TaxTMI 
TaxTMI 
2016 (5) TMI 490
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....s are similar in all three appeals we shall refer to the facts set out in Income Tax Appeal No.1376 of 2000 relating to A.Y. 1991-92. (a) The appellant is a partnership firm engaged in the business of letting on hire tarpaulin sheets for the purposes of erecting weather sheds. The appellant has numerous clients who have engaged the appellant for providing tarpaulin sheets for putting up protective weather sheds. It is the appellant's case that in the regular course of their business they are required to incur and pay costs by way of secret commission allegedly known in the trade as "Mehta Sukhadi ". According to the appellant, such commission has been paid secretly to employees of numerous clients and those amounts are deductible under Section 37(1) of the Income Tax Act, 1961 (the Act) as business expenditure. 3. In respect of A.Y. 1991-92 the assessee filed its return of income on 30th October, 1991 declaring income of Rs. 8.66 lakhs. In its return of income the appellant had debited an amount of Rs. 1.45 lakhs as "Mehta Sukhadi" i.e. secret commission paid to employees of its customers. The Assessing Officer by his order dated 31st March 1992 passed under Section 143(3....
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....r disallowed the entire deduction claimed by way of payment of secret commission. 5. Being aggrieved, an appeal was filed before the Commissioner of Income Tax (Appeals). By an order dated 26th February, 1993 the Commissioner of Income Tax (Appeals) reversed the order of the Assessing Officer observing that the payments were in the nature of liaison charges and secret commission. 6. Aggrieved, the Revenue appealed to the Tribunal which questioned the deletion of the addition on account of Secret Commission on the basis that the Commissioner of Income Tax (Appeals) did not appreciate this Court's decision in the case of Goodlass Nerolac Paints Ltd.,(supra) and the Supreme Court's decision in the case of CIT Vs. Gannon Dunkerley & Co. Ltd. 167 ITR 637 which held that the issue of secret commission is one of law and not fact. The Revenue was in appeal for orders of the Commissioner of Income-Tax (Appeal) relating to A.Y. 1989-90, 1990-91, 1991- 92 and 1993-94. The Tribunal heard appeals relating to all the above years together and passed a common impugned order on 31st January, 2000. It held that the appellants was given an opportunity by the Assessing Officer to substan....
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.... Sukhadi. 10. Mr. Joshi submitted that reference to these documents would reveal that the appellants had furnished a statement in which the particulars of secret commission was detailed. One of the documents relied upon before the CIT(Appeals) is a list showing secret commission allegedly paid over 10 to 15 years against gross hire charges. This list discloses that between 1990-91 and 2003 diverse amounts have been paid as secret commission ranging between 2.2% to 2.37%. Similar statements have been filed for the year 1989-90, 1991-92, 1988-89 and 1987-88. 11. Thirdly, Mr. Joshi, submitted that the Tribunal had not spelt out as to why it chose to discard the reliance placed by the CIT (Appeals) upon a typed statement of Mehta Sukhadi allegedly paid during the year 1990-91 in respect of diverse clients. 12. Based on the aforesaid documents which were admittedly available before the CIT (Appeals), the CIT (Appeals) accepted the same as sufficient evidence and permitted deduction. Mr.Joshi thereafter took us through various decisions of this Court, firstly, Mr.Joshi sought to rely upon the fact that secret commission had been recognized in the pronouncement in Goodlass (Supra....
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....o Mr.Joshi the facts in the present case are eminently in line with the facts in other cases where secret commission has been allowed, therefore, he submitted that in the present case also that commission ought not to be denied. 16. Mr.Joshi then relied upon the case of Gannon Dunkerley (supra) wherein it was held that secret commission paid by the assessee to procure business was not deductible as a result of amendment to Section 37(1). According to Mr.Joshi private parties were not prohibited from offering secret commission and such payment did not militate against provisions of Section 37(I) including the explanation. In this view of the matter Mr.Joshi submitted that the appellants were well within their rights to claim a deduction. Submissions on behalf the Revenue : 17. Mr.Suresh Kumar Learned Counsel appearing for the revenue submitted that the payment of secret commission could not be allowed as deduction. According to Mr.Suresh Kumar, in the present case, there was no evidence whatsoever to support the petitioner's case and the judgments referred to by Mr.Joshi cannot come to his assistance since there was no evidence that payments were in fact made and that t....
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....ering in at both ends. Mr.Suresh Kumar relied upon the finding that the expenditure incurred on secret commission would necessarily fall within the mischief of the explanation added to Section 37(1) of the Act. Mr.Suresh Kumar submitted that in the present case also there is no evidence to establish the claim of the appellant. The fact situation in the instant case according to Mr.Suresh Kumar does not warrant interference since it has not been established that payments of secret commission were in fact made by the assessee. Consideration: 21. We have heard both sides at length and counsel have ably assisted us. The Assessing officer held that although it was the appellants case that payment of secret commission ensured quick payment of hire charges, the particulars in the instant case revealed that hire charges running into lakhs of rupees remained overdue and that the payment of secret commission even if correct cannot be justified. The Assessing Officer dealt with various other aspects of cash amounting to Rs. 2,72,980/- found and seized as unaccounted and various blank signed debit cash vouchers found in order to inflate labour charges which do not concern us in the prese....
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....5 wherein the Supreme Court heard a challenge against the judgment of Bombay High Court refusing to frame a question of law. From a perusal of the tribunal's judgment in French Dyes (supra) it was found that the assessee had failed to establish that the said amount was expended for the purpose indicated by the assessee. The finding was based on more than one circumstance. The Supreme Court observed that not only had the assessee failed to disclose names of recipients but even the commission allegedly paid was not uniform. 25. It was further pointed out that the mere fact that certain amounts were made available to the Director of the assessee was not sufficient proof of its payment, inasmuch as, according to the assessee, the amounts were not paid by the Director by himself but through various employees. The names of persons who had allegedly made payments to the Dyeing Masters of the clients had also not been disclosed. In this view of the matter the tribunal recorded the finding that the assessee therein had failed to establish that the said expenditure was incurred. 26. In the case of Goodlass Nerolac (supra) the Tribunal had considered the facts and found that the ass....
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.... the assessee to reveal these names. 28. In Gannon Dunkerley (supra) the question "Whether, on the facts and in the circumstances of the case, the tribunal was right in holding that the expenditure by way of secret commission was deductible under Section 37(1) of the Act in computing the business income of the assessee ?" was held to be a question of law and the High Court was required to answer it. 29. In Tarini Tarpauline (supra) it was found that an explanation had been added to Section37(1) of the Act with effect from 1st April, 1992 and it was declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or provision and no deduction or allowance shall be made in respect of such expenditure. In that case, the court found merit in the submission of the counsel for the revenue that in view of amendment to Section 37(I) of the Act with retrospective effect the matter required reconsideration and the Tribunal was directed to decide the issue in the light of explanation inserted in Section 37(I). 30. In Gill & Co (supra) since the explanation to S....