AI Drafter 
TaxTMI 
TaxTMI 
2022 (2) TMI 757
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.... circumstances of the case and in law, the Ld.CIT(A) was correct in deleting the addition made on account of foreign travelling expenses of Rs. 11,92,998/- by admitting additional evidence which was never filed before the AO and adjudicating in favour of Assessee in contravention of Rule 46A of the I.T Rules 1962? 3. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition made on account of foreign travelling expenses of Rs. 11,92,998/- on the basis of additional evidence filed during the course of appellate proceedings without appreciating that the assessee failed to produce corroborative documentary evidence to prove that the expenditure was incurred wholly and exclusively for the purpose of business during the course of assessment proceedings? 4. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition made on account of informer information expenses of Rs. 1,37,95,570/- without appreciating that informer information expenses is unexplained expenditure u/s 69C as the assessee failed to furnish plausible explanation with cogent evidence? ....
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....e has debited Rs..36,95,518/- on account of foreign travelling expenses to foreign countries from where assessee was not deriving any revenue. He observed that on account of expenditure of two sons of director were also charged as business expenditure. He observed that as per the provisions of section 37 of the Act any such personal expenditure is not allowable as deduction. When the assessee was asked specifically, assessee made the submissions dated 13.12.2016 before the Assessing Officer. After considering the submissions of the assessee, Assessing Officer observed that assessee failed to provide any supporting documents to establish the business purpose of the Singapore visit made during the year to the extent of Rs..11,92,998/-, accordingly, he disallowed the same. Aggrieved assessee preferred an appeal before the Ld.CIT(A). 8. Before the Ld.CIT(A) assessee filed detailed submissions, for the sake of brevity it is reproduced below: - (a) The assessing officer has erred in disallowing Rs. 11,92,998/- on account of expenditure on Foreign Travelling Expenses to Singapore u/s 37 on ground that the assessee has incurred expenditure on account of family of Mr. Zaheer Kha....
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....s of meeting. Such foreign travel is under taken for routine follow up, to review old business and to scout for new business. (d) The Assessing Officer has stated in the assessment order that the assessee company has incurred expenditure on account of two sons (one of them an infant) of Director Mr. Zaheer Khan and his Wife Mrs. Shirina Khan for Singapore Trip. The expenditure has been incurred only for travelling of Mr. Zaheer Khan and Mrs. Shirina Khan for the purpose of business and not for their son and infant as stated by Assessing Officer. The assessee company encloses herewith the details of foreign travelling expenses on Singapore trip vide page no, 44 of the paper book and it is evident from the said details that the said statement is erroneous. The foreign travelling expenses of their son and infant child is separately debited by Mr. Zaheer Khan in his personal books of accounts under the head foreign travelling expenses, the capital account of Mr. Zaheer Khan is enclosed vide page no 89 of the paper book from which it is evident that foreign travelling expenses on the said two children are separately debited in personal books of accounts. (e) Mr. Zaheer....
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....een debited in the capital account of the director. Assessee also submitted the capital account of the director in support of its claim wherein the foreign travelling expenses are debited. Aggrieved revenue is in appeal before us raising grounds in respect of Rule 46A and on merit of allowing the foreign travelling expenses by the Ld.CIT(A). 10. Before us, Ld. DR submitted that he relied on the Assessment Order and submitted that assessee has filed additional evidences which were not submitted before the Assessing Officer. He submitted that Ld.CIT(A) should have remitted the matter to the Assessing Officer and he supported the finding of the Assessing Officer. 11. On the other hand, Ld. AR brought to our notice submissions of the assessee before the Ld.CIT(A) and findings of the Ld.CIT(A) at Page No. 12 and 13 of the appellate order. Further he brought to our notice Page No. 152 of the Paper Book which is the capital account of the Director in which foreign travelling expenses were debited. He observed that expenses of the children incurred by the company are charged to the Director's account and further he submitted that assessee has business connection in Singapore and Dire....
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....il and supporting for these payouts. Assessing Officer rejected the submissions of the assessee in the absence of any supporting documentary evidences or explanation, according to AO, the expenses cannot be allowed in absence of evidence for such expenditure and he relied on various sections of Indian Evidence Act to disallow the expenditure claimed by the assessee. Aggrieved assessee preferred an appeal before the CIT(A) and before the Ld.CIT(A) assessee submitted the following submissions: - "3. Ground No. (iii): (a) The Assessing Officer has erred in disallowing Rs. 1,37,95,570/- on account of expenditure on Informer Information Expenses on the following grounds. i. The assessee has failed to provide any supporting documentary evidence or explanation, which suggest that the expenditure are genuine. ii, The assessee has not even submitted the proof of payment of such expenses. (b) At the outset, we state that the statement of the Assessing Officer in respect of the assessee failed to provide any supporting documentary evidence or explanation, which suggest that the expenditure are genuine is erroneous since the assessee had provided th....
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....ng homicide. Any citizen who aids an investigation by offering helpful information to the agency is by definition an informant. (v) It is likely to feel strong hostility toward any known informers, regard them as threats and inflict punishments ranging from social ostracism and/or death. Informers are therefore generally protected, either by being segregated or, if they are not incarcerated, relocated under a new identity. (f) The investigations made by the Assessee Company is crucial on the basis of the information provided by the informants as subsequent to receipt of such information, the Assessee Company in alliance with the police force carries out raids. The resultant effect of such raids is that the perpetrators / violators are put behind bars and criminal prosecution against them is commenced. FIR of the raids are lodged with the police station. The crucial information which converts an investigation into a successful raid and criminal prosecution against the wrongdoers is the information which the Assessee Company receives from the informers. (g) The Assessee Company vide letter dated 13/12/2016 provided the following explanation to substantiate ....
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.... Your assessee has provided the details of informer expenses incurred as required by you as Annexure 3. Further we would like to submit that the whole business is linked with the informer expenses and we have enclosed the statement of correlation of informer expenses with the revenue earned by the assessee. However as required by you, the identity of the informers cannot be disclosed as it might detrimentally affect the business and our relations with Informer." (h) The payments are made to informers to receive tips / information etc., which results in criminal raids on violators of intellectual property rights, etc. The said payments to informers for obtaining information is a business requirement and necessity on the basis of information. After the information is received from the informers, the assessee prepares a detailed report which contains documentary evidence of IPR violations, counterfeit, fraud etc. which in turn is submitted to the client indicating the source of the violations to IPR. The Assessee on approval of the client, approaches and submits a detailed report to the jurisdictional police force who in conjunction with the Assessee company carries out raids....
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....ook. (j) Many businessmen incur such expenditure in the private sector by paying employees of the concerns with which they deal with for (i) getting orders; (ii) ensuring continuation of the business dealings; (ili) ensuring early payment of the bills. Obviously, such practices is not be illegal or prohibited by law or not against public policy. (k) The Assessee Company relies on the following case laws to support the above contentions: - (I) The Assessee Company relies on the decision of the Hon'ble High Court of Bombay in the case of CIT v. GoodlassNerolac Paints Ltd (1990) 188 ITR 1 where it was held as follows: "4. It cannot, perhaps, be disputed that in order to be entitled to deduction of payments to persons whose names are not disclosed, the assessee has to establish the practice prevailing in that line of business for making such payments; it has to adduce satisfactory evidence to establish the payments; and has also to Satisfy the authorities that the payments were made for the purpose of business. No doubt, for the earlier year the matter came up before this Court. The Tribunal had come to the conclusion that the assessee had not proved....
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.... (II) The Assessee relies on the decision of the Hon'ble High Court of Bombay in the case of CIT v. Sigma Paints Ltd (1990) 188 ITR 6 where it was held as follows: "........ He has further invited our attention to paragraphs 24 to 28 of the judgment in that case to show that the assessee had produced various details and the records maintained by the company relating to the secret commission payments. Vouchers for the amounts received by the sales officer or other responsible persons for the payment of secret commission were available. The details of sales transactions entered into with various mill-companies in respect of which secret commission had to be paid were available. There was a completely tally between the commission paid, the extent of business done by the mill-company etc. Details were also available of the exact transactions in respect of which the assessee had to pay the secret commission. The assessee had given a complete list showing the turnover and the amount of secret commission said from year to year. The percentage of secret commission was minimal. The full details of payment on the above basis in respect of several parties were available. The....
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.... our view, the aforesaid questions are based on a finding of fact arrived at by the Tribunal. For this purpose, it would be worthwhile to refer to the decision of this court in the case of Addl. CIT v. Moolchand Jaikishandas and Co. [1977] 108 ITR 500. Dealing with a similar question of payment of secret commission, this court declined to interfere with the finding given by the Tribunal on the ground that it satisfied the test of commercial expediency. The relevant observation is as under (at page 510) : "The Tribunal has further held that in this particular trade of dye-stuffs and colour chemicals which are being sold to the textile mills it is the usual practice to pay secret commission to dyeing masters, printing masters, etc., in order to secure orders and in order to see that the supplier concerned increases his sales. The Tribunal has also held that the three employees of the assessee-firm were visiting the various mills with whom the assessee had dealings and were securing business from those different mills for the assessee-firm." The court further held (at page 511) : "So did the quantum of sales effected by the assessee-firm. Further, the findin....
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....inding. 8. As stated above, in the present case, the Tribunal has relied upon its previous decisions with regard to the same company for holding that it was a practice prevailing in the trade of dye-stuffs and colour chemicals which are being sold to the textile mills to pay secret commission. This aspect is also considered by this court in the case of Moolchand Jaikishandas and Co. [1977] 108 ITR 500. Considering the aforesaid facts and the established trade practice, it cannot be said that the finding given by the Tribunal of upholding partial disallowance can be interfered with by this court. In this view of the matter, as all these questions referred to this court are based upon a finding of fact, they are required to be answered accordingly. 9. In the result, questions Nos. 1 and 2, referred at the instance of the assessee, are answered in the affirmative, in favour of the assessee and against the Revenue. Similarly, questions Nos. 1 and 2, referred at the instance of Revenue, are also answered in the affirmative. Accordingly, we answer all the four questions in the affirmative. The reference stands disposed of accordingly with no order as to costs. ....
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....ssessing Officer found that the payment was excessive. The High Court found that it 1s obliged to take judicial notice of the difficulties in getting even lawful amounts from the Government without incurring avoidable expenses besides harassment caused to the person entitled to such refund. Hence, a payment to avoid delay and harassment, to a third person or middleman cannot be said to have been laid out for purposes other than business Such claim should be understood from the point of view of the assessee and not the Assessing Officer who "has neither the expertise of running business nor has any specialization to sit in judgment over the assessee as to whether such expenditure was incurred for commercial expediency or not." It was found there was no provision to disallow business expenditure, when it is found to be proved. The High Court, therefore, took judicial notice of the need for incurring such heavy expenditure for getting a legitimate refund from the Government. (Vii) The Assessee Company relies on an additional case law enclosed herewith for your ready reference in the case of CIT vA.S.K. Rathinaswamy Nadar 75 Taxmann 638 (Madras High Court) in which an identica....
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....ry. In the instant case, there is no such finding but merely a conclusion which is not based on any evidence. There is nothing to indicate that the payment to informants was from unaccounted sources or from out of the books of accounts. The law requires more than mere opinions or presumptions to make an assessment of income. (n) The ratio of the following cases also have direct bearing on the facts and circumstances in the instant appeal i. In Rajesh P. Soni v. ACIT (2006) 100 TTJ 464 (Ahd.) (Trib.) it was held addition under section 69 was not justified merely because suppliers could not be located and were not produced for examination ii. In Balaji Textile industries (P.) Ltd. v. ITO (1994) 49 ITD 177 (Mum.)(Trib.), it was held that there was no allegation or proof that the amount was received back by assessee. Sales were accepted ~ No sales can be made without purchases. Addition was deleted. iii. Rajesh P. Soni v. ACIT (2006) 100 TTJ 892 (Ahd.)(Trib.) The sales against purchases are not doubted. It is not the case of AO that amounts paid for purchases had come back to the assessee. AO had made addition merely on the ground that the suppliers ....
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....ess and is a common trade practice without which, such information would not be forthcoming. Certain web cuttings are enclosed to show that various other agencies carrying on similar business also rely on such informants (iv) The Assessee has proved beyond doubt the reasonableness of expenditure incurred by comparing the revenue to the expenditure incurred and the said expenditure forms minuscule part of the revenue earned (v) Vouchers are prepared stating full details of the work done i.e. the name of the clients, the nature of work and the nature of information. It is therefore evident that all the conditions enumerated above have been fulfilled for allowing such kind of expenditure (r) The informer information expenses has been allowed by the department year to year after due scrutiny. Though resjudica does not apply to Income Tax cases, matter which is permeating year to year and which matter has been accepted by both the sides, the same cannot be disturbed in the subsequent years. In this respect we rely on the (a) Supreme Court decision in case of Radhasoami Satsang v CIT(1992) 193 ITR 321. (b) Navabharat Tobacco Company V....
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....ed and paid. The appellant company is engaged in the field of investigation for violations of IPR (intellectual Property Rights), apprehending the perpetrators / violators through a system of informants and carrying out raids on counterfeit businesses with the help of jurisdictional police force. EIPR (India) Pvt. Ltd. is India's largest investigation agency specializing in anti-counterfeiting solution. The appellant company is engaged by large international/multinational corporations to prevent or identify such theft and violation of Intellectual Property of its clients. 5.2.3. During the financial year ending 31/03/2012, it is noted that the appellant has shown service charges received of Rs. 9.73 crores. As against that informer expenses have been booked at Rs. 57.36 lakhs, which is approximately 7% of service fees received. Analysis of comparative figures provided by the appellant in the course of appeal proceedings show that informer expenses have varied between 5.79% - 7.19 % in past 5 years starting from AY 2009-10. From the details of clients provided it is noted that the list includes major MNCs in different sectors such as Aventists Pharma Ltd, Casio, Dabur India....
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....he nature and reason for payment and also supplied corroborative details of the clients in connection with whose cases such payments were made. 5.2.8 The Hon'ble Supreme Court in the case of SumatiDayal vs. CIT (214 ITR 801) has held that 'for considering whether the apparent is real, matter has to be considered by applying the test of human probabilities'. Applying the ratio, it has to be concluded that the nature of business of the appellant is such that payment of secret nature to informants cannot be avoided. Moreover, the source of informant fees is out of the business receipts from clients on which tax has been Paid. In the alternative, as per section 69C the explanation, offered by assessee is not, in the opinion of the Assessing Officer, satisfactory. In the instant case, there is no such finding but merely a conclusion which is not based on any evidence. There is nothing to indicate that the payment to informants was from unaccounted sources or from out of the books of accounts. The law requires more than mere opinions or presumptions to make an assessment of income. 5.2.9 The ratio of the following cases also have direct bearing on the facts and....
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.... that the assessee had not explained about the source of such expenditure or part thereof. In the instant case there is no dispute with regard to the source of expenditure and it is also not in dispute that the assessee incurred expenditure." 5.2.12 It is noted also that in the course of assessment proceedings, the appellant had submitted ledger account of informant fees giving details of payments made from its declared bank account. Therefore, the question of applicability of section 69C does not arise. On this conclusion alone, this ground of appeal succeeds. It could be that the payment was not related to business but that is not the case. The ratio of decision of Hon'ble Bombay High Court in CIT vs GoodlassNerolac Paints Ltd, 188 ITR 1 is also in support of the appellant in as much as if it is established that business practice prevents the appellant from disclosing the names of persons to whom payment was made then the expense is allowable. It is also noteworthy that the expenses were directly relatable to work done for specified clients. The payment to informants constitutes only 5-7% of the revenue earned from operations. It is also noted that in the unique nature o....
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.... a complete tally between the commission paid and the extent of business done by the mill-company. Details were also available of the exact transactions in respect of which the assessee had to pay the secret commission. The assessee had given a complete list showing the turnover and the amount of secret commission paid from year to year. The percentage of secret commission was minimal. The full details of payment on the above basis in respect of several parties were available, They were correlated to the transactions which the assessee had with those persons and the period during which the transactions were entered into. The only missing item was stated to be the names of the particular parties to whom the payments were made. This, the Tribunal held, could not be supplied without detriment to the business of the assessee in the very nature of things. Shri Patel then pointed out that, in paragraph 29 of the judgment, the Special Bench of the Tribunal noted that the position was the same in the case of Indochem Ltd. and that of the assessee. 3. On the above stated facts, our judgment in the case of CIT v. GoodlassNerolac Paints Ltd. [1991] 188 ITR 1 (Income-tax Reference No.....
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....ng the year. He also brought to our notice historical information relating to this expenditure from A.Y: 2009-10 to A.Y.2014-15 which is in and around 6% of the total revenue. Further he submitted that department has raised ground equating this expenditure under unexplained expenditure u/s. 69C of the Act. He submitted that the section 69C of the Act has no application. These expenses are incurred in carrying the business of the assessee and these information is placed on record, therefore, section 69C has no application. He prayed that this ground may be dismissed. 17. Considered the rival submissions and material placed on record, we noticed that the nature of the business of the assessee is to engage in the field of investigation for violation of Intellectual Property Rights (IPR) and apprehending the perpetrators/violators through a system of informants and carrying out raids on counterfeit business with the help of jurisdictional police force. As per the records assessee is India's largest investigation agency specializing in anti-counterfeiting solution. Further assessee is engaged by large Internationals/multinational corporations to prevent or identify such theft and vio....