TaxTMI 
TaxTMI 
2026 (3) TMI 1236
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....the assessee namely M/s.Karpaga Vinayagar Papers has preferred this Appeal. 2. Short facts shorn of elaboration are that 'M/s.Karpaga Vinayagar Papers' ['assessee' for short] is a partnership firm consisting of two partners namely Alamelu Aachi, wife of V.Valliappan and N.P.Selvaraj, brother-in-law of V.Valliappan. V.Valliappan who is not a partner was looking after the entire business. 2.1. The assessee is a dealer in paper and boards. In the income-tax return for the Assessment Year 2001-2002 filed on October 31, 2001, admitting a total income of Rs. 7,49,290/-. The same was processed under Section 143 (1) of 'the Income Tax Act, 1961' ['I.T. Act' for short] and the assessment was completed under Sect....
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....orementioned amount of Rs. 11,35,879/- is not covered under Section 40A (2) (b) of the I.T. Act and hence, the additional income-tax liability of Rs. 7,03,476/- was set aside. Accordingly, the appeal was partly allowed. 2.4. Feeling aggrieved by the Commissioner's Order, the respondent herein representing the income-tax department preferred an appeal before the Tribunal. The Tribunal held that even if the aforementioned amount of Rs. 11,35,879/- is considered as commission payment i.e., as a business expense, as per Section 40A (2) (a) of the I.T. Act, the said amount is excessive and hence, the assessing officer is entitled to disallow the claim. Further it was held that the assessee could not show anything regarding the nature of s....
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....he disallowance?' 3. Mr.Dinesh, learned Counsel appearing for the appellant / assessee would argue that the employee - V.Valliappan being the manager of the appellant had inflated the expenses and withdrew money without any authorisation. Hence, the said money ought to be treated as a business expenditure. Further V.Valliappan declared the misappropriated amount in his individual income-tax assessment and hence, the disallowance made in the hands of the appellant would amount to double taxation. Further, he would contend that the assessment under Section 147 of the I.T. Act is barred by limitation as per the proviso thereto. The Tribunal failed to appreciate the facts of the case in a proper manner. Accordingly, he would pray to allo....
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.... Rs. 11,35,879/- as a commission paid in the course of business, the same can be considered as valid business expenditures only on production of valid documentary evidence. Admittedly, there is no documentary evidence available on record to substantiate that the aforementioned amount of Rs. 11,35,879/- was paid as a commission to more than 30 identified persons. No business agreement, bill of supply, or any particulars was produced on the side of the appellant in this regard. It is true that as per Section 40A (2) of the I.T. Act, any payment towards a partners, member or relative of a partner, shall be considered as a business expense for the purpose of income-tax assessment. However, such a payment or expenditure shall reflect fair market....
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..... Moreover, if the proposition that misappropriated amount shall be considered as business expenses is to be accepted, then anyone can easily allege misappropriation and evade income-tax. It would lead to gross misuse of law. 9. As regards the argument qua double taxation, as rightly held by the Tribunal, income in one person's hand need not necessarily be an expense in the other person's hand. V.Valliappan could have derived the aforementioned amount of Rs. 11,35,879/- and even more from the assessee - firm which may be an income in his hand, but whether the assessee can claim the same as a valid expenditure or loss is a different question. As stated supra, misappropriation cannot be claimed as a valid expenditure or loss. In th....