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Issues involved: Disallowance of unvouched expenses described as speed money u/s 37(1) and applicability of Explanation to sec. 37(1) for assessment years 1997-98 and 1999-99.
Summary: The appeals were filed by the assessee against the orders of the CIT(A), Central VIII, Mumbai for assessment years 1997-98 and 1999-99, primarily disputing the disallowance of certain unvouched expenses, termed as speed money, despite Tribunal directions. The Tribunal remanded the issue back to the AO for verification of documents regarding the nature of payments made by the clients of the assessee. In the subsequent proceedings, the assessee contended that the expenses were incurred on behalf of clients who were aware of reimbursing such payments. However, the AO and CIT(A) did not find merit in the submissions, leading to the confirmation of disallowance. The learned senior advocate for the assessee argued that non-compliance with the Tribunal's earlier order regarding client awareness justified deletion of the addition. The Revenue authorities contended that detailed investigations were conducted, and the expenses were labeled as service charges, warranting disallowance. After considering the submissions, the Tribunal concluded that no useful purpose would be served by restoring the matter to the AO after 12 years. It was noted that neither the assessee nor the AO made efforts to prove the illegality of the expenditure or client reimbursement awareness. Referring to the case of A.P.L. (India) P. Ltd. v.s. DICT 96 ITD 227 (Mum), the Tribunal held that 25% of the expenditure should be disallowed under Explanation to sec. 37(1) due to lack of details on payments to government employees. Accordingly, the Tribunal partly allowed the appeals, directing the AO to disallow 25% of the alleged illegal expenses for the respective assessment years. In conclusion, the Tribunal partially allowed the appeals, emphasizing the need for substantiating expenses and client awareness to avoid disallowances u/s 37(1) and Explanation to sec. 37(1).
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