TMI Blog1973 (8) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... my. The purchases from the above two persons were at the rate of Rs. 980 and Rs. 871 per pothi for Cambodia and Karunguni, respectively. the above rates represent the ceiling prices fixed for Cambodia and Karurnguni cotton. But the rates at which Karunguni and Cambodia were purchased from some other persons were much less. The assessee had also paid for the cotton purchased from some others at the ceiling rates and such purchases amounted to Rs. 1,57,208. On an enquiry by the Income-tax Officer as to how the ceiling rates had been paid for the cotton purchased from the above two persons, the assessee stated that the cotton purchased from the above two persons really belonged to V. L. Balakrishnan, who is one of the managing partners of the managing agency firm that as the provisions of the Companies Act prohibited purchases from the managing agents, the purchases had been routed through the above two persons, and that the cotton purchased from V. L. Balakrishnan was really of a higher quality than the cotton purchased from others and had in f act been used in the manufacture of a higher count of yarn. The income-tax Officer, in the course of the assessment, found on evidence that K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision. At the instance of the revenue, the following question has been referred to this court : Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that there was no justification for the revenue authorities to make the addition of Rs. 40,000 for the assessment year 1957-58 ? " Before us, it is contended on behalf of the revenue that the Tribunal has proceed on an erroneous assumption that there has been an income addition on the basis of the only circumstance relating to the purchase of cotton at the ceiling prices. It is pointed out with reference to the orders passed by the Income-tax Officer and by the Appellate Assistant Commissioner that the addition came to be made in view of the defects in the account by invoking the proviso to section 13. The learned counsel for the revenue in the first instance contended that both the Income-tax Officer and the Appellate Assistant Commissioner proceeded on the basis that the assessee has inflated the purchase price of cotton to show a larger outlay than the actuals and that, in the face of their orders, the Tribunal is not justified in holding that the ceiling price has actually be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are found to have been effected partly to benefit the director, V. L. Balakrishnan, it is open to the Income-tax Officer to disallow such portion of the price as is found to have gone for the benefit of the director and that the disputed sum of Rs. 40,000 should in fact be taken to be the amount which has gone for the benefit of the director and not incurred for the business of the company. What in effect the revenue contends is that the addition of Rs. 40,000 could be justified as a disallowance for the portion of the amount said to have been expended for the purchase of cotton but actually paid out to the director. We are not, however, in a position to take the above finding given by the Income-tax Officer as conclusive of the question as to whether the director, V. L. Balakrishnan, did in fact get any benefit out of the purchase transactions and whether the disputed sum of Rs. 40,000 represented the actual benefit that arose out of the transactions. As a matter of fact, the Income-tax Officer has not given that finding based on any of the entries in the accounts of the assessee or on any enquiry made by him as to the actual benefit which has accrued to the director. He merely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contends that the question of reasonableness will arise only when the expenditure is shown to have been incurred wholly and exclusively for the purpose of the business, that the Income-tax Officer in this case has not embarked on the question of reasonableness, but is merely finding out whether the entire expenditure has been incurred wholly and exclusively for the purchase of cotton and that it is well within his jurisdiction to find out whether a portion of the expenditure has really been incurred wholly and exclusively for the business while applying the provisions of section 10(2)(xv). Reference is made by the learned counsel for the revenue to the decision in Bengal Enamel Works Ltd. v. Commissioner of Income-tax. But we are of the view that the said decision will not enable the revenue to cut up the expenditure really expended for the purpose of the business and find out whether a portion of the expenditure so cut up was entitled to the benefit of section 10(2)(xv). But, as a matter of fact, the Supreme Court in the said decision points out : " But the taxing authority may disallow an expenditure claimed on the ground that he payment is not real or is not incurred by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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