2002 (2) TMI 52 - HC - Income Tax

Equipment hire charges deduction dispute: vendor payments backed only by book entries disallowed, cheque-paid charges allowed partly.

Deductibility of equipment hire charges turned on whether the assessee discharged the primary onus of proving that the expenditure was genuine, ... Claimed expenses - equipment hire charges - genuineness and reasonableness - payments made by account-payee cheques against the bills - Whether, the Tribunal was justified in saying that the assessee has not discharged the primary onus of proving that the expenditure on equipment hire charges paid to New Diamond and Video Flash was for the purpose of business? - HELD THAT:- The mere fact that the accounts of the assessee contain debit and that the debit has been duly authorised on behalf of the assessee will not make the expenses deductible from the taxable profits. A genuine commercial transaction carried out in the usual course of business would normally give credit for the past payments made and would show the balance liability and/or balance amount recoverable from the person in whose favour the bill is issued. We are not at all impressed with the documents produced before us by the appellant/assessee and we have our own doubts about the genuineness thereof. Since all the authorities below have examined the evidence in detail, we do not propose to go into this aspect in detail. We, for our satisfaction, went through the documents, mode and manner thereof to find out whether or not the conclusions or findings of the authorities below are reasonable and proper. We confirm the findings recorded by all the authorities below and hold that disallowance of the payment made to New Diamond, Mumbai, by way of equipment hire charges in the sum is proper. We cannot find any fault with the findings recorded by all the authorities below including the Tribunal whose order is a subject-matter of challenge in this appeal. The appeal to this extent is dismissed. Disallowance made to the extent of payment made to Video Flash, Mumbai, towards equipment hire charges in the sum - Since the payments were made by account-payee cheques, in our opinion, it must overshadow all other shortcomings sought to be pointed out by the authorities below while disallowing the expenditures incurred by the assessee in the sum. The expenses appear to be genuine since made by account-payee cheques. The same appears to be reasonable. Had this piece of evidence been taken into account by the Commissioner of the Income-tax (Appeals) and the Tribunal, probably a different finding would have been recorded by them. In our opinion, the said vital piece of evidence was wrongly excluded by the authorities below from consideration. The burden of proof has been satisfactorily discharged by the assessee, so far as equipment hire charges paid to Video Flash, Mumbai, in the sum is concerned, as such, the disallowance made in this behalf cannot be sustained. We, therefore, hold that the assessee was and is entitled to claim deduction of expenses to the extent. To this extent, this appeal is allowed. The appellant shall be entitled to the deduction treating the said expenditure as wholly incurred for the purposes of business. In the result, the appeal is partly allowed. Issues Involved:1. Whether the assessee has proved the genuineness and reasonableness of the expenses incurred.2. Whether the disallowance of Rs. 7,00,400 on equipment hire charges paid to New Diamond and Video Flash was justified.Summary:Issue 1: Genuineness and Reasonableness of ExpensesThe appellant, an individual-assessee, filed a return for the assessment year 1989-90, claiming expenses of Rs. 18,31,055 on account of equipment hire charges. The Assessing Officer disallowed Rs. 7,00,400 of this amount, citing lack of satisfactory proof for payments made to New Diamond and Video Flash. The appellant contended that the payments were made by account-payee cheques and were necessary for producing the T.V. serial 'Ramayan.' The appellant argued that the expenses were reasonable and that he had discharged his burden of proving the expenditure.Issue 2: Disallowance of Rs. 7,00,400 on Equipment Hire ChargesThe substantial question of law was whether the Tribunal was justified in saying that the assessee had not discharged the primary onus of proving that the expenditure was for business purposes. The court analyzed Section 37 of the Income-tax Act, which deals with the allowability of business expenditures, and emphasized that the onus of proof lies on the assessee to prove the expenditure is wholly and exclusively for business purposes.Findings:1. New Diamond: - The Assessing Officer, first appellate authority, and Tribunal concluded that the expenses paid to New Diamond were not genuine or reasonable. - The assessee produced xerox copies of bills, but notices issued u/s 133(6) were returned unserved. - The assessee failed to produce the parties or satisfactory proof of equipment hire. - Payments were not made by account-payee or crossed cheques. - The court upheld the disallowance of Rs. 6,00,000, finding the documents unconvincing and the payments not genuine.2. Video Flash: - The banker's certificate showed payments made by account-payee cheques. - The son of the proprietor of Video Flash appeared before the Assessing Officer but could not establish the possession of equipment. - The court found that the payments made by account-payee cheques overshadowed other shortcomings. - The disallowance of Rs. 1,00,400 was overturned, allowing the deduction as the expenses appeared genuine and reasonable.Conclusion:The appeal was partly allowed. The disallowance of Rs. 6,00,000 paid to New Diamond was upheld, while the disallowance of Rs. 1,00,400 paid to Video Flash was overturned, allowing the deduction. The appellant was entitled to the deduction of Rs. 1,00,400, treating the expenditure as wholly incurred for business purposes. No order as to costs.