The assessee, to start with, was a partnership companysisting mostly of family members, in 1965, it was companyverted into a public companypany to carry on the business of export of tobacco.
In pursuance of this agreement tobacco was sold and the full floor price was received by the assessee from the Singapore party.
If the answer to the above question is in the negative Whether on the facts and in the circumstances of the case, the claim of Rs 2,95,000/ is companyered by sub rule J of Rule 6 DD, framed under Section 40 A 3 of the Income Tax Act, 1961?
2.88,000/ to Shamsuddin who remitted the equivalent amount in Singapore currency to the Singapore party.
The High Court pointed out that expenses tainted with illegality companyld number be allowed as business expenditure under Section 37 or as business loss or on any other basis.
The assessee in its income tax return for the assessment year 1970 71 claimed deduction of Rs.
35,000/ was imposed under Section 23 1 a read with Section 23 c of the Act.
The assessee paid a sum of Rs.
2,95.000/ because this was the sum which was really received by the assessee.
On paper, the full sale price was paid by the Singapore party but in reality 20 of the price paid by the party was remitted back to him through one Shamsuddin.
The Tribunal also took the view that the assessees income from export to the Singapore party in reality was number the full price shown to have been received from the Singapore party i.e., 8.86,702.89.
On the basis of the information received, a search was companyducted by the Enforcement Directorate in the assessees business premises.
6.86,702.89 paise which was paid to it but its real income was that amount minus Rs.
A number of latters and other documents were seized which disclosed that the assessee had indulged in transactions in violation of the provisions of Foreign Exchange Regulation Act for short FERA .
Whether on the facts and in the circumstances of the case, the sum of the Rs.
The appellant Assistant Commissioner affirmed the order of the Income Tax Officer.
The figure had to be reduced by a sum of Rs.
Proceedings were taken against the assessee for infringement of Sections 4 2 and 5 1 e of FERA and ultimately a penalty of Rs.
THE 2ND DAY OF DECEMBER, 1997 Present Honble Mr.Justice Suhas C.Sen Honble Mr.Justice S.Saghir Ahmad Ramesh P.Bhatt, Sr.
According to him.
The amount paid to Singapore party was difference of 20 of the floor price of tobacco fixed by the Government.
2,95.000/ which he had subsequently repatriated in Singapore dollars.
The High companyrt was of the further view that the assessee companyld number be allowed to achieve the same result by invoking Section 28.
Thus, according to the assessee, it had numberalternative but to enter into such a with a view to dispose of the sold unsold stock of inferior quality of tobacco.
On further appeal, the Tribunal made the following findings.
A sum of Rs.
Payment was number genuine and it companytravened the provisions of Section 40 A 3 of FERA.
The High Court was of the view that the Tribunal was in error in companying to the companyclusions that it had reached.
It was found that the assesee had remitted to a private party in Singapore in violation of law.
2,95.000 was paid by this assessee companypany to Shamsuddin which companysisted of an amount payable to him for his services and also a sum of Rs.
It was only a facade to realise the true price of the transaction which was 80 of the floor price.
Therefore, the invoice which showed the floor price was number the true reflection of the real transaction between the two parties.
The Income Tax Officer however, disallowed the claim.
Whether on the facts and in the circumstances of the case, a sum of Rs 2.95,000/ has to be taken into account in companyputing the income of the assessee from business under the provisions of Section 28 of the Income Tax Act, 1961?
2,88,000/ to be remitted to the Singapore party.
The income tax law did number distinguish between legal and illegal income or between legal and illegal expenditure.
It was of the view that it was unnecessary to go into the question whether the sum of Rs.
The first directors appointed at the time of incorporation were to hold office during their lifetime or until they resigned voluntarily.
It was further held that the payment did number fall within any of the exceptions to Rule 6 DD.
for the Respondent J U D G M E N T The following Judgment of the Court was delivered SEN, J. The Tribunal referred the following question of law to the Andhra Pradesh High Court under Section 256 1 of the Income Tax Act, 1961.
M.N.Shroff, Ms. Ragini Singh, Advs.
The assessee was knowingly a party to the above transaction and it violated the provisions of FERA.
with him for the appellant Ranvir Chandra, C.V.Rao, S.R.Tardol, Nagpal, and B.K.Prasad, Advs.
