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, reasonable, and incurred wholly for business purposes. As to payments to one vendor, the HC held that mere book entries and internal authorisation do not establish a genuine commercial transaction, and found the supporting documents unreliable; the concurrent factual findings warranted disallowance, so the deduction was denied and the appeal was dismissed to that extent. As to payments to the other vendor, the HC held that payment by account-payee cheques was a vital indicator of genuineness and reasonableness wrongly excluded from consideration; the onus was satisfied, the disallowance was set aside, and deduction was allowed to that extent, resulting in a partly allowed appeal.

---

---

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 Expenses
The 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 Charges
The 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.

---