TMI Blog2009 (2) TMI 510X X X X Extracts X X X X X X X X Extracts X X X X ..... was running the business, was recorded as the assessee was not available. Subsequently it was contended that the secrete commission/kickbacks amounting to Rs. 43,50,616 was booked under three heads, i.e., sundry expenses, incentives and rate difference. Since the identity of the payers has not been and could not be divulged, as it would be imprudent, indiscreet and violative of norms of business prudence, assessee justified the claim before the Assessing Officer stating that it was normal and common practice in the line of business and payment of secret commission was purely for business purpose and since the amounts were paid on a systematic basis the payment was neither ad hoc nor arbitrary. It was submitted that there was a correlation between the payment of secret commission/kickbacks payment vis- -vis the incentives received from the Airlines for higher volume of business and claimed that such expenditures are inevitable, legitimate and customary in assessee s line of business and has been incurred wholly and exclusively for the purpose of business and were not hit by the provisions of section 37(1). The assessee justified the explanation that secret commission was requi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the basis of various figures in the paper book that the assessee was able to correlate the receipts or incentives received and payment of various secret commission/kickbacks. He referred to various statements enclosed in the paper book from page 118 onwards to justify how the assessee was able to get sundry incomes, incentives and rate differences. For example, it was explained on the basis of paper book page No. 118 that the assessee has paid secret commission under head Sundry expenses of Rs. 1,13,402 from Blue Dart Express Ltd. for the year. In addition he also received Rs. 5,63,813 incentive and Rs. 10,20,975 rate difference totalling to Rs. 16,98,190 on a total bill amount of Rs. 1,91,19,207 which works out to 8.8 per cent. Likewise against DHL Worldwide Express out of the bill amount of Rs. 1,79,53,447 assessee paid 10.69 per cent secret commission. It was explained that the total billing amount was Rs. 4,75,70,286 and the total secret commission paid was Rs. 43,50,616 with the bifurcation sundry amount Rs. 3,29,494, Incentive Rs. 16,81,257 and Rate Difference Rs. 23,39,865. From page No. 119 onwards till page 163 the assessee has given details of various amounts paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are prohibited in law, in view of the Explanation to section 37(1) as was held by the Hon ble Bombay High Court in the case of Taraporvala Sons Co. (P.) Ltd. ( supra ). It was submitted that the payment of secret commission is wholly necessary for the purpose of assessee s business and the amount is allowable as deduction under section 37(1), even though the assessee was not in a position to furnish identity of the payees but it has furnished all other necessary details before the Assessing Officer as well as the learned CIT(A). 7. The learned D.R., in reply, submitted that the Assessing Officer gave a finding that secret commission is not supported by any vouchers and the payments are not verifiable. The learned CIT(A) also gave number of opportunities to the assessee. It was submitted that during the course of survey the Assessing Officer found out that the assessee has inflated the expenditure, secret commission is one such expenditure. It is also submitted that this secret commission was not taken under the head Commission or Secret commission so as to attract the attention of the Assessing Officer but booked under various heads. He referred to the orders of the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... different heads and prima facie the Assessing Officer has come to doubt the expenditure as it was found during the survey that the assessee has indulged in inflating the expenditure. The other aspect which is to be considered is whether the assessee is able to justify the expenditure. Eventhough the assessee was able to correlate various expenditures which are booked in the books of account as secret commission but they are not verifiable as the payee s signatures are not available nor any details of the ratio in which it is paid. We are also not in a position to accept assessee s contention that the amounts are paid as kickbacks. Generally only a small portion of the amount is paid as kickbacks. In this case the amounts are varying from 13.5 per cent in Mumbai to as low as 2.15 per cent in Kolkatta when considered the total billings. The assessee is neither consistently paying similar rate nor a particular percentage is uniformly adopted so as to consider that a fixed rate is paid as kickback. It is also interesting to note that the assessee is justifying the secret commission over the total billing receipts whereas if one goes by the statements given for the additional incenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... percentage. The learned CIT(A) also has distinguished various case laws elaborately in the order which we do not intend to repeat here again. Suffice to say that on the facts of the case, we are of the opinion that the assessee has not justified the payment of secret commission. Further the learned CIT(A) also relied upon the decision of the Ahmedabad ITAT "A" Bench in the case of Patel Bros. ( supra ). In this decision the Hon ble Co-ordinate Bench has considered the decisions of the Hon ble Bombay High Court in the case of Goodlas Nerolac Paints Ltd. ( supra ) and Sigma Paints Ltd. ( supra ) and the decision of the Gujarat High Court in the case of Dr. G.G. Joshi v. CIT [1994] 209 ITR 324 . The findings of the learned CIT(A) on this issue in para 21 is as under : "21. Reference in this context may also be made to the decision of the Hon ble Ahmedabad ITAT A Bench in the case of M/s. Patel Brothers v. DCIT reported in 75 TTJ 421. The Hon ble ITAT has referred to various decision on this subject including the decisions of the Hon ble Bombay High Court in the case of Goodlas Nerolac Paints ( 188 ITR 1 ) and Sigma Paints ( 188 ITR 6), and the decision of the H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the identity and genuineness of the expenditure was not proved, it is not possible to verify whether the expenditure is covered by the Explanation. Further the assessee also has not justified that there is trade practice of similar payment. In fact the assessee is also having group concerns in the form of a private limited company and another firm, as seen from the statement recorded from Shri Gaurav Ghuwalewala under section 133A. The assessee s proprietary concern is in the name of Express Delivery Systems whereas ED s Cargo Pvt. Ltd. in which assessee s husband was Director and there is another concern M/s. Anjalin Enterprise in the same premises. The assessee s business was run in the name of Air Cargo Agencies from 1996 which became a proprietary concern of the assessee once the private limited comply by the name ED s Cargo (P.) Ltd. was formed. The assessee has not justified whether similar expenditure was paid in the case of ED s Cargo (P.) Ltd. which is also a group concern. The assessee was only justifying that similar is the business practice and the increase in volume as a justification for claiming the expenditure. However, there is nothing on record to prove that o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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