Allowability of Business expenditure



HELD

It is well-established principle of law that the burden is upon the assessee to establish that any expenditure claimed as deduction is laid out or incurred for the purposes of business. In respect of the claim of payment of commission for services rendered, the burden is upon the assessee to establish that the services were rendered for which the payment was made.

In the instant case, the assessee had claimed that there was an agreement between the assessee and the consultants 'S' and 'V'. A perusal of the same revealed that it was a letter on the letter-head of the assessee addressed to 'S' and 'V'. A further perusal of the aforementioned letter revealed that the assessee-company had mentioned the services to be rendered by the recipient of commission and also reference had been made of the associate concerns of the assessee to whom, as per the letter, the services were also to be provided. That letter was purported to have been signed by 'V' and 'S' with the words 'we agree with the above terms'. There was no reference of the business name of 'S' and 'V', if any, or their parentage, etc., whatsoever in the purported agreement. The parties were not traceable at the given addresses. Apart from the above letter, no evidence was produced before the Assessing Officer. Moreover, the surrounding circumstances and human probabilities also did not inspire confidence about the genuineness of the claim. The assessee had suffered losses in all the shares transactions. It paid money to the two named persons in the month of September, 1991 although the share transactions continued till the end of March, 1992. That went against the claim that the payment was made for services rendered. There was no evidence on record to establish that they had helped the company in procuring any fund for it. The assessee had sold shares of R-1 Ltd. and collected the amount somewhere in September, 1991 and had, therefore, no scarcity of funds. With regard to the investment with others, the assessee-company had made agreement with MB Ltd. for investment of Rs. 85 lacs, but the company had to retreat by paying a compensation of Rs. 17 lacs. The proposal for the above deal was mooted by a chartered accountant and not by said two persons. The assessee failed to establish that 'S' and 'V' were experts in the field in which the advice was claimed to have been given to the assessee. The fact that the assessee had suffered losses proved otherwise. It is well-settled that mere payment by cheque does not establish the rendering of services for business considerations. In regard to the traveling expenses also, the Assessing Officer had pointed out that the claim made by the assessee was not supported by any evidence. Air tickets in respect of 'S' and 'V' could not be produced. The bills in respect of which deduction was claimed by the assessee were in the name of the holding company of the assessee and not in the name of the assessee-company.

In certain circumstances it may not be easy to furnish direct evidence for rendering of consultancy services, as observed by the Accountant Member, however, there should not be any difficulty for the assessee in producing circumstantial evidence in support of the claim. Two things are of importance, one is that payment is made to professionals and secondly, the rendering of services by such professionals once established, it will not be necessary to prove the exact nature of advice given by the professionals. In the instant case, it had neither been established that the payment had been made to any professional nor had the necessity of engaging them been established. Firstly, the assessee could have established that the parties to whom the commission was claimed to have been paid were experts in the field of financial consultants. Secondly, had they been assessed to tax, it would not have been difficult for the assessee to establish that the payments made had been reflected by the recipients in their taxable receipts. Thirdly, their antecedents and any correspondence with them could have been produced. Fourthly, the necessity of engaging them could also be established. In the instant case, even the identity of the recipients had not been established. There was no iota of evidence on record to establish that the recipients were experts in the field as financial consultants. There was no evidence on record to establish that they were assessed to tax. No basis was forthcoming for fixation of the quantum of commission. It was not explained as to why the assessee required the services of experts for the year under consideration as neither such services were required in the past nor in the subsequent assessment years.

In view of the above, the Assessing Officer was justified in disallowing the claim insofar as firstly the assessee failed to establish the genuineness of the claim of rendering of services and secondly, the Assessing Officer on his own could not make enquiries for the reason that the parties were not found at the given addresses. The assessee had been given sufficient opportunity to establish the genuineness of the claim of rendering of services by 'V' and 'S'. All those factors taken together did not leave any doubt that the assessee had miserably failed to discharge the onus which was upon it. Therefore, the Assessing Officer was justified in disallowing the claim relating to service charges.

Similarly, the traveling expenses claimed in respect of 'S' and 'V' were also disallowed by the Assessing Officer for lack of evidence to establish that the expenses were incurred for the purposes of business. The facts and circumstances described by the Assessing Officer did not inspire confidence in support of the genuineness of the claim. Therefore, the claim of service charges to 'S' and 'V' as also the traveling expenses were rightly disallowed.

Parasmani Investment Co. (P.) Ltd. v. Assistant Commissioner of Income-tax [2003] 85 ITD 133 (KOL.) (TM)

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