TMI Blog1962 (9) TMI 94X X X X Extracts X X X X X X X X Extracts X X X X ..... 50 to 1952-53 the relevant account years being the calendar years 1948 to 1951. The question in substance that arises for consideration is whether the assessment orders, in which certain amounts paid to one B.M. Desai by way of commission were allowed to the assessee, are liable to be reopened under section 34(1)(b) of the Act, in consequence of certain observations made by the. Tribunal in its appellate orders. The assessee is a private limited company, in which the majority of shares are held by one Mr. K.T. Kubal and his two brothers, and the business carried on by the assessee is manufacturing different kinds of condiments, tin drums and kegs. One B. M, Desai is an employee of the assessee and his salary is ₹ 165 per month. He also holds 8 shares in the company out of its total of 128 shares. The company was incorporated on 1st January, 1945. It appears that every year in the relevant account years to assessment years 1947-48 to 1952-53, certain amounts are shown in the books of account of the assessee as having been paid to B, M. Desai by way of commission. In 1947-48 and in all the assessment years, the assessee claimed deduction in respect of the said payments of commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee claimed a deduction of the amount of ₹ 12,112. The statement of the case does not show that any fresh statement was made before the Income-tax Officer at this stage. On the basis of the order of the Appellate Assistant Commissioner for 1948-49, the Income-tax Officer allowed deduction to the extent of ₹ 3,000. The appeal for the balance taken to the Appellate Assistant Commissioner failed. The assessee took a further appeal to the Tribunal. The Tribunal has disposed of the appeals in respect of the four assessment years 1949-50, 1950-51, 1951-52 and 1952-53 by one order. We will therefore refer to the Tribunal's order later. In the assessment year 1950-51, the assessee claimed a deduction of ₹ 5,925 by way of commission to B.M. Desai. It appears that during the course of the assessment proceedings before the Income-tax Officer, a letter dated February 7, 1951, written by B.M. Desai to the assessee was placed before the Income-tax Officer. The said letter was written by Desai to the assessee in consequence of the inquiry made by the Income-tax Officer relating to these commissions. In this letter, Desai had stated : I have to state that it was nec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n rightly disallowed. In respect of similar claims made by the assessee for the remaining three assessment years, the Tribunal rejected them on the same ground as the one given for rejection of the appeal for 1949-50. Now, on the basis of the observations made by the Tribunal in this order that the Income-tax Officer could not have allowed even ₹ 3,000 which was also apart of the secret commission, the Income-tax Officer, after recording the reasons and obtaining the sanction, issued notices to the assessee under section 34(1)(b) of the Income-tax Act. The reasons recorded by the Income-tax Officer for reopening assessment for the year 1949-50 are in the following terms: The Income-tax Appellate Tribunal in their order dated December 1, 1953, have opined that ₹ 3,000 allowed out of the secret commission ought not to have been allowed. Similar reasons with appropriate figures were given for the remaining three years. Before the Income-tax Officer, the assessee raised two contentions, that there was no information in the possession of the Income-tax Officer in consequence of which he had reason to believe that chargeable profits had escaped assessment, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner had allowed the deduction to the extent of ₹ 2,963. Only the assessee had taken appeal against the disallowance of the balance of his claim. No appeal was taken by the Income-tax Officer against the order of the Appellate Assistant Commissioner and, therefore, the amounts already allowed by the Income-tax Officer were not the subject-matter of appeals before the Tribunal, and therefore the Tribunal had no jurisdiction to investigate into these matters. What the Tribunal could not have done by making an order in appeal, the Tribunal cannot do by directing reopening of the assessment under section 34. He referred us to a decision of this court in Puranmal Radhakishan and Company v. Commissioner of Income-tax [1957] 31 ITR 294 . Mr. Joshi, on the other hand, contends that these assessments were made by the Income-tax Officer on the basis of the representations made by the assessee that the commissions were in fact paid to Mr. Desai and not to others by way of secret commission. The Income-tax Officers were not aware, at the time they made assessments, that these amounts represented secret commissions paid by the assessee to others. This they knew for the first time when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... him, but that, in fact, the amount represented secret commission in the nature of illegal gratification which had to be passed on to others in the course of securing orders. In the first instance, therefore, the payment is not made to Mr. Desai for any services rendered by him. Secondly, the. company has not been able to prove to whom the payment was made, on the ground that the names of the payees could not be divulged. It has, therefore, not been proved to be a business expenditure incurred by the assessee company. The claim of the. assessee is unsustainable. The Appellate Assistant Commissioner appears to have been reasonable in allowing the claim to the extent of ₹ 3,000. Now, in the assessment year 1948-49, as already stated, the deduction of the amount claimed on this count was to the extent of ₹ 14,352. The Appellate Assistant Commissioner allowed only ₹ 3,000, and the appeal before the Tribunal related to the disallowance of the balance of the claim. This order of the Tribunal was before the Income-tax Officer. It is true that it was not before the Income-tax Officer when he made the assessment for the year 1949-50, but it was before the Appellate Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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