MIS GANAPATHY & CO., BANGALOREversusTHE COMMISSIONER, INCOME TAX BANGALORE

                        [2016] 1 S.C.R. 187



            MIS GANAPATHY & CO., BANGALORE                             A
                                 v.
     THE COMMISSIONER, INCOME TAX BANGALORE
                  (Civil Appeal No. 1964 of 2008)
                        JANUARY 18, 2016                               B

      [RANJAN GOGOi AND PRAFULLA C. PANT, JJ.]
      Income Tax Act, 1961:
       Disallowance of service charges - Assessee claiming benefit
of disallowance of service charges paid to the Company - Assessing     C
officer as also CIT disallowed the said claim relying on the
explanation submitted for the previous assessment year and the
failure of assessee to furnish proof of service rendered by the
 company in the relevant assessment year - However, the tribunal
deleting the disallowance of service charges paid - High Court set
                                                                       0
aside the order of the tribunal - On appeal, held: If service had
been rendered to the assessee by the Company during the period
 under assessment and service charges had been paid for such service
 rendered, it was incumbent on the part of the assessee to adduce
proof of such service having been rendered during the period under
assessment which the assessee failed to do so - Thus, the High         E
Court was justified in setting aside the conclusion of the tribunal.
       Loss shown by the assessee in the film business - Deduction
- Claim of - Rejected by Assessing Officer and CIT, however, the
tribunal allowed the deduction taking into account the view recorded
in the another proceeding by tribunal in case of a sister concern - F
High Court held that the view taken by the tribunal in the matter of
sister concern untenable and set aside the order of the tribunal -
On appeal, held: Having regard to the facts and circumstances in
which the "investment" was made and "loss" claimed, the view taken
by the High Court that the entire transaction was a sham transaction
and was a calculated device to avoid tax liability cannot be faulted G
with.
       Donation made to Ashram by assessee - Claim of deduction
- Refused by Primary and First Appellate Authority on the ground
that the necessary certificate showing that the donee had complied
                                                                       H
                                187
188              SUPREME COURT REPORTS                      (2016] l S.C.R.


A     with the conditions subject to which registration was granted to it
      u/s. 35(2A) not produced by assessee - Tribunal allowing the
      asses see" s claim for deduction holding that the said conditions were
      not material - High Court allowed revenue's appeal holding that
      the said conditions were necessary preconditions to grant of statutory
      registration and had to be satisfied - On appeal, held: No such
B
      certificate had been furnished by assessee and also that all
      Authorities have consistently held that if and when such certificate
      is produced the consequential benefit can be afforded to the assessee
      - Thus, the view taken by High Court that assessee was not entitled
      to the benefit of donation made to donee was correct.
c        s. 256(2) - Statement of case to the High Court - Reference
  power - Exercise of. by High Court - Held: It is the tribunal which
  is the final fact finding authority and it is beyond the power of the
  High Court in the exercise of its reference jurisdiction to reconsider
  such findings on a reappraisal of the evidence and materials on
D record unless a specific question with regard to an issue of fact
  being opposed to the weight of the materials on record is raised in
  the reference before the High Court - On facts, each relevant fact
  considered by the High Court to answer the questions referred to it
  on the claims of deduction raised by the assessee are acknowledged,
  admitted and undisputed facts - No fresh determination of facts
E found by the tribunal have been made by the High Court - However,
  the High Court took into account certain additional facts, already
  on record, which were however not taken note of by the tribunal to
  arrive at its findings - There was no departure from the basic facts
  found by the tribunal - Difference in the approach between the
F tribunal and the High Court, therefore, is not one relating to
  determination of new or additional facts but was merely one of
  emphasis on facts - This was an exercise within the jurisdiction of
  the High Court in the exercise of its reference power under the
  provisions of the Act.
G           Karnani Properties Ltd. vs. Commissioner of Income-
            Tax, West Bengal 82 ITR 547; Rameshwar Prasad
            Bag/a vs. Commissioner of Income-Tax, U.P. 87 ITR
            421; Commissioner of Income-Tax, Bombay City vs.
            Greaves Cotton and Co.Ltd. 68 ITR 200; K.
            Ravindranathan Nair vs. Commissioner of Income-Tax
H           247 ITR 178 - referred to.
MIS GANAPATHY & CO., BANGALORE v. COMMISSIONER,                               189
            INCOME TAX BANGALORE

                        Ca~e Law Reference                                    A
82 ITR 547                        referred to.                 Para7
87 ITR 421                        referred to.                 Para7
68 ITR 200                        referred to ..               Para7
247 ITR 178                       referred to.                 Para 7         B

     CIVIL APPELLATE WRISDICTION: Civil Appeal No. 1964
of2008
      From the Judgment and Order dated 03.07 .2007 of the High Court
of Karnataka, Bangalore in ITRC No. 24 of 2001.
                                                                              c
       Dhruv Mehta, Yashraj Singh Deora, A. A. Kulkarni, Abhishek
Puri (for Mitter & Mitter Co.) for the Appellant.
      K. Radhakrishnan, Shirin Khajuria, Rupesh Kumar, Swarupama
Chaturvedi, Jilin Singhal, Anil Katiyar (for B. V. Balaram Das) for the·
Respondent.                                                              D
      The Judgment of the Court was delivered by
        RANJAN GOGOi, J. 1. The High Court of Karnataka by the
impugned order dated 3"' July, 2007 had answered the questions referred
to it for its opinion under Section 256(2) of the Income Tax Act, 1961 (as
it then existed) against the assessee and in favour of the revenue.           E
Aggrieved, the assessee has filed this appeal upon grant of leave under
Article 136 of the Constitution of India.
      2. At the outset, the questions of law on which the High court
had rendered its opinion may be set out as below.
                                                                              F
      "i.    Whether on the facts and in the circumstances of the case,
             the Income Tax Appellate Tribunal was right in law in deleting
             the disallowance of service charges paid to Mis Universal
             Trading Company made under Section 40A(2)?
      11.    Whether on the facts and in the circumstances of the case,       G
             the Tribunal was justified in holding that the loss shown by
             the assessee in the film business amounting to Rs.31,48,670/
             - was allowable?
      iii    Whether on the facts and in the circumstances of the case,
             the Tribunal was justified in allowing the assessee's claim
                                                                              H
190               SUPREME COURT REPORTS                         [2016] 1 S.C.R.


A                  for deduction under Section 35(2A) in respect of donation
                   to Aparna Ashram?"
            3. The necessary discussions can best be unfolded by taking up
      each of the claims of deduction made by the assessee which were decided
      against the assessee by the High Court by the order under challenge.
B           4. Disallowance of Service charges
             For the Assessment Year in question i.e. 1984-1985, the assessee
      claimed the benefit of disallowance of the service charges paid to one
      Mis Universal Trading Company ("UTC" for short). The Assessing
      Officer disallowed the said claim on the ground that in the proceedings
c     arising out of the Assessment Order for the previous year i.e. 1983-
      1984 the said claim had been negatived by the C.J.T. in appeal. The
      Assessing Officer, in addition, also took note of the fact that the
      membership in the asseessee-firm and UTC is common and one K.L.
      Srihari had a sizeable holding in each of the two firms. The Assessing
D     Officer also had regard to the fact, while disallowing the said claim, that
      the assessee had failed to provide proof of service rendered by UTC in
      the period covered by the Assessment Year in question. He also took
      note of the advice of a Chartered Accountant contained in a Note which
      was found in the course of a search proceeding. The said Note contained
      an advise to the assessee to include service charges to UTC as one of
E     the methods to reduce the incidence of Income Tax. The aforesaid
      conclusions of the Assessing Officer were upheld in Appeal by the CIT.
      Aggrieved, the Revenue filed an appeal before the Income Tax Appellate
      Tribunal ("ITAT" for short) which reversed the findings and conclusions
      of the Primary and First Appellate Authority primarily on the ground that
F     the order of the CIT (Appeals) in the earlier assessment proceeding,
      relied upon by the Assessing Officer, was reversed in appeal by the
      ITAT and also that in the course of said earlier assessment proceeding
      the legal effect of the advice tendered by the Chartered Accountant to
      reduce the incidence of Income Tax was found to be permissible in law.
      The High Court reversed the said conclusion of the ITAT which has
G     been challenged by the assessee in the present appeal.
             A reading of the order of the ITAT in favour of the assessee
      which has been reversed by the High Court would indicate that the
      learned ITAT did not address itself to a very fundamental issue that had
      arisen before it, namely, effect of the failure of the assessee to produce
H     evidence in support of the services claimed to have been rendered by
MIS GANAPATHY & CO., BANGALORE v. COMMISSIONER,                               191
       INCOME TAX BANGALORE [RANJAN GOGOI, J.]

UTC during the Assessment Year in question i.e. 1984-1985. The answer         A
given by the assessee in response to a specific query made by the
Assessing Officer in this regard was that explanations in this regard had
already been submitted for the previous Assessment Year i.e. 1983-
1984. If service had been rendered to the assessee by UTC during the
Assessment Year in question and service charges had been paid for             B
such service rendered, naturally, it was incumbent on the part of the
assessee to adduce proof of such service having been rendered during
the period under assessment. There is no dispute on the issue that the
assessee did not, in fact, offer any proof of the service rendered during
the Assessment Year in question. In such circumstances, the High Court
was perfectly justified in reversing the eventual conclusion of the learned   c
ITAT on the basis that the findings and conclusions recorded in the course
of the assessment proceedings of the previous year cannot foreclose
the findings that are required to be arrived at for the Assessment Year in
question i.e. 1984-1985. We, therefore, can find no fault with the order
of the High Court on the aforesaid score.
                                                                              D
       5. Disallowance ofloss shown by the assessee in Film business:
       The aforesaid claim had been negatived both by the Assessing
Officer and the learned CIT (Appeals) but relief had been afforded by
the learned ITAT. The learned !TAT while allowing the deduction appears
to have taken into account the view recorded in another proceeding by         E
the ITAT itself in the case of a sister concern [ITANo.3717/Mds/l 987].
The relief granted in the case of the sister concern in ITA No.3717/
Mds/1987 was on identical facts and, therefore, perhaps, ITAT did not
think it proper to depart from the view already taken in the said case of
the sister concern. However, the High Court found the aforesaid view
taken by the Tribunal in ITANo.3717/Mds/1987 to be wholly untenable           F
and, therefore, interfered with the reliance placed by the ITAT on the
aforesaid decision in the present case. There was no legal bar for the
High Court in taking the aforesaid view.
       Taking into account the above and the facts of the case which
have been set out by the High Court in paragraphs 29 and 30 of its order,     G
we do not see how the same can be faulted. Having regard to the facts
and circumstances in which the "investment" was made and "loss"
claimed, we can find no fault in the view taken by the High Court that
the entire transaction was a sham transaction and was a calculated devic~
to avoid tax liability.                                                       H
192                SUPREME COURT REPORTS                          [2016] l S.C.R.



A            6. Disallowance of donation to Aparna Ashram:
              Disallowance of donation made to Aparna Ashram by the assessee
      was refused by the Primary and First Appellate Authority on the ground
      that the necessary certificate showing that the donee (Aparna Ashram)
      had complied with the conditions subject to which registration was granted
B     to it under Section 35(2A) of the Act was not produced by the assessee
      so as to entitle it to the claim of deduction of the donation made. The
      learned !TAT took the view that the aforesaid conditions were not
      material. The High Court on due consideration found that the said
      conditions were necessary preconditions to the grant of statutory
      registration and had to be satisfied. There is no dispute on the fact that
c     no such certificate had been furnished by the assessee and also that all
      Authorities have consistently held that if and when such certificate is
      produced the consequential benefit can be afforded to the assessee. In
      the aforesaid circumstances, we do not see how the view taken by the
      High Court that the assessee was not entitled to the benefit of donation
D     made to Aparna Ashram can be faulted.
             7. An issue on which there could be little dispute on law,
      nevertheless, needs to be dealt with in view of the elaborate arguments
      advanced on behalf of the appellant - assessee, namely, that the High
      Court had relied on findings of fact independent of those considered by
E     the learned ITATwhich is the final fact finding authority. Reliance in this
      regard has been placed on several judgments of this Court to contend
      that issm:s of fact determined by the Tribunal are final and the High
      Court in exercise of its reference jurisdiction should not act as an appellate
      Court to review such findings of fact arrived at by the Tribunal by a
      process of reappreciation and reappraisal of the evidence on record.
F     The aforesaid position in law has been consistently laid down by this
      Court in several of its pronouncements out of which, illustratively,
      reference may be made to Kamani Properties Ltd. Vs. Commissioner
      oflncome-Tax. West Bengal [82 ITR 547], Rameshwar Prasad Bag/a
      vs. Commissioner oflncome-Tax, U.P. [87 ITR 421], Commissioner
G     of Income-Tax. Bombay City vs. Greaves Cotton and Co. Ltd. [68
      ITR 200] and K. Ravindranathan Nair vs. Commissioner of Income-
      Tax [24 7 ITR 178].
              8. The legal position in this regard .may be summed up by
      reiterating that it is the Tribunal which is the final fact finding authority
H     and it is beyond the power of the High Court in the exercise of its reference
MIS GANAPATHY & CO., BANGALORE v. COMMISSIONER,                                 193
       INCOME TAX BANGALORE [RANJAN GOGOI, J.]

jurisdiction to reconsider such findings on a reappraisal of the evidence       A
and materials on record unless a specific question with regard to an
issue of fact being opposed to the weight of the materials on record is
raised in the reference before the High Court.
       9. Having reiterated the above position in law we do not see
how the same can be said to have been transgressed by the impugned              B
order of the High Court. Each relevant fact considered by the High
Court to answer the questions referred to it on the claim(s) of deduction
raised by the appellant - assesee are acknowledged, admitted and
undisputed facts. No fresh determination of facts found by the Tribunal
have been made by the High Court. What, however, the High Court did
was to take into account certain additional facts, already on record, which     c
were however not taken note of by the Tribunal to arrive at its findings,
e.g., that the appellant - assessee had failed to furnish any proof of
service rendered by UTC in the course of the relevant Assessment Year
i.e. 1984-1985. Alternatively, the High Court construed certain facts as,
for example, compliance of the conditions subject to which registration         D
was granted to the Aparna Ashram under Section 35(2A) of the Act to
be of significance as against the contrary/different view of the learned
Tribunal on this score. There was no departure from the basic facts
found by the learned Tribunal in the two illustrative situations cited above,
namely, that (i) the assessee had not adduced any proof of service
rendered by UTC in the Assessment Year 1984-1985; (ii) that Aparna              E
Ashram had not complied with the conditions subject to which registration
had been granted to it under Section 35(2A) of the Act.
       10. The difference in the approach between the learned Tribunal
and the High Court, therefore, is not one relating to determination of
new or additional facts but was merely one of emphasis on facts on              F
which there is no dispute. This is surely an exercise that was within the
jurisdiction of the High Court in the exercise of its reference power
under the provisions of the Act as it then existed.
       11. For the aforesaid reasons, we find no fault in the view taken
by. the High Court while answering the questions referred to it.                G
Accordingly, the appeal is dismissed however without any order as to
costs.
Nidhi Jain                                                 Appeal dismissed.