DR R.R.MISRA J - (1.) THIS reference made by the Tribunal relates to the asst. yr. 1965-66. The assessee-company manufacture sugar and also ran a distillery during the assessment year in question. The accounting year of the assessee ended on 30th Sept., 964. The method of accounting was the mercantile one.
(2.) THIS reference arises out of a consolidated. order passed by the Tribunal in two cross-appeals- one filed by the assessee and the other filed by the Department. The Tribunal has referred the following questions of law for the opinion of this Court: "1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the assessee was not entitled to the deduction of Rs.71,395 as a trading loss arising from the fabrication in purchase? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the assessee was not entitled to the deduction of Rs.19,199 as trading loss arising from the investment in U.P. State Development Loan for the asst. yr. 1965-66? 3. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the sum of Rs.36,745 payable by the assessee-company an interest under S. 3(3) of the U.P. Sugarcane (purchase) Tax Act,1961 was not an allowable deduction under S. 37(1) and/or s. 28 of the IT Act, 1961? 4. Whether, on the facts and in the circumstances of the case, the sum of Rs.3,572 paid as interest under S. 220(2) of the IT Act,1961 was an allowable deduction under S. 37(1) and/or S. 28 of the IT Act, 1961? 5. Whether, on the facts and in the circumstances of the case and having regard to the second proviso to r. 5 of the IT Rules, 1962, the Tribunal was right, in holding that the extra shift depreciation allowance for double and triple shift working in case of the assessee's factory was not to be calculated at 100 per cent of the normal depreciation allowance for the relevant previous year even though it worked triple shift during all the working season of that year?" We Shall now deal with each of the above questions one by one and refer to the relevant facts in regard to the same, the findings arrived at by the authorities below and opinion on the said questions.
(3.) QUESTION No.1 relates to the claim of the assessee to a deduction of Rs.71,395 as a trading loss arising from the fabricated purchase. The relevant facts with regard to this question are as follows: The assessee-company used to purchase sugarcane from different Co-operative Cane Unions, one of which was the Co-operative Cane Development Union Ltd., Muzaffarnagar (the society). The society had a number of centres including one at Bhopa where its members, who were the cane growers, brought sugarcane which used to be weighed at the mills weigh-bridge. During the period of normal purchases, the mills used to send indents to the society according to their requirements along with their basis. The society distributed parchis (also called purzis) among its members belonging to the area within the circle of a purchasing centre and the dates on which they were required to carry sugarcane to a particular centre was specified in these Purzis Towanls the close of the crushing season, when the supply of sugarcane declined and before the purchasing centres were closed, Bhopa centre was declared 'Free' by the mills after three days 'prior intimation to the society, During the period of free purchase, the society had to depute a clerk to the centre for issuing parchies to the farmers who brought their cane cart loads to the centre between 8 A.M. and sun-set time It was the duty of the society to announce the beginning of the period of free purchase by proclamation in the villages concerned, Sarvasri Som Dutt and Sant Ram were the weighment clerks on behalf of the mills and Shri Shaymlal had been deputed for the purpose of checking and supervision since 21st Feb., 1964 at the Bhopa Centre. These three officials of the mills were duly licensed by the Collector, Muzaffarnagar, as weighment clerks. Sarvasri Jai Prakash and Sardar Singh were the weighment and purzi clerk on behalf of the society. After the cart loaded with sugarcane has been placed at the weigh-bridge of the centre and the mills clerk had examined the society's purzi in which the name of the farmer and the date of delivery of sugacane were entered, the said clerk ascertained from the peon if the cart had been properly placed and if he replied in the affirmative, the clerk entered the name of the farmer, the name of the cart driver, the serial number of the society's parchi in the receipt (called the parchi) of which five copies were prepared. After the cart had been weighed, its weight was entered in the said parchi. The copies were delivered to the farmer of the driver of the cart, one was handed over to the society's clerk and the 4th was sent to the mills. The empty cart used to be weighed and its weight was also entered in the said parchi. The rate and price of the sugarcane were also entered therein. After the above formalities were carried out, the cane used to be loaded by the loading and unloading contractors of the mills and sent to the factory premises. The said parchis used to be made the basis of the liability of the company for payment of the sugar cane price and the price mentioned therein was the one which could be recovered from the society by the farmer or his authorised agent. The society in turn could recover the amount from the mills on the basis of the said parchis. In the first week of March 1964 the appellant assessee-company got the information that the mills staff had fled the Bhopa Centre. The led to enquiries and ultimately it was found that parchis to the extent of 9181 quintals and 4kgs. Of sugarcane valued at Rs.71,395 were fabricated by the mills staff in collusion with the society's staff and some of the farmers/ their agents. The said three employees of the mills and two employees of the society were tried by the Addi. Season Judge, Muzaffarnagar, under ss. 120B 407 and 420/511 of the IPC, 1860. Except for Shri Shaymlal all the other four accused were held guilty under ss. 120B and 420/511 and sentenced of two years' RI each. Their sentences were, however set aside by the High Court of Judicature at Allahbad on the ground that the prosecution failed to prove that the parchis in question were really fictitious parchis and were not genuine. The society submitted bill No.54 for cane supplied on 3rd March, 1964 for Rs.82,415.22 and the appellant-company vide voucher No. 4894 dt. 30th May, 1964 credited a sum of Rs.11,019.83 to the said society's account and Rs.71,385 to the 'cane price under dispute' account. The corresponding debit was given to the 'cane price account' and the entire amount including the disputed amount of Rs.71,395 was claimed in the profit and loss account and deduction.;