TMI Blog2004 (1) TMI 350X X X X Extracts X X X X X X X X Extracts X X X X ..... immediately on passing the bill and the withheld amount and similar deposits only constituted deposits of capital nature held by the departmental authorities granting the contract and that such deposits are held on behalf of the contractor. (c) The learned CIT(A) ought to have appreciated the fact that simply because the assessee was adopting cash system for accounting a revenue receipt acknowledged by him as received and remaining with the departmental authority as a capital deposit could not be deferred and treated as receipt on a future date." 3. The brief facts of the case are that the respondent assessee is a PWD contractor who undertakes contracts only from Government institutions relating to water management projects. Basically, he is a labour contractor doing work of parapet walls. He had been showing contract receipts on receipt basis and his system of accounting was mixed as mentioned in the assessment order. For the asst. yrs. 1993-94 and 1994-95, there was an addition of withheld payment accounts for amounts of Rs. 2,85,771 and Rs. 2,71,403, respectively. The AO, while framing assessment, by giving the reason that the assessee had been following mixed system of acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rials placed before us. It is seen that the assessee had claimed deduction on account of withheld payments and as and when these payments were actually received, these were shown as in the present case for the asst. yr. 1994-95 as is evident from the order of the learned CIT(A). In view of these reasons, we do not wish to interfere in the order of the CIT(A) on this issue and, therefore, we dismiss this issue of the Departmental appeal. 5. The second issue in the appeal and cross-appeal [ITA Nos. 1715 and 1359 as above (asst. yr. 1993-94)], the grounds taken by the Department and appellant are given below: Department: "3(a) The learned CIT(A) erred in allowing the assessee s claim of mamool and commission payments to the extent of Rs. 2,57,970 (b) The learned CIT(A) ought to have appreciated that the expenses claimed towards mamools and commissions were without any vouchers or any supporting evidence indicative of the actual spending." Appellant assessee "1. The order of the learned CIT(A) in restricting the expenditure towards commission, etc., to Rs. 2,57,970 as against Rs. 3,33,970 claimed by the appellant is against the provisions of law and contrary to facts and ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also increased from 4 per cent to 9.7 per cent even after incurring payment of such secret commission. He further stated that because of incurring this expenditure only the contract receipts increased by 7 times and the net income also increased from Rs. 25,000 to Rs. 81,894 when compared to last year. In support of the admissibility of this expenditure, the representative relied upon the decisions of the Hon ble High Courts in the following cases: 1. The Madras High Court decision in the case of CIT vs. Coimbatore Salem Transport (P) Ltd. (1966) 61 ITR 480 (Mad). 2. Bombay High Court decision in the case of CIT vs. Goodlas Nerolac Paints Ltd. (1990) 90 CTR (Bom) 184 : (1991) 188 ITR 1 (Bom). In the Madras High Court s decision cited above, the Hon ble High Court has allowed the claim of a transport operator for deduction of tips (mamools) paid by bus staff to police department and firmly rejected the plea of the Revenue to disallow the unvouched expenditure. Similarly, in the Bombay High Court decision cited above, the claim of the assessee was allowed in regard to secret commissions paid by the assessee to the officials of its clients to get sales orders in its favour. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mental Representative argued that the assessee is a contractor and he has paid the secret commissions and mamools for obtaining the contract through tender process from Government departments and the persons awarding the tender contract are Government servants and the assessee has claimed unvouched expenses under the head commission and mamools. He further argued that the AO while framing the assessment has given a definite finding that secret commission is also paid to Government servants who are awarding tenders and there is also a finding in the assessment order that the expenditure is unvouched. He strongly objected to the finding of the CIT(A) that there is substantial increase in contract receipts. The learned Departmental Representative further argued that there is no question of increase in contract receipts. The only question arises is whether it is paid to Government servants that is opposed to public policy and even the legislature has brought in the Explanation to s. 37(1) that where the expenditure is incurred for an offence or which is prohibited by law, then that shall be deemed to have not been incurred for the purpose of business and no deduction will be allowed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the appellate authority and the Tribunal have merely proceeded to allow the claim on the ground that, in the past, a similar claim of the assessee had been allowed. However, it may be mentioned that, in the past, when the claim of the assessee was allowed, the Explanation to s. 37 which was incorporated by the Finance (No. 2) Act, 1998, with retrospective effect from 1st April, 1962, was not there. One cannot lose sight of the fact that the legislature clearly intended to disallow such claims with retrospective effect, i.e., from 1st April, 1962. Under the circumstances, reliance could not have been placed on the orders passed in favour of the assessee in the past. In the circumstances, we remit the matter back to the Tribunal with a direction to decide this point on the facts, keeping in mind the object of the above amendment." 7. On the other hand, the learned Authorised Representative filed written submissions and argued that a claim of expenditure can be disallowed only when it is not proved to have been incurred, not wholly and necessarily for business purposes, illegal, opposed to public policy or unreasonable. He argued that the AO has not given any finding that the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is seen that the mamools are paid by the respondent-assessee at each stage like getting the bills approved, obtaining the sanction for payment, for getting the cheques issued, etc., the assessee is required to incur further expenditure. These jobs are in the hands of only Government servants like approval of bill, obtaining of sanction for payment and getting the cheques issued. Hence, any payment to these persons is opposed to public policy and the payments are of illegal nature. Even the appellant has admitted so before the CIT(A), which is given in para 5 at p. 3 of the CIT(A) s order, which is being reproduced as under: "Before me, Shri Navaneethan has submitted that the award of a contract for a big amount like in the present case (the total contract amount in respect of the allotted work to be agreed over for the assessment years from 1993-94 to 1995-96 comes to nearly to Rs. 2.58 crores) is not being obtained in the ordinary and routine course. For this, the appellant has to pay back a certain sum as a secret commission. Then again, at such stage, like getting the bills approved, obtaining the sanction for payment, for getting the cheques issued, etc., the assessee is re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments were to be made to ward off competition and make the other contenders in the field to withdraw their tenders or not to pursue them. This is a normal commercial practice and it goes to the credit of the assessee that instead of camouflaging the expenses the assessee has openly and correctly admitted it as commission." This is something contradictory to what is pleaded by the respondent-assessee before the CIT(A) and before the CIT(A) it was pleaded that mamools/secret commissions are paid on each stage like getting the bills approved, obtaining sanctions and for getting the cheques issued, etc. Since all these jobs are done by Government servants, the payments seem to have been made to the Government servants which is illegal and opposed to public policy. From Explanation to s. 37(1), it is clear that any expenditure incurred for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business and will not be allowed as deduction in respect of such expenditure. Since in the present case the expenditure is made on account of secret commissions/mamools to Government servants which is on account of illegal grati ..... X X X X Extracts X X X X X X X X Extracts X X X X
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