- (1.) This appeal under Section 260 A of the Income Tax Act, 1961 (for brevity 'the Act') is directed against order dated 14.2.2000 rendered by the Income Tax Appellate Tribunal, Chandigarh Bench, Chandigarh (for brevity 'the Tribunal') in ITA No. 2176/ Chandi/ 1992 in respect of the assessment year 1989-90. The Revenue has claimed that following substantive questions of law would emerge for determination of this Court: 1. Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in allowing payment of Rs. 12,29,769/- made to M/s Blue Chip and Co., Faridabad and C & F Handling Charges ignoring the fact that there was no evidence to show that M/s Blue Chip & Co. had rendered any services to the Assessee- Company; and 2. Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal, was right in law in allowing payment of Rs. 38,02,950/- made to the Corporate Management Division of M/s United Breweries Ltd., Banglore ignoring the fact that there was no evidence to show that the Corporate Management Division of M/s United Breweries Ltd. had rendered any services to the Assessee Company already had a Technical Assistant Agreement with M/s United Breweries Ltd. regarding provisions to the assessee of know how for manufacturing Beer and for marketing and Distribution of Beer thereby exhaustively covering all aspects of Business. Brief facts of the case may first be set out to put the controversy in its proper prospective. The assessee- respondent was engaged in the manufacture and sale of beer of different brands. It was a closely held Company and a subsidiary of United Breweries Ltd. For the assessment year 1989-90 the Assessing Officer made a large number of additions. On the aforesaid two issues, the additions made are on account of payment made by the assessee- Company to M/s Blue Chip and Company, New Delhi on account of C & F handling charges. The assessee- company had obtained L-1 license at Faridabad and M/s Blue Chip. It was supposed to look after the sale of Mc Dowell Company. The assessee- company had also secured L-1 license from Herbertson and Company Ltd. Bombay for Faridabad. The assessee company was selling both Mc Dowell and Herbertson products till the assessment year 1986-87 without the help of any handling agent. It has opened a branch office at 674, Sector 16 A, Faridabad and had employed 8 persons for that office. For the first time, in respect of the assessment year 1987-88 the assessee company appointed M/s Blue Chip and Company as C & F handling agent for the purposes of sale of Mc Dowell products. In respect of the preceding assessment years i.e. 1987-88 and 1988-89, C & F handling charges claimed to have been paid to M/s Blue Chip & Company were disallowed. The Assessing Officer recorded various reasons in support of the view. One of the significant reason recorded by the Assessing Officer was that after close analysis of the evidence collected by the department and adduced by the assessee concerning services rendered by M/s Blue Chip & Company it was held that there was no material on record to show that any services were rendered by M/s Blue Chip and Company. It was also found that there was no evidence placed on record by the assessee to show that its sales were promoted by the appointment of the handling agent M/s Blue Chip and Company. From the various transactions between the Blue Chip & Company, Chairman and M.D. of United Breweries and others it was found that substantial part of the payment has been made to the Blue Chip & Company from the assessee- company as interest free loan to Shri Vijay Mallya and Smt. Samira Mallya. Agreement between the assessee company and M/s Blue Chip Company which forms the basis of C & F handling charges was found to be a sham transaction and a devise to reduce the assessee- company's taxable income as well as to create capital in the hands of Birinder Pal Singh, Proprietor of Blue Chip and Company and interest free liquidity in the hands of M/s United Breweries and Shri Vijay Mallya and his wife Smt. Samira Mallya. After the agreement, M/s Blue Chip and Company could not find any new buyer for the assessee and the sales of Mc Dowell products showed dramatic decline after the appointment as C & F handling agent. Therefore, the entire sum of Rs. 12,29,769/- was added to the declared income of the assessee.
(2.) On the aforesaid issue, the assessee filed appeal before the CIT (A), Ludhiana and the findings recorded by the Assessing Officer were upheld in paras 6.7 and 6.8 which reads as under: " 6.7 Considering the facts mentioned above and the reasons given by the ACIT and my order for the asstt. Year 1988-89 in appeal No. 41/IT/91-92/CII (A)(C) decided vide order dated 11.10.1991 the addition made is confirmed on the following grounds: i) Firstly that this L1 was earlier managed by the assessee company only and the results were much better at that time than when C & F has been given to Blue Chip and Co. and this has been forced upon the assessee by Mc Dowell and Co. at the instance of Chairman, Shri Vijaya Mallaya of U.B. group of Industries who has benefited by giving this business to M/s Blue Chip & Co. as has been proved by the ACIT. ii) Secondly, this is a sham transaction as the assessee's staff strength at Faridabad is not reduced by allotting the work to Blue Chip and Co. License fee for this L-I is also being paid by Punjab Breweries unlike in Ghaziabad Depot where License fee is collected from Max Trading Co. since the work was allotted to Blue Chip and Co. they have given interest free loans to Shri Vijaya Mallaya, his wife and director and other relations. It is not a genuine transaction but indirectly benefiting Mrs. Samira Mallaya wife of the Chairman and also Director of the company. 6.8 Considering the above facts the addition made is confirmed and the ground of appeal is dismissed."
(3.) Aggrieved by the aforesaid order of the CIT(A), the assessee respondent filed an appeal and the Tribunal made a reference to the statement of the counsel for the parties stating that the Tribunal in the preceding years 1987-88 and 1988-89 had decided the issue in favour of the assessee- respondent. However, it appears that the departmental representative categorically supported the order of the CIT(A) and yet the Tribunal proceeded to delete the additions.;