TMI Blog1992 (6) TMI 68X X X X Extracts X X X X X X X X Extracts X X X X ..... ds on total turnover of Rs. 1,53,25,431. The Assessing Officer came to the conclusion that part of the claim of the appellant has to be disallowed and accordingly he added a sum of Rs. 1,24,088 out of the claim of rebate refunds and computed the income at Rs. 3,69,230. While disallowing the rebate refunds to the extent of Rs. 1,24,088, the Assessing Officer observed as under : " The assessee claimed Rs. 3,53,968 under this head on the total collections of Rs. 1,53,25,431. When asked to explain about the rebate refunds, the A. R. has stated that these payments are made to the employees of the business concern, who are booking the luggage with the assessee, to obtain orders. These payments are not susceptible for any cross-verification as these amounts are paid merely passing book-entries only. The assessee could not produce any other evidence except the entries in the books, that is, why I am not convinced about the genuineness of these payments. Secondly, there is no correlation between the amount of business and the percentage of rebate, which can be seen from the following table : Name of Branch Total Rebate Percentage collection paid Rs. Rs. 1. Palasa 1,54,666 5, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of rebate refunds was made exclusively for the purpose of the business and such payment was held to be an allowable deduction in the aforesaid decisions. The CIT (Appeals), however, distinguished the judicial decisions cited before him and, after deducting a sum of Rs. 51,579 which represented refunds actually given, he sustained an addition of Rs. 3,17,379 which also includes the sum of Rs. 1,24,088 which was originally added by the Assessing Officer. He thus enhanced the income of the appellant by a sum of Rs. 1,93,291. 5. In this appeal before us, the learned counsel for the appellant, Sri M. J. Swamy, has pointed out that there is no justification for the addition made by the Assessing Officer as well as the enhancement made by the first appellate authority. He, therefore, contests the addition of Rs. 3,17,379. The learned counsel points out that the nature of the business of the appellant is such that the secret commission, mamool etc. have to be paid to the employees of customers with a view to include business and increase the turnover. He points out that though the appellant has not mentioned the names and addresses of the actual recipients, the books of account of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or assessment year 1982-83 referred to above, the department did not file any reference application. The order of the ITAT, therefore, had become final and in a subsequent year no addition should have been made. The learned counsel also draws our attention to assessment years 1983-84 and 1984-85 wherein the Assessing Officer had disallowed certain portion of rebate refunds. For these two years, the appellant had carried the matter to the CIT (Appeals) who, for the reasons recorded by him in his appellate order, had deleted the entire addition. Against the order of the CIT (Appeals) for those two years, the department did not prefer any appeal to the ITAT which also proves that the department has accepted that the appellant had in fact incurred the expenses on rebate refunds. For the year under consideration, therefore, there is no justification for the Revenue to disallow the claim of the appellant. 7. Regarding the reliance placed by the CIT (Appeals) on the decision of the Bombay High Court in the case of Goodlas Nerolac Paints Ltd. v. CIT [1982] 137 ITR 58, the learned counsel points out that the CIT (Appeals) failed to appreciate the Explanation dated 25-11-1991 submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erence to the total turnover is very excessive and accordingly he restricted the addition only to Rs. 1,24,088. The past practice by the Revenue in the case of the appellant is also quite revealing. For assessment year 1982-83, an addition of Rs. 10,000 out of rebate refunds was made which was deleted by the ITAT and the Revenue did not prefer any reference application against the order of the ITAT. For subsequent years, viz., 1983-84 and 1984-85 again certain additions were made by the Assessing Officer which were deleted by the CIT (Appeals) himself. Against these deletions, the Revenue again accepted the order of the CIT (Appeals) and no further appeal to the ITAT was preferred. The conduct of the Revenue, therefore, shows that the department is satisfied with the genuineness of the payment. Moreover, we have seen that for assessment year 1988-89, which immediately preceded the assessment year under appeal, rebate refunds at 2.13% were allowed by the Revenue. In the year under appeal, the appellant has claimed rebate refunds only to the extent of 1.98% on an increased turnover of Rs. 1,53,25,431 as against the turnover of Rs. 1,32,72,463 declared in assessment year 1988-89 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rejected SLP. This issue was again considered by the Bombay High Court, while dealing with a reference application in the case of Sigma Paints Ltd. wherein it was held by the High Court that the Tribunal was justified in holding that the secret commission paid by the assessee was an allowable deduction and no question of law arose from its order. The ratio of the decision of the Madras High Court in the case of Coimbatore Salem Transport (P.) Ltd. also supports the case of the appellant before us. 13. The issue of payment of secret commission was examined at length by the Special Bench of the Tribunal, Bombay, in the case of French Dyes Chemicals (India) (P.) Ltd. The brief facts of the said case are as under : In the relevant assessment years, the assessee, a manufacturer of chemicals and dyes, claimed certain items of expenditure described as sale promotion expenses. The expenditure was stated to have been incurred for making payments to employees of certain textile mill companies to which the products of the assessee-company were sold, to ensure acceptance of goods and continuance of custom. For strategic business reasons, the names of the recipients were withheld, but th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so as to confirm the receipt, it would be possible for the assessee, even where it had to make a payment compulsorily, to inflate the expenditure and claim a larger amount as deduction. This only required that before allowing the expenditure the reasonableness of the claim was checked up but that would not by itself lead to the disallowance of the claim as such. While in the wake of an established custom or practice an amount of money spent on the purpose had to be allowed as deduction where the assessee supplies further details his claim becomes stronger. In the instant case, the details maintained by the assessee over the years showed that the assessee had systematically dealt with these payments. Thus, the sales to the mills, the articles sold, the name of the particular mill, the date of sale etc., were available along with the percentage of commission amounts which, if added together, tallied with the amounts withdrawn from the bank. The withdrawal itself was done by a responsible director and this systematic procedure had been going on for nearly three decades and more. The details kept by the company were as complete as they could be in the context of the secret nature of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is accordingly deleted. The appellant gets a relief of Rs. 3,17,379 on this count. 17. The last contention of the appellant is against an addition of Rs. 10,000 out of telephone expenses. The learned counsel for the appellant points out that only one telephone is located in the business premises of the managing partner and all the other telephones are located in the business premises of Head Office and Branches. All the telephone calls made from the telephones in the business premises were for the purpose of business. In respect of the telephone which was Installed at the place of the managing partner, only a sum of Rs. 15,000 was incurred. The disallowance out of the said amount to the extent of Rs. 10,000 is, therefore, not justified. 18. On the other hand, the learned departmental representative supports the decision of the first appellate authority. 19. On a proper appreciation of the facts of the case, we find that out of a total claim of Rs. 3,01,030 as telephone expenses, the expenditure relating to the telephone installed at the residence of the partner is only Rs. 14,249 out of which a sum of Rs. 10,000 has been disallowed. It may also be mentioned that the disallowa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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