1989 (2) TMI 21 - HC - Income Tax

Summary

Issues:
- Whether the commission payment was eligible for deduction without establishing the recipient's identity?
- Whether the bad debts deduction was correctly allowed without proper verification of supporting documents?

Analysis:

Commission Payment Deduction Issue:
The petitioner, a public limited company, sought deductions for commission payments to Mr. Madan Lal Jain. The Income-tax Officer disallowed the commission, questioning its genuineness. The Commissioner of Income-tax (Appeals) upheld the decision, leading to an appeal before the Income-tax Appellate Tribunal. The Tribunal, after detailed analysis, found Mr. Jain's identity established through various evidence, including receipts, a certificate from an Assistant Engineer, and bank account details. The Tribunal also noted the Income-tax Officer's acknowledgment of correspondence between the parties. The Tribunal's consideration of similar payments in other assessment years and the reasonableness of the commission rate were challenged by the Revenue's counsel. However, the Tribunal's decision was upheld, emphasizing that the reasonableness of the commission rate was an additional observation, not the primary basis for the decision. The judgment referred to the necessity of considering all material facts fairly and without prejudice, citing relevant case law. The court ultimately concluded that the Tribunal's findings on Mr. Jain's identity were not based on conjecture but supported by substantial evidence.

Bad Debts Deduction Issue:
Regarding the deduction claimed for bad debts from Meenakshi Engineering Corporation, the Income-tax Officer rejected it due to lack of documentation proving the debt as bad. The Commissioner of Income-tax (Appeals) recognized new evidence in the form of letters from the debtor company but emphasized the need for verification. The Tribunal allowed the deduction, considering it a trading loss supported by the new evidence. However, the court raised a question of law regarding the lack of due verification of the letters before accepting them as evidence. Consequently, the court reframed the second question for reference, focusing on the correctness of permitting the deduction without proper verification. The court rejected the reference application for the first question but directed the Tribunal to refer the reframed second question for decision. No costs were awarded in the case.