TaxTMI 
TaxTMI 
2022 (2) TMI 757
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....rrect 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? 5. The appellant prays that the order of CIT(A) on the above grounds be set ....
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.... 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 Khan and Mrs. Shirina Khan being their two sons (one of them an infant) which was charged as business expendi....
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....ness. (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 Khan is the CEO & director of the company and Mrs. Shirina Khan is providing professional services in the field of operations of the ....
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....ravelling 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 Director has traveled with his wife who also a Director and claimed these expenditures which is incurred for the business purposes. He submitted that all the travel ....
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...., 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 the details along with the reconciliation of the income generated vis-a-vis the expenses incurred on informer expenses and were same submitted in the course of the assessment proceedings vide letter dat....
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....nging 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 the informer information expenses incurred by it: "Our client submits that they are in the business of investigation, due diligence, market survey and conducting raids on suspicious target's selling counterfeit products of various clients, they needs information about....
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.... 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 on the violators and ensures that they are booked under the relevant civil and criminal laws. The fact that the perpetrators are criminals etc. and caught on basis of the information received from informers, they pose a threat to the life and livelihood of the informers and their family and hence....
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....hibited 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 the payments by way of secret commission and as such, was not entitled to deduction. This being a finding of fact, our Court declined to interfere as the view taken by the Tribunal was a possible view. In the present case the Tribunal it appears had to consider some new facts and aspects of the matter. it found that the assessee w....
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....intained 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. 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 v....
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.... 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 finding of the Tribunal is that in this particular trade in order to maintain the level of business and in order to secure large business, such secret commissions have to be paid. The real case of the assessee is that the assessee has paid these amounts of commission to its employees but the employees in their turn had to part with some amount of the commission coming to them in order to secure business or in ord....
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....he 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. (IV) The decision of the Supreme Court in the case of Sri Venkata Satyanarayana Rice Mill Contractors Co v CIT (1997) 223 ITR 101, has put the issue in the right perspective, when considering such payments as deductible drawing a line only as between bribe opposed to public policy and other payments motivated by commercial considerations after review of a number of decisions on the subject, throwing considerable light on the issue. Explanation 1 to section 37 sh....
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....e 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 identical issue has been allowed. (Viii) The decision of the Hon'ble High Court of Allahabad in the case of CIT v. Pt. Vishwanath Sharma (2008) 216 CTR 281 where it was held as follows: "2. The assessee is dealing in Ayurvedic medicines. For the assessment year 19891990, he claims that he spent Rs. 2,46,254/- as business expenditure by paying commission to various Doctors at the rate of 25/who were prescribing his medicines to the patients. The said Doctors/Vaids were both private a....
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.... 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 are not located and they were not produced for examination. This is not a relevant factor. (o) The assessee has claimed "Informer Information Expenses" since inception of its business i.e. Asst. Year 2001-02 and no portion of the said expenses has been ever disallowed in past assessments including scrutiny assessments except in asst. year 2012-13 (since fully deleted). The said expenses are regularly incurred by the assessee 'pany which is inherent in this line of business. Without Informer Information Expenses the assessee company....
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....ions 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. ITO 14 77 J 26 (HYD ITAT) 1982 (c) DCIT V Gujarat Narmada Valley Fertilizers company ltd., 42 taxmann.com 438 (Gujarat High Court) 2014 and, (d) ACIT versus Hindustan Fertiliser Corporation Ltd. ITA No. 2045 of 3318 (Delhi) - C Bench (2013) and (s) In view of the above, assessee company requests you honour to direct the Assessing Officer to delete the addition made in toto similar to the deletion of disallowance made by the Hon. CIT(A) in asst. year 2012-13" 14. Ld.CIT(A) allowed the ground raised by the assessee after considering the submissions of the assessee and by relying on the decision in previous A.Y. 2012-13 in which the then Ld.CIT(A) ....
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....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 Ltd, Hindustan Unilever Ltd, L&T, Procter & Gamble, Tata Global Beverages Ltd, among many others. 5.2.4 The Assessing Officer has not disputed either the receipts of service fees or the nature of service rendered or the fact that the declared services were actually rendered by the appellant company to clients. It is also a fact that the appellant has been in the same business since 2000 and is regularly assessed to tax. It is also noted that informant expenses were accepted by the Assessing Officer in the past as is evident from order u/s. 143 (3) for AY 2009-10. There is no change in the nature of business or any other material fact during the instant year under appeal. 5.2.5 Once the nature of bus....
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....cer, 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 circumstances in the instant appeal: * In Rajesh P. Son! 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. * In Balaji Textile Industries (P.) Ltd. v. ITO (1994) 49ITD 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. * 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 are not located ....
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....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 of business of the appellant, such payments are not only extremely probable but also unavoidable. The explanation given for not having details of persons to whom payments were made averred this is done to ensure safety of the informants and their families. This explanation is also reasonable in context of the nature of business. In their order pronounced on 13/01/2015 in ACIT vs Shri Ratansingh M Rathod, ITA Nos. 3717 & 5297/Mum/2013, Hon'ble ITAT Mumbai had allowed cash payments to labour on the ground that the accounts were audited and the Assessing Officer had not found any discrepancy in the audit report or the accounts. 5.2.13 Specifically with regard to payment of "secret commission reliance is placed on the jurisdictional High Court's decision in the case of Commissioner Of Income-Tax vs Sigma Paint....
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.... 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. 606 of 1976) dated August 21, 1990, squarely applies. Accordingly, we agree with the Tribunal that its conclusion is based on a finding of fact arrived at on the basis of good and cogent material." 5.2.14 The payment to informants in the instant case is in the nature of "secret commission", therefore, the ratio of the above decision of Bombay High Court applies to the facts and circumstances of the case. Accordingly, this ground of appeal is allowed." 3.4.3 Since the facts and circumstances are the same for this assessment year, except for the amount involved, following the decision of Ld. Predecessor for assessment year A.Y.2012-13 above, the A.O. is directed to delete the disallowance of informer information expenses of Rs. 1,37,95,570/-. These grounds of appeal is allowed." 15. Aggrieved Revenue is in appeal before us and at ....