TMI Blog1988 (9) TMI 79X X X X Extracts X X X X X X X X Extracts X X X X ..... ce to show that the alleged payment of secret commission was for services rendered by the recipients. He has also observed that the inquiries made with the Purchase Department of the mills which had purchased goods from the assessee also revealed that no such payment was ever received by them. For this reason, the CIT(A) was of the opinion that there was no material on record to hold that the claim for deduction of alleged secret commission payment was admissible. 3. It is contended on behalf of the assessee by the learned counsel that the view taken by the CIT(A) has to be discarded in the light of the decision of the Tribunal for the asst. yrs. 1966-67 to 1969-70 and 1972-73 to 1977-78. The Reference applications filed by the Department for some of those years stand also rejected. The Tribunal for those years was faced with an identical issue. While deciding the matter in favour of the assessee, the Tribunal had taken note of the fact that the payment of secret commission in the line of business carried on by the assessee was not uncommon. The Tribunal also went through in great detail the procedure followed by the assessee in the matter of payment of secret commission and suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orders of the CIT(A) are reasonable and are open to no challenge. In the first instance, it is pointed out that if a claim of this nature is accepted, it would open the flood-gates of tax evasion. When a claim is put forward before the Tax authorities by an assessee, it is incumbent on it to prove the same by producing adequate material. The onus is therefore on the assessee. This onus cannot be said to have been charged by merely stating that there is a practice in the trade of paying secret commission and the payment is reasonable having regard to the turnover of the assessee. The Tribunal while allowing relief in the case of the assessee for earlier years, has gone against the decision of the Bombay High Court in the case of Goodlas Nerolac Paints Ltd. vs. CIT (1982) 28 CTR (Bom) 186 : (1982) 137 ITR 58 (Bom). In that case, the Court has clearly held that the burden of proving that the amounts were actually laid out or expended as secret commission for the purpose of business lay on the assessee. Where the assessee refused to furnish the names and addresses of the parties, the Department is under no obligation to allow the claim. The learned Deptl. Rep., further relied on the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of the claim will have to be adjudged on the basis of prevailing practice in the trade, the reasonableness of the amount claimed as deduction and whether that the assessee has a proper system for making this payment which would take within its ambit the various parameters governing the payment. In this case, it is an accepted fact that to carry on the business the assessee has to pay commission to the employees of the Purchase Department of the various mills. Payments made during these years cannot be considered as unreasonable having regard to the similar payments made in the earlier years and also in the subsequent years and also having regard to the turnover of the assessee. We are quite conscious of the fact that an order by the Tribunal approving the payment of this nature could lead to malpractices and abuse, but the Tribunal while allowing similar payments made in various years were influenced by the fact that it would well nigh be impossible to carry on business without payment of commission of this nature and it was probably for this reason showed preference to the business practice rather than to a ethical or moral considerations. The need to follow a particular view ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o inclined to accept the view of the learned counsel for the assessee that in the pugned direction is, in fact, tantamounts to enhancement and since same has been done without a proper notice, enhancement has to fall apart. Formal notice to enhancement is necessary only when the tax liability is quantified after the appellate order shows an increase. This is not the case here. We are also not going to accept the contention of the assessee that amount that should be disallowed for the personal use of the car by the employees for the purpose of s. 40A(5)/40(c), should be quantified with reference to the IT Rules. The Bombay High Court in the case of Bombay Burmah Trading Corporation Ltd. has clearly held that it is expenditure incurred by the employer and not the value of the perquisite or amenity in the hands of the employees computed in accordance with the Relevant rules that should matter. The CIT(A) has been in error in misreading the provisions and directing the ITO to disallow the expenditure. Having regard to all the facts of the case, we feel it would be reasonable to treat 1/3rd of such allowance/expenditure as coming within the purview of s. 40A(5)/40(c)(iii). 12. The ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in error in confirming the disallowance of interest for late filing of return, default in payment of advance tax on time. According to us there is no merit in this ground at all. Payment for late filing of return or late payment of advance tax cannot be allowed either as an interest paid on borrowed capital or as an expenditure laid out wholly and exclusively for the purpose of business. This ground is therefore rejected. 17. The next ground of appeal which is common for all the 2 years 1978-79, 1979-80 is that the CIT(A) was in error in treating roads within the factory premises as building and not 'plant' for the purpose of grant of depreciation. This ground is covered by the direct decision of the Bombay High Court in the case of CIT vs. Sandvik Asia Ltd. (1983) 33 CTR (Bom) 128 : (1983) 144 ITR 585 (Bom). This ground of appeal is therefore rejected. 18. The next ground of appeal which is common for all the 3 years 1978-79 to 1980-81 is that the CIT(A) was in error in not granting depreciation on expenditure incurred by the assessee for procuring leasehold rights in the land. It is the submission of the assessee that this expenditure should be regarded as part of the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... articles, Diwali greeting cards and like for the purpose of determining quantum to be disallowed in terms of the provisions of s. 37(3A) of the IT Act, 1961. At the time of appeal hearing, no details regarding these expenses were furnished by the assessee on the plea that the Relevant records have been destroyed in the fire. In the absence of any material to indicate the correct nature of the expenditure, we express our inability to interfere with the order of the CIT(A). This ground of appeal is therefore rejected. 22. The next ground of appeal which relates to asst. yr. 1980-81 alone is that the CIT(A) was in error in disallowing the cost of carpet as a capital expenditure. The total expenditure involved is Rs. 13,887 and these have been explained as expenditure on soft furnishings, before the ITO. The ITO treated the same as expenditure of capital nature and that has been approved by the CIT(A). The expenditure in question represents routine expenditure incurred by the assessee to replace carpets and the like which have short life. The expenditure cannot be considered as one which has resulted in an enduring benefit to the assessee. The disallowance made by the CIT(A) therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Super Steel Works 485.06 (10) Laxmirattan Cotton Mills Ltd. 14,626.00 (11) Sheikh Abdulla Mohmad Idris 6,037.30 (12) Mahila Udyog 295.36 . Rs. 62,065.00 The claim of the assessee has been denied by the ITO and the CIT(A) for the reason that it was observed that in some cases the suits filed against the parties were still pending in the Court and in some other cases, the financial position of the debtors was not made known to them. At the time of appeal hearing also the assessee was not in a position to shed any light as to the reason why the amounts were written off this year. The amounts were pending for realisation for a long time in some cases and in some other cases the assessee had also taken legal steps to recover the amounts. We are not for a moment to be understood as stating that whenever legal proceedings are pending the write off would be justified. Where a claim of this nature is made, it is for the assessee to prove that the amounts are irretrievably lost. In the absence of any martial, to indicate that the amounts had become bad during the year under consideration, we are constrained to uphold the order o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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