Deduction under s.37(1) for alleged secret commissions denied where vouchers unproven, recipients unidentified and testimony contradicts payments

HC held the claimed deduction under s.37(1) for secret commissions was disallowed because payments were not satisfactorily proved. Vouchers were signed only by the payer's employees, recipients were not identified, and a branch manager's testimony that no such payments were made undermined the claim. The Tribunal's acceptance of the payments was found perverse and based on irrelevant reasoning. The court emphasized the assessee bears the burden of proving genuineness and quantum of such expenditures and that unsubstantiated vouchers cannot overcome public policy and evidentiary requirements.

---

---

Issues Involved:
1. Admissibility of "Secret Commission" as a deductible expense u/s 37(1) of the Income-tax Act, 1961.
2. Whether the Tribunal's findings on the genuineness and quantum of deductions under the head "Secret Commission" are perverse and based on irrelevant considerations.

Summary:

Issue 1: Admissibility of "Secret Commission" as a Deductible Expense u/s 37(1)
The Tribunal allowed the deduction of "secret commission" under section 37(1) of the Income-tax Act, 1961, for the assessment years 1981-82 to 1984-85. The Tribunal's decision was based on the fact that similar deductions were allowed in previous years and there was no change in circumstances. However, the High Court emphasized that the burden of proof lies on the assessee to establish that the expenditure was incurred wholly and exclusively for business purposes. The Tribunal wrongly placed the burden on the Department and failed to address whether the necessary conditions for deduction under section 37(1) were met.

Issue 2: Genuineness and Quantum of Deductions
The High Court found that the Tribunal's findings were based on "no evidence" and irrelevant considerations. The Income-tax Officer had conducted detailed inquiries and found that the claim of secret commission was not genuine and unverifiable. The Tribunal's reasoning that the payment might have been made but was not verifiable was deemed strange and legally unsustainable. The High Court held that the Tribunal's findings were perverse and not based on any legal evidence.

Conclusion:
The High Court answered supplemental question No. 3 in the affirmative, in favor of the Revenue, indicating that the Tribunal's findings were perverse. Consequently, there was no need to answer questions Nos. 1 and 2. The referred cases were disposed of with no order as to costs.

---