TMI Blog2004 (8) TMI 629X X X X Extracts X X X X X X X X Extracts X X X X ..... e. Aggrieved, the Department disputed the said deletion before the Tribunal and Tribunal following its earlier years orders confirmed the view of the CIT(A). On reference Application filed by the revenue, the Tribunal referred the following questions of law for the esteemed opinion of the Hon ble jurisdictional High Court : "Whether, on the facts and in the circumstances of the case, the secret commission paid by the assessee is deductible as business expenditure under section 37 of the I.T Act, 1961 ?" Before Hon ble High Court, reliance by the revenue was placed on the explanation added to section 37(1) with retrospective effect from 1st April, 1962 which read as follow : "Explanation : For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee 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 or profession and no deduction or allowance shall be made in respect of such expenditure." After considering the submissions of both the sides, their Lordships of Bombay High Court had remitted the matter to the file of this Tribunal for ex-examination afresh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee for any purpose which is an offence or which is prohibited by law. Allowance of deduction under section 37(1) of the Act in respect of secret commission without a clear finding in this regard, in our opinion, is not correct. The Tribunal will have to decide the question of allowability of deduction of secret commission in the light of the explanation inserted with retrospective effect from 1st April, 1962. In these circumstances, we are of the opinion that the Tribunal was not right in holding that the secret commission claimed to have been paid by the assessee by way of secret commission was an expenditure laid out or expended wholly and exclusively for the purpose of its business within the meaning of section 37(1) of the Income-tax Act, 1961, read with the explanation appended thereto. However, having regard to the fact that the Tribunal could not have examined at the time it passed the order the controversy in the light of the explanation which was inserted in the year 1998 with retrospective effect from 1st April, 1962, we remit the matter to the Tribunal re-examine afresh in the light thereof. Reference stands disposed of accordingly with no order as to costs." Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the matter back to the Tribunal with direction to decide this point of the facts, keeping in mind the object of the above amendment. We also refer to the judgment of the Orissa High Court in the matter of Tarini Tarpuline Production v. Commissioner of Income Tax which was decided on 20th April, 2001. The Court decided that the secret commission paid by the assessee to procure business was not deductible under section 37 because the payment was made in said case to various departments of said Government, said Government undertaking, semi-Government bodies like Municipality, N.A.Cs., and also to be Central Government Departments. Such payments were clearly hit by explanation to section 37 as the explanation is in respect of the disallowance of the claim made by certain tax payers to the deduction of payment of account of protection money, extortion, hafta, bribe, etc. as business expenditure. In this matter, we direct your attention to orders of ITAT of the earlier year, which is as per the paper book, already submitted during the course of last hearing. You will find that the appellant company started paying secret commission only after it entered into business of text boo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct and pointed out that the Tribunal had upheld the deduction of secret commission without satisfying itself that the expenditure was not incurred for any purpose which is an offence of which is prohibited by law. Explanation was added to section 37(1) by the Finance No. (2) Act, 1998, with retrospective effect from 1st April, 1962. The matter has therefore been remitted back to the Tribunal for fresh examination in the light of the amended law. 5. Allowability of deduction of secret commission has to be decided in the light of explanation inserted with retrospective effect from 1-4-1962. It is to be examined whether the secret commission claimed to have been paid by the assessee was an expenditure laid out or expended wholly and exclusively for business purpose within the meaning of section 37(1) r.w. explanation appended thereto. It may be mentioned that secret commission for the above two years were disallowed by I.T.O. since no evidence was adduced by the assessee to show that it had made any such payment. Even before the amendment came into force, the Hon ble jurisdictional High Court in the case of Goodlas Nerolac Paints Ltd. 137 ITR 58 (Bombay) has also held that secret co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one cannot be ground to admit the claim of the assessee and allow the expenditure. The explanation to section 37 inserted by Finance (No. 2) Act, 1998 with retrospective effect from 1-4-1962 has clearly removed the earlier doubts, if any, not to admit any claim of expenditure claimed to have been incurred wholly and exclusively for the purpose of business, if these were payments, which are viewed as an offence or which are prohibited by law and no deduction or allowance can be made in respect of such expenditure. Even otherwise, any expenditure being allowable under section 37(1), it must be an expenditure not in the nature of capital expenditure or personal expenses of the assessee but it should also be laid out or expended wholly and exclusively for the purposes of business or profession which the assessee is carrying on. In the absence of basic details, that to whom these amounts were paid, in respect of which sale these amounts were paid, the expenditures cannot be said to have been incurred wholly and exclusively for the purposes of the business of the assessee. The law is well settled that if the assessee is claiming certain expenditure or deduction, the burden is on the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee. 6. In support of the proposition that the burden is on the tax payer to establish by evidence that particular allowance is justified and it is not for the Income Tax Officer to independently collect the evidence and prove that the deduction claimed by the assessee is baseless; the reference can be made to the decision of Hon ble Andhra Pradesh High Court in the case of CIT v. Transport Corporation of India Ltd. [2002] 256 ITR 701 . In the said case, the assessee even having filed self prepared vouchers in respect of secret commission, the Hon ble High Court held that the payment itself was not established. In the present case, the assessee even did not take care to produce any evidence to establish that payment was actually made. Thus, even the initial burden was not discharged by the assessee with reference to any evidence for detail produced. 7. We also do not find any force in the argument of the assessee that the application of Explanation to section 37(1) is only limited to protection money, extortion, hafta, bribe etc., This argument is also not acceptable on the ground that for any expenditure to be an allowable expenditure, it must has to be proved as actual ..... X X X X Extracts X X X X X X X X Extracts X X X X
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