TMI Blog2002 (6) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 37(1) of the Income-tax Act in computing the business income of the assessee?" In addition to the above two questions referred by the Income-tax Appellate Tribunal, this court by its order dated November 1, 1995 (CIT v. Transport Corporation of India Ltd. [1996] 221 ITR 127), in I. T. C. Nos. 36 of 1992 and 22 of 1993 directed the Tribunal to refer the following question which, for convenience sake, is described as question No. 3: "3. Whether, on the material available in the case, the findings given by the Tribunal with regard to the genuineness and quantum of deductions to be allowed under the head of 'Secret commission' are perverse and based on irrelevant considerations?" The facts of the case be noted first: The assessee, viz., Transport Corporation of India Limited, Secunderabad, is one of the largest cargo movers in the country and it has more than 600 branches scattered throughout the country during the relevant previous years. According to the assessee, the business of transport of goods is highly competitive and in order to survive in the business and sustain the regular business flow, it had to pay commission to the employees of the contracting partie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the first place, the assessee had utterly failed to place any satisfactory materials and evidence before the assessing authority to show that as a matter of fact, it paid secret commission as claimed by it during the relevant assessment years and that the Tribunal had wrongly placed the burden on the Department. Learned counsel contended that it is well settled that when an assessee claims this allowance under section 37(1) of the Act, it is his or its burden to prove that the payment was made by him or it. Learned standing counsel contended that the alleged payment made by the assessee-company is opposed to public policy and therefore, not allowable under section 37(1) of the Act. Learned standing counsel contended that the judgment of this court in CIT v. Kodandarama and Co. [1983] 144 ITR 395 and the judgment of the Bombay High Court in Goodlas Nerolac Paints Ltd. v. CIT [1982] 137 ITR 58 clinch the controversy as regards the questions referred to this court and that the questions have to be answered in favour of the Revenue and against the assessee in the light of those judgments. On the other hand, Sri Y. Ratnakar, learned counsel appearing for the assessee, at the thresho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... V (section 80VV was omitted with effect from April 1, 1986); (ii) The expenditure should not be of the nature of capital expenditure ; (iii) It should not be a personal expenditure; and (iv) The expenditure should have been laid out or expended wholly and exclusively for the purposes of the business or profession. It is thus clear that conditions at (i), (ii) and (iii) above are negative conditions whereas the condition at (iv) above is a positive condition. If the expenditure satisfies the negative conditions, it has to satisfy the positive condition in order to be eligible for deduction under section 37(1) of the Act. Thus, section 37(1) allows deduction of any "expenditure" subject to conditions noticed above. In Indian Molasses Co.'s case [1959] 37 ITR 66, the Supreme Court pointed out that the word "expenditure" is equal to "expense" and "expense" is money laid out by calculation and intention. But the idea of "spending" in the sense of "paying out or away" money is the primary meaning and it is with this meaning that one is concerned. "Expenditure" is thus what is "paid out or away" and is something which is gone irretrievably. The apex court in CIT v. Nainital Bank Ltd. [196 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 (Guj), it is held that if the expenditure is doubted by the assessing authority, it is the duty of the assessee to prove by leading evidence that the expenditure was in fact, incurred. In the premise of the above noticed well established principles, let us proceed to examine whether these necessary conditions existed to claim this allowance under section 37(1) of the Act and whether the assessee discharged the burden cast on it. The details of the total receipts, commission payments and amount of commission disallowed for the assessment years 1981-82 to 1984-85 are as under: --------------------------------------------------------- A.Y Total receipt Commission Commission (Rs.) (Rs.) (Rs.) --------------------------------------------------------- 1981-82 28,97,73,215 1,18,52,724 12,85,650 1982-83 35,42,92,813 1,18,47,846 14,20,531 1983-84 55,02,38,000 1,18,42,204 12,75,229 1984-85 62,80,96,000 1,33,22,009 12,59,807 --------------------------------------------------------- The Income-tax Officer, considering the fact that there was a sharp increase i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether the assessee had discharged the burden cast on him with regard to the subsequent assessment years. Allowance or disallowance of a claim under section 37(1) of the Act should depend upon the existence or non-existence of the four conditions stated above and depending upon the answer to the question whether the assessee has discharged the burden cast on him or not. Therefore, it is not open for the Tribunal or for the court to allow this allowance solely on the ground that in respect of certain previous years such allowance was allowed though such allowance was contrary to law. The Tribunal is also not right in observing that the facts of the case relating to the assessment years prior to the assessment year 1980-81 and the facts of the case for the assessment year 1981-82 and onwards are similar. As could be seen from the records placed before us, there was a very sharp increase of commission of payments from the assessment year 1981-82. According to the assessee itself, the commission paid during the assessment years 1976-77 to 1980-81 is Rs. 10,75,410, Rs. 14,57,766, Rs. 21,16,115, Rs. 27,26,604 and Rs. 45,60,521 respectively, whereas for the assessment year 1981-82, comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion No. 3. Therefore, the decisions cited by learned counsel for the assessee reported in CIT v. A.S.K. Rathinasamy Nadar [1995] 212 ITR 527 (Mad) and CIT v. Goodlass Nerolac Paints Ltd. [1991] 188 ITR 1 (Bom), in support of the plea that this court cannot go beyond the findings of fact recorded by the Tribunal in deciding these references are of no help to the assessee in the context of this case, where the court finds that the finding of fact recorded by the Tribunal is perverse in the sense that it is not based on any legal evidence. Further, the Tribunal has wrongly placed the burden of proof on the Department, though the burden of proof in law is cast on the assessee. In CIT v. Greaves Cotton and Co. Ltd. [1968] 68 ITR 200 (SC) and in Imperial Chemical Industries (India) (P.) Ltd.'s case [1969] 74 ITR 17, the Supreme Court held that the question whether a certain expenditure is laid out or expended wholly or exclusively for the purpose of the assessee's business is a question which involves, in the first place, the ascertainment of facts by the Tribunal and, in the second place, the application of the correct principle of law to the facts so found. The question, therefore, is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed on surmises and conjectures. All the reasons stated by the Tribunal to record the finding of fact, in our considered opinion, are totally irrelevant and perverse to the decision-making. The Tribunal has not addressed itself to the relevant questions properly to see whether the necessary conditions existed or not to allow deduction under section 37(1) of the Act and whether the assessee has discharged the burden cast on it. The whole approach of the Tribunal is erroneous. The Tribunal, in recording the above finding, has also not taken into account the relevant factors. It is the admitted case that the payment of the secret commission in question is supported by vouchers signed only by the employees of the assessee-company and those vouchers are not signed by the recipients namely, the employees of its customers much less the details of the recipients are set out in the receipts. It is the specific stand of the Department that such vouchers signed only by the employees of the assessee-company cannot be accepted as genuine, obviously because, any number of such vouchers to falsely demonstrate payment of secret commission can be prepared or manufactured by the assessee-company uni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act, though there is no compelling necessity to incur such expenditure. There cannot be any quarrel with the above proposition. But the question is whether such payment is made either to the petty brokers or to the employees of the customers of the assessee-company. The assessing authority, after appreciation of the entire materials collected by him and placed before him, has recorded the finding that the payment of secret commission is not established. Such a finding recorded by the assessing authority and affirmed by the appellate authority, could be upset by the Tribunal, being the final fact-finding authority under the Act, only if the findings recorded by the original authority and affirmed by the appellate authority cannot be sustained on the basis of the relevant materials and the evidence on record. As already pointed out supra, as a matter of fact, the factual finding recorded by the Tribunal, is based on "no evidence", but is based on irrelevant considerations whereas the finding recorded by the assessing authority is based on relevant materials and evidence. However, Sri Y. Ratnakar, learned counsel for the assessee, placing reliance on the judgment of the Bomb ..... X X X X Extracts X X X X X X X X Extracts X X X X
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