and apart from the names of three foreign concerns, there is no name of the principal situated in India with whom the foreign companies had transacted business so as to entitle the assessee company to any commission. Be that as it may, it is apparent that the amount described under the head ‘commission’ was received by Shri Amin and/or Shri Jadeja, in relation to commission agent agreements entered into by Shri Amin for and on behalf of the Company. The said agreements were binding on the Company and thus, the receipts by Shri Amin and/or Shri Jadeja cannot be termed to be receipts by the said individuals on their individual account. It is not even the case of the assessee that Shri Amin and/or Shri Jadeja were carrying on any business individually on their own, namely, independent of the business of assessee Company. The payments being under the agreements with foreign companies, receipt of the payment having been acknowledged by authorized person of the assessee Company, it is not possible to accept the contention that the assessee Company was not in receipt of any amount. It is also necessary to note that there is no evidence on record to suggest that despite the transactions having taken place during the accounting period namely 1.3.1983 to 30.6.1984, the assessee Company took any steps to recover the so called outstanding commission amount. The inaction on the part of the Company to realize the commission, after services having been rendered by the Company, which fact is not denied by the Company, itself indicates that the Company was in knowledge of the fact that the amount of commission had already been received by its authorized agent.

    17. In light of the aforesaid evidence on record, it is not possible to accept the submission that the Tribunal has committed any error while holding that the commission amount was taxable in hands of the assessee company for the Assessment Year in question namely 1985-86.

    18. In so far as the second issue is concerned, suffice it to state that there can be no dispute with the propositions laid down in the judgments cited on behalf of the assessee. However, in the facts of the present case as noted hereinbefore, both, Commissioner (Appeals) and Tribunal, have recorded, in no uncertain terms, the fact of state of accounts being of such a nature that there was an inherent lacuna in the system of accounting. Commissioner (Appeals) has further recorded that token addition has been retained “as suggested by the appellant”. Therefore, there is no question of entering into any further discussion on this count.

    19. In the result, both the questions referred at the instance of the assessee are answered in the affirmative i.e in favour of the revenue and against the assessee.

    20. In so far as Reference Application No. 104.Ahd/1998 is concerned, the only question that has been referred by the Tribunal reads as under:

    “1. Whether on the facts and in the circumstances of the case, the Tribunal is justified in law in holding that the sum of Rs. 8,93,653/- being advertisement expenses should be deleted for the purpose of computing disallowance u/s. 37(3A)”

    21. In so far as this question is concerned, the Tribunal has recorded as under:

    “We are of the opinion that the consideration of Rs. 8,99,653/- for computing the disallowance u/s. 37(3A) was not justified. The assessee is dealing in technical products and has to publish the materials and supply the same to the various dealers from time to time. This literature is meant only for the specified group of people. This only gives the details of goods manufactured and offered for sale in the market. In advertisement there has to be material provided to the people at large and such is not the case. Accordingly we are of the opinion that the CIT(A) was not justified in holding that the sum of Rs. 8,99,653/- was was rightly included for the purpose of computation u/s. 37(3A). We accordingly direct that this sum should be deleted for the purpose of computing disallowance u/s. 37(3A).”

    22. Learned counsel for the assessee placed reliance on decision of this Court in case of Commissioner of Income-tax v. Torrent Laboratories Pvt. Ltd., reported in (2000) 245 ITR 29, to submit that the issue stands concluded. The learned Standing counsel appearing on behalf of the respondent was not in a position to dispute the fact that the amount in question had been expended on publication and distribution of the literature giving details of the goods manufactured and offered for sale in the market as recorded by the Tribunal.

    23. Hence applying the ratio of the aforesaid judgment of this High Court, the aforesaid question at the instance of the revenue is answered in the affirmative i.e in favour of the assessee and against the revenue.

    24. In Reference Application No. 103.Ahd/1998, following question has been referred by the Tribunal at the instance of revenue:

    “Whether on the facts and in the circumstances of the case, the Tribunal is justified in law in holding that the payment for consultation services amounted to Rs. 2,00,000/- to sister concern as allowable.”

    25. In relation to this issue, the Tribunal has recorded in Paragraph No. 19.1 of the impugned order that the factory in question was not a new unit but the expenditure had been incurred for expansion of the existing project and was thus revenue in nature. This fact could not be disputed by learned advocate for the revenue.

    26. In the circumstances, no interference is warranted. The question is therefore answered in affirmative i.e in favour of the assessee and against the revenue.

    27. Reference stands disposed of accordingly with no order as to costs.

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