Case: Newton Chikli Collieries Limited Vs. Commissioner of Income Tax, M. P. and Bhopal

Messrs. Newton Chikli Collieries Limited, a private company registered under the Indian Companies Act, is the assessee appellant before us. It carried on the business of raising coal from a group of collieries known as the Newton Chikli Collieries. The controlling interest in thewas with certain Europeans till January, 1946, and one Mrs. Jackson was the managing director till January, 1946, when one K. C. Shah became the managing director. For the assessment yearrelating to the account year ending on December 31, 1948, thewas assessed toas well as business profits tax. In so assessing theax Officer added back a sum of Rs. 50, 000 on the ground that expenses under the head " wages and salaries " were inflated to that extent by theny showed a sum of Rs. 12, 18, 409 as expenses under the head " wages and salaries " for the year in question as against Rs. 8, 04, 766 for the preceding year. TheOfficer examined certain comparative figures of the coal despatched, wages and salaries claimed, and cost of raising per 100 tons of coal. These comparative figures raised a suspicion in the mind of theOfficer and he asked theto explain the reason for the abnormal increase in wages and salaries in the year of account. Thegave a reply to the effect that the increase was due to dearness allowance and bonus paid to the workmen under certain orders of the Ministry of Labour, Government of India, as per its resolution dated October 10, 1947. TheOfficer was not satisfied with the explanation and called upon theto file a comparative statement showing department wise salaries paid each year beginning from 1939. This comparative statement was not furnished by theIt filed, however, a statement showing the increased rates of salaries. The acquittance rolls were then called for and examined. So far as the workmen on weekly wages were concerned, thestated that no acquittance rolls existed ; for workmen on monthly wages acquittance rolls were produced. They revealed that most of the payments were acknowledged by persons other than the payees and even in the case of literate persons like engineers, payments were acknowledged by other persons by affixing their thumb impressions on the acquittance rolls. There were also cases in which there were no acknowledgments at all. On these materials theOfficer came to the conclusion that this was a case of inflated wages and he added back Rs. 50, 000 by his order of assessment. Thethen went up in appeal to the Appellate Assistant Commissioner ofNagpur. The Appellate Assistant Commissioner held that theOfficer was justified in his conclusion that the wages had been inflated. He came to the conclusion that the inflation was to the extent of Rs. 3 lakhs and not Rs. 50, 000 only. Accordingly, he added back the sum of Rs. 3 lakhs for purposes of the assessment in question. Thethen carried an appeal to theAppellate Tribunal, Bombay Bench " B ". The Tribunal said that if theauthorities, more particularly the Appellate Assistant Commissioner, had taken into consideration the fact that there was an increase in the number of workmen from about 1, 800 to about 2, 500 and also had taken into consideration the circumstances that in 1948 wages were directed to be increased all over as also dearness allowances as per the Government resolution dated October 10, 1947, then the increase in the wages in the relevant year could not be considered to be an exceptional increase. The Tribunal then concluded by saying " For such defects as were noticed in the keeping of acquittance rolls and wages record, we are of the opinion that the original addition of Rs. 50, 000, made by theOfficer for inflation in wages was quite sufficient. There was no justification in making a further addition of Rs. 2 1/2 lakhs. "Thethen moved the Tribunal under section 66(1) of the IndianAct, 1922, and section 19 of the Business Profits Tax Act, 1947, for a reference of certain questions of law arising out of the order of the Tribunal to the High Court. The Tribunal rejected the applications for reference on the ground that the finding as to inflation of wages was a finding of fact and no question of law arose out of it. It may be here stated that the application for a reference with regard to business profits tax rested on the same ground as the application with regard toBoth related to the question of inflation of wages and the adding back of Rs. 50, 000. It is, therefore, not necessary to deal with the assessment of business profits tax separately from that ofassessee then moved the then High Court of Nagpur under section 66(2) of the IndianAct and the High Court directed the Tribunal to state a case on the following three questions ofWhether there was any material before the Tribunal for the finding that the wages had been inflated?2. Is there any material on record supporting the estimate of Rs. 50, 000?3. Whether the disallowance of Rs. 50, 000 was a valid deduction from expenditure under section 10 of the Acte Tribunal then stated a case, and by its judgment and order dated February 24, 1955, the High Court answered the first two questions against the assessee and the third question being consequential was also answered against the assesseeThethen asked for and obtained special leave from this court and the present appeal has been filed in pursuance of leave granted by this Court

Reasoning: We do not think that theof the explanations given by theconverts the question of the inflation of wages, which is essentially a question of fact, into a question of law. The High Court was, therefore, right in its answer to the first questionAs to the second argument we do not think that thecan make any grievance on the score that no opportunity was given to it as contemplated by section 23(3) of the Act. Thedid not produce the comparative statement asked for by theOfficer. It filed a statement showing increased rates of salary which was of no help. It then produced the acquittance rolls of workmen on monthly wages. No acquittance rolls were produced in respect of workmen on weekly wages on the ground that such rolls did not exist. Section 23(3) does not contemplate that with regard to every reason which theOfficer formulates for his order, the assessee must be given an opportunity to produce fresh evidence or fresh explanation. TheOfficer fully considered whatever materials theproduced in reply to the notices issued to it or even independently of that notice. The Appellate Assistant Commissioner also considered the explanations which thegave with regard to the defects noticed by theOfficer. Indeed, the Tribunal accepted some of the explanations as good explanations ; yet the Tribunal found that the defects in the keeping of acquittance rolls or the wages record indicated an inflation of wages and held that theOfficer was right in adding back Rs. 50, 000 in respect thereof. This finding of the Tribunal can have only one meaning, namely, that there was an inflation of wages. Therefore, we are of opinion that it is idle on the part of theto contend that no opportunity was given to it to explain the defects in the acquittance rolls