TMI Blog2016 (2) TMI 834X X X X Extracts X X X X X X X X Extracts X X X X ..... SOPARKAR, ADVOCATE FOR THE OPPONENT : MRS MAUNA M BHATT, ADVOCATE JUDGMENT (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. This appeal is filed by the assessee challenging the judgements of the revenue authorities and that of the Income Tax Appellate Tribunal. While admitting the appeal, following substantial questions of law were framed: 1. Whether, in the facts and circumstances of the case, the Tribunal was right in law in confirming the dis-allowance amounting to ₹ 17,03,055/- claimed as secret commission? 2. Whether in the facts and circumstances of the case, ITAT was right in law in holding that explanation appended below section 37[1] of the Act is applicable to the facts of the case? 2. Brief facts are as under: Assessee is a partnership firm which is engaged in the business of electrical contractor. For the assessment year 1997-98, the assessee had filed the return of income on 27.10.1997 and had declared a total income of ₹ 6.68 lacs (rounded off). Such return was taken in scrutiny by the Assessing Officer. One of the questions came-up for consideration during such scrutiny assessment was the assessee's claim for dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctually made and, lastly, that the assessee failed to establish that such payments were wholly and exclusively for the purpose of business. In that view of the matter, the Assessing Officer disallowed the entire claim of the expenditure of ₹ 19.85 lacs. 4. The Assessee carried the matter in appeal. The CIT(Appeal) did not dispute the allowability of such an expenditure. He, however, formed an opinion that the expenditure claimed by the assessee was excessive compared to the preceding years and also compared to the turnover. He also marked that the GP rate had come down from ₹ 13.26% in the earlier year to 10.26% in the current year. He, therefore, while allowing the expenditure, limited the same to 1% of the total sales and, thus, allowed expenditure of ₹ 2.82 lacs (rounded off). CIT(Appeals) held and observed as under: 8. Keeping in view the totality of all the above facts and ratio of various above referred judgements, while it is difficult to say that no secret commission whatsoever is paid by the appellant, yet the claim of such high expenditure of about ₹ 20 lakhs which as resulted in reducing the gross profit from about ₹ 49 lakhs to abou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Tribunal, in a detailed judgement, held that the entire expenditure was not allowable. The Tribunal referred to the explanation to Section 37(1) of the Act added by Finance (No.2) Act, 1998 with retrospective effect from 01.04.1962 to hold that the expenditure was barred by such provision. The Tribunal concluded that the secret commission claimed by the assessee of ₹ 19.85 lacs does not constitute permissible business expenditure as explained under Section 37(1) of the Act. However, since the CIT(Appeals) had already restricted the disallowance to the extent of ₹ 17.03 lacs, the Tribunal upheld the order of CIT(Appeals) as it is. It is this judgement of the Tribunal which is in challenge before us. 7. Learned counsel Mr. Soparkar for the appellant raised following contentions: (i) The Tribunal has applied concepts of morality and thereby expanded the scope of Section 37(1) of the Act. (ii) Explanation to sub section (1) of Section 37 of the Act was simply not applicable. As recipients are the employees of private company and not the Government employees, the commission was not barred by any law nor the act of the assessee amounted to any offence. (iii) In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the turnover of the assessee. The Court upheld such decision of the Tribunal observing that the High Court would not interfere with the finding of fact arrived at by the Tribunal unless such finding is perverse. 11. In the case of Commissioner of Income Tax vs. Transport Corporation of India reported in 256 ITR 701 the Division Bench of Andhra Pradesh High Court observed that mere payment by the assessee itself would not entitle him to deduction of expenditure unless the same was proved to be paid for commercial considerations. It was observed that in such a situation, the burden of proof is on the assessee and not for the department to independently collect evidence and prove that the deduction claimed by the assessee is baseless. 12. While, therefore, the courts have recognized the allowability of a deduction in the nature of secret commission, have also placed considerable onus on the assessee to establish such fact and, further, as noticed in the decision of our Court in case of Dr. G.G.Joshi vs. Commissioner of Income Tax (supra) recognized a small percentage to which such expenditure would normally be recognized. Secret Commission would ordinarily in a nature of paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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