TaxTMI 
TaxTMI 
TaxTMI 
2016 (2) TMI 834
X X X X Extracts X X X X
X X X X Extracts X X X X
....lared a total income of Rs. 6.68 lacs (rounded off). Such return was taken in scrutiny by the Assessing Officer. One of the questions came-up for consideration during such scrutiny assessment was the assessee's claim for deduction of Rs. 19.85 lacs (rounded off) by way of expenditure. The assessee claimed that he had paid such sum of Rs. 19.85 lacs to various persons by way of secret commission. The case of the assessee was that to the employees of different companies, who had given the business to the assessee, such secret commission was paid to enhance the assessee's total turnover. The Assessing Officer questioned the very expenditure and called upon the assessee to justify the same. The assessee pointed out that such expenditure was claimed and allowed by the Revenue for several past years including for the assessment year 1989-90 till 1996-97. The assessee, however, even when asked to do so, could not produce the names, addresses and details of the recipients of such secret commission. The assessee claimed that entire amount was paid in cash but produced no receipts from the recipients of such commission. 3. The Assessing Officer questioned the very expenditure and no....
X X X X Extracts X X X X
X X X X Extracts X X X X
....commission whatsoever is paid by the appellant, yet the claim of such high expenditure of about Rs. 20 lakhs which as resulted in reducing the gross profit from about Rs. 49 lakhs to about Rs. 29 lakhs is not justified. Moreover, the claim of such a high expenditure of the order of Rs. 20 lakhs which cannot be brought to tax in the hands of the recipients, in the absence of their names and addresses, is against the spirit of policy of taxation and not in public interest. The claim also does not fall into the parameters which have been spelt out in various cases laws. Specifically in the case of CIT vs. Goodlas Nerolac Paints Ltd. vs. CIT(188 ITR 1) and ITR vs. Wanson (India) Pvt. Ltd. (35 ITR 42) due notice has been taken of the fact that the quantum of secret commission was very meager. Moreover, in the case of the appellant since it is not possible to relate individual payments of secret commission to specific orders procured/executed, it cannot be said that secret commission has been paid in respect of each and every sale and as such the claim of secret commission at 7% of the total sales is highly excessive and not at all justified. Further, it does not appear that a prudent bu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rivate company and not the Government employees, the commission was not barred by any law nor the act of the assessee amounted to any offence. (iii) In earlier assessment years, the expenditure was allowed after scrutiny barring 10% disallowance. This would demonstrate a consistent practice insofar as the assessee is concerned and any departure would also be hit by the principles of consistency. (iv) Restricting the expenditure to 1%, as was done by the CIT(Appeals), was wholly without any justification. 8. On the other hand, learned counsel Mr. Bhatt for the Revenue opposed the appeal contending that the entire expenditure was not allowable since the assessee failed to establish that such expenditure was made exclusively for the purpose of business. The Assessing Officer questioned the very relation of the expenditure with the business carried out by the assessee. The Tribunal has also given cogent reasons. 9. Sub section (1) of Section 37 of the Act provides that, any expenditure not being expenditure of the nature described in Sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee laid down or expanded wholly and exclusive....
X X X X Extracts X X X X
X X X X Extracts X X X X
....supra) recognized a small percentage to which such expenditure would normally be recognized. Secret Commission would ordinarily in a nature of payment in which the assessee would be reluctant to reveal the identity of the recipients. Such expenditure when allowed as a deduction would reduce the income of the assessee without the revenue being able to verify whether the recipients\ had offered such income to tax. Even otherwise such commission by very nature of things would be a small portion of an assessee's turnover. Thus flow the requirements of keeping such deductions down to a small proportion and casting a heavy burden on the assessee to establish that such expenditure was made and that it was wholly and exclusively for the purpose of business. 13. Coming back to facts of the case, the Assessing Officer questioned the very foundation of such expenditure. He was of the opinion that there was no nexus established by the assessee between the expenditure and the purpose of business. It was, in this background, after referring to the comparative data of the current year and the earlier years in relation to the assessee's turnover, expenditure under the head of secret commi....