1978 (11) TMI 100 - AT - Income Tax

Appeal Allowed for Bangle Manufacturer - Expenses Justified, Relief Granted

The Appellate Tribunal ITAT Madras-D allowed the appeal in favor of the bangle manufacturer assessee for the assessment year 1973-74. The discrepancy in ... Allowability of business expenditure as deduction - deductibility of reimbursement/commission paid to agent for securing export drawback - corroboration by third party's books as evidence - burden on revenue to disprove genuineness of claimed expenditureDeductibility of reimbursement/commission paid to agent for securing export drawback - allowability of business expenditure as deduction - corroboration by third party's books as evidence - burden on revenue to disprove genuineness of claimed expenditure - Whether the assessee was entitled to claim as business deduction the amount of Rs.15,000 paid to Shri Jasraj (part of the unexplained difference) in respect of expenses allegedly incurred by him for obtaining drawback, and whether the appellant's disallowance of Rs.14,000 was justified. - HELD THAT: - The Tribunal noted that the services rendered by Shri Jasraj for obtaining drawback amounts were not disputed and that Shri Jasraj had, in his written statement before the AAC and in his own accounts, admitted receipt of commission and shown the amount of Rs.15,000 as due from the assessee and subsequently liquidated. The assessee had filed the account showing the G.I.R. number of Shri Jasraj at the assessment stage. The ITO was present when Shri Jasraj appeared before the AAC, but Shri Jasraj was not further examined on the particulars of expenditure he claimed. The Tribunal held that the books and admissions of Shri Jasraj constituted corroborative evidence that services were rendered and amounts were paid; in the absence of any material showing that the payments were not actually expended by Shri Jasraj (which would have resulted in assessment of that income in his hands), the Revenue could not sustain the disallowance. The Tribunal further observed that where a third party who received payment shows corresponding entries and there is no material to treat the claim as fictitious, the Revenue bears the onus of disproving genuineness before making a disallowance. Applying these principles, the Tribunal concluded there was no warrant for disallowing the claimed amount and granted relief to the assessee.The disallowance of Rs.14,000 was unjustified; the assessee is entitled to allow the claimed amount paid to Shri Jasraj and the appeal is allowed.Final Conclusion: The Tribunal allowed the appeal for asst. yr. 1973-74, holding that payments to the agent for securing drawback were substantiated by the agent's books and admissions and that Revenue failed to establish that the claimed expenditures were fictitious; accordingly the disallowance was set aside and relief granted to the assessee. Issues: Discrepancy in amount shown in profit and loss account, disallowance of expenditure claimed by assessee, justification of expenses claimed by Shri Jasraj, adequacy of deduction allowed by AAC.Discrepancy in amount shown in profit and loss account:The appeal before the Appellate Tribunal ITAT Madras-D pertained to the assessment year 1973-74 involving a discrepancy in the amount shown in the profit and loss account by the assessee, a bangle manufacturer. The difference of Rs. 22,636 between the draw backs and cash incentives received and the amount shown in the profit and loss account was a key issue. The Income Tax Officer (ITO) contended that the assessee failed to explain the nature of this expenditure, leading to the addition of Rs. 22,636 to the taxable amount.Disallowance of expenditure claimed by assessee:The assessee appealed to the AAC, claiming that the expenditure included freight charges and payments to Shri Jasraj for assistance in obtaining draw back amounts. The AAC allowed only Rs. 1,000 as a deduction, questioning the necessity of the claimed expenses. The assessee contested this disallowance, arguing that Shri Jasraj had provided services and had admitted to receiving the amount for expenses incurred, supported by a written statement and citing relevant case law.Justification of expenses claimed by Shri Jasraj:The dispute centered on the expenses claimed by Shri Jasraj, including traveling expenses, salary payments, telephone charges, and interest on borrowed funds. The Departmental Representative contended that the expenses were excessive and not warranted, suggesting that the deduction allowed by the AAC was sufficient. The Tribunal examined Shri Jasraj's records and found that the expenses claimed were supported by his income declaration and repayment records, indicating that the amounts were valid and had been settled by the assessee.Adequacy of deduction allowed by AAC:After reviewing the submissions and evidence, the Tribunal concluded that Shri Jasraj had rendered services for obtaining draw back amounts, and the claimed expenses were justified. As Shri Jasraj's records corroborated his statements, the Tribunal found no basis for disallowing the expenses in the hands of the assessee. Therefore, the assessee was granted relief of Rs. 14,000, and the appeal was allowed in favor of the assessee.