M/S.calico Industrial Engineers v. Deputy Commissioner Of Income Tax, Special Range 48, Mumbai

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORIGINAL SIDE INCOME TAX APPEAL NO. 108 OF 2002 M/s.Calico Industrial Engineers vs. Deputy Commissioner of Income Tax,Special Range 48, Mumbai. Appellant Respondent Mr.S.J. Mehta for the appellant. P.C. CORAM: R. M. LODHA &J.P.DEVADHAR,JJ. DATED: 1st October 2004 Heard Mr.S.J.Mehta, the learned counsel for the appellant. 2. While disallowing the payments on account ofprocessing charges to the extent of Rs.5,15,482/- forAssessment Year 1991-92, Rs.7,13,025/- for AssessmentYear 1992-93, Rs.15,17,103/- for Assessment Year1995-96, the Income Tax Appellate Tribunal consideredthe matter thus:"10. We have carefully considered rivalsubmissions and perused the record. It iswell settled principle of law that a personwho claimed deduction has to prove that it wasincurred for the purpose of business. Infurtherance of this onus casted upon theassessee, it is the duty of the assessee to identify the persons to whom payments weremade and establish before the AO that suchpayments are genuine. As could be seen fromthe past records, the AO has called upon theassessee to produce atleast some workers forexamination, but the assessee did not producethem. It may be noted that in the A.Ys.1984-85 to 1989-90 the total claim under thehead ‘processing charges’ as not very high andcash payments out of such processing chargeswere also reasonable. As could be seen fromthe orders of the AO/CIT(A) for the earlierassessment years, the amount disallowed wasbetween 10,000 to 1,50,000/- and the totalcash payments were around Rs.5,00,000/-. Inthe A.Y. 1988-89, the sales were to the tuneof Rs.3.5 crores on which the assessee claimedprocessing charges of Rs.27,08,083/- out ofwhich cash payments to the daily workers wereshown at Rs.7,47,577/-. Similarly, for theA.Y. 1989-90, the turnover was Rs.3.2 croresand the processing charges paid in case was tothe tune of Rs.5,75,992/-. For the A.Y.1987-88 also, the total claim under the head‘processing charges’ was to the tune ofRs.20,14,752/- out of which payment made incash was to the tune of Rs.4,00,680/- whereasin the year under consideration, the increasein the processing charges and the cashpayments is not commensurate with the increasein turnover. For the A.Y. 1991-92, theassessee declared sales of Rs.4.5 crores. ForA.Y. 1992-93, sales were shown at 4.9 croresand for A.Y. 1995-96, it was Rs.8.37 crores.As against this, the assessee claimed to haveincurred expenditure on account of processingcharges to the tune of Rs.42,86,298/- in A.Y.1991-92, Rs.42,62,628/- in A.Y. 1992-93 andRs.84,73,171/- in A.Y. 1995-96, and out ofwhich, cash payments on self made voucherswere to the tune of Rs.15,46,447 for the A.Y.1991-92, Rs.21,39,074 for A.Y. 1992-93 andRs.36,97,745/- for A.Y. 1995-96 respectively.11. As substantial expenditure was incurredin cash the A.O. called upon the assessee tofurnish names and addresses of the persons,but the assessee could not produce anyevidence except the self made vouchers. Thecase of the assessee is that they aretemporary workers, who do not have a permanentaddress. We are unable to appreciate thecontention of the assessee. As it could be seen from the vouchers, these so-calledtemporary workers have carried on skilled jobssuch as assembly work, welding, painting etc.and it is difficult to believe that theassessee would go on changing workmen to carryout such jobs upon the costly machines of theassessee. It is common practice that peoplewho are temporarily employed are called infrom time to time, or atleast such workers maykeep in touch with management from time totime so as to eke out their living. Thus itwould not be difficult for the assessee toobtain their address particularly when the AOhas disallowed, year after year, a portion ofexpenditure, for want of identity of theparties. Compared to the earlier years’expenditure, the expenditure was high theassessee has not furnished any evidence exceptthe self made vouchers to prove that the cashpayments are made to temporary workers for thepurpose of business. Therefore, the AO wasvery reasonable in disallowing only 1/3rd ofthe cash payments." 3. The consideration of the matter by the Tribunal cannot be said to suffer from any legal infirmity. assessment year 1995-96. The Income Tax Appellate Tribunal considered the matter thus: finalisation of the commission payable tothird parties which implies that the assessee,prima facie, should be satisfied that theservices of the third parties are necessaryfor booking orders. In order to consider thenecessary of payment, the assessee shouldatleast know the names and address of thethird party as otherwise the words ‘discussedwith Calico’ in clause (C) would have nomeaning and as a business man, the assesseewould not have agreed to pay commission toM/s.ATE without verifying the names of thepersons. However, the conduct of the assesseein nor furnishing the details such as thenames of the parties to whom third partycommission is paid nature of services renderedetc. has forced the AO as well as CIT(A) todraw an adverse conclusion. It was treated asa secret commission prohibited underExplanation 37(I) of the Act. Inspite of therepeated disallowances, year after year, andeven at the stage of the second appeal, theassessee has not furnished the names of theparties to whom commission was paid. As couldbe seen from the case-law cited by the ld.D.R.the onus is on the assessee to prove that thecommission was paid to an identified party andit was in connection with the servicesrendered for the purpose of assessee’sbusiness. In the instant case, assessee hasnot furnished the names of the parties and thenature of the services rendered by them isalso not clear. Under these circumstances, weare of the view that the disallowance made bythe AO and confirmed by the CIT(A) is inorder."The consideration of the matter by the Tribunal is 5. based on factual aspects. No legal infirmity is foundin the impugned order. 6. No substantial question of law arises. 7. Appeal is dismissed in limine. (R.M. LODHA,J.) (J.P. DEVADHAR,J.)