ASSAM PESTICIDES AND AGRO CHEMICALS Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE following questions of law were referred for the opinion of the High Court :

(2.) THE assessee is a firm maintaining the mercantile system of accounting. In the asst. year 1980 - 81, the assessee, amongst other things, claimed a deduction of Rs. 64,745 on account of discount payment out of which Rs. 60,644 was paid to Agro India, a sister -concern of the assessee. The AO pointed out that during the earlier year payment on account of discount was only to the extent of Rs. 7,702. He looked into the claim of the assessee which was made on the basis of the agreement dt. 1st April, 1979. There were discount payments to other parties also. According to the assessee, Agro India was well versed with the sale of products dealt with by the assessee, i.e., seeds and pesticides. The AO found that in the said firm, Smt. Vidya Jhingram, Shri Sunil Jhingram and Shri Prabhat Jhingram, were partners as on 1st April, 1979, and the assessee's accounting year started from 1st April, 1979, and ended on 31st March, 1980, and that is why the AO observed that this fact would go to doubt the veracity of the statement of the assessee in the agreement that Agro India was experienced in the line. He noted that there was a reconstitution of the firm on 1st April, 1979, when some partners were taken in. He mentioned that Shri Sunil Jhingram is a common partner in both the firms and the other partners were not. The AO disbelieved the claim that Agro India was experienced in the line. He also noted that the agreement was made on a stamp paper of Rs. 7 which was purchased on 5th April, 1979, though the agreement was purported to have been drawn up and executed on 1st April, 1979. He, therefore, concluded that the agreement was bogus and false. He also found that the areas covered continued to be the same even after the introduction of the agent, i.e., Agro India. He noted that the agreement made was simply a device to reduce the income of the assessee by applying the same to other members of the family of the partners, who, in fact, did not render services to the assessee. He disallowed the claim.

(3.) THE assessee took up the matter before the CIT(A) who heard both the sides. He considered the material placed before him relating to the acquisition of the rubber stamp to show that there were correspondence or letters between the assessee and Agro India regarding appointment even prior to the date of execution of the deed. The CIT(A) found that there were vouchers dt. 1st April, 1979, regarding purchase of rubber stamp and there was no reason to suspect the existence of the rubber stamp on that day which was used by the assessee in the correspondence. He also noted that why Shri Sunil Jhingram did not put his signature on the same date on the agreement when it was purported to have been executed on 1st April, 1979. The CIT(A) observed that there was no doubt that the agreement was in existence in the month of April, 1979, and it was possible that the date, i.e., 1st April, 1979, has been misplaced. He pointed out that Agro India has started to receive payment later on. On the reasons recorded by him, the CIT(A) accepted the claim of the assessee.