PATEL BROTHERS Vs. DY C I T

JUDGEMENT

(1.) This appeal is filed by the assessee challenging the judgements of the revenue authorities and that of the Income Tax Appellate Tribunal. While admitting the appeal, following substantial questions of law were framed: 2. Whether in the facts and circumstances of the case, ITAT was right in law in holding that explanation appended below section 37 of the Act is applicable to the facts of the case?"

(2.) Brief facts are as under:

(3.) The Assessing Officer questioned the very expenditure and noticed several factors to come to conclusion that the same was not allowable deduction at all. In addition to noticing that the assessee had not produced any details of whom such payments were made, no accounts were maintained by the assessee nor any receipt produced, the Assessing Officer further compared the commission paid and the percentage of such commission in relation to the sales of the assessee for the earlier years. The Assessing Officer noticed that there had been a considerable rise in the rate of such commission starting with 2.77% of the turnover of the assessee for the assessment year 1989-90 till the current year; where against the turnover of Rs. 2.82 crores, the assessee had paid commission of Rs. 19.85 lacs, close to 7.03%. The Assessing Officer also compared the gross profit to the sales and noticed that, in the assessment year 1997-98, there had been a drop in the gross profit ratio. The Assessing Officer referred to several decisions of this Court and other High Courts cited before him but came to the conclusion that the expenditure in question failed to fulfill the conditions for claiming deduction under Section 37 of the Income Tax Act, 1961. He recorded that the assessee failed to establish that there was a practice for payment of such commission in the particular line of business; the assessee failed to adduce satisfactory evidence to show that the payments were actually made and, lastly, that the assessee failed to establish that such payments were wholly and exclusively for the purpose of business. In that view of the matter, the Assessing Officer disallowed the entire claim of the expenditure of Rs. 19.85 lacs.