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Issues involved: The judgment involves the rejection of the claim of the assessee for the deduction of specific amounts as selling expenses for multiple assessment years under the Income Tax Act, 1961.
Assessment Year 1963-64: The assessee, a company in the business of manufacturing and selling paints, claimed deductions for selling expenses as commissions paid to employees of certain purchasers to promote sales. The ITO allowed half of the expenses initially, but the Commissioner set it aside as prejudicial to revenue. Subsequently, the ITO disallowed the entire selling expenses for failure to provide details of recipients, as required by section 133 of the Act. The AAC confirmed the disallowance, leading to an appeal before the Tribunal. The Tribunal held that the secret commissions were not deductible, citing tax liability on recipients and lack of proof of business purpose. The Tribunal's decision was upheld, emphasizing the burden of proof on the assessee and the relevance of disclosing recipient details as per the Act. Assessment Years 1964-65 to 1968-69: Appeals were made to the AAC for these years, with similar disallowances of selling expenses. The Tribunal, in a common judgment, affirmed the disallowances based on the nature of the payments as secret commissions, which were not proven to be for the exclusive purpose of the business. The Tribunal's decision was supported by the requirement of section 37 of the Act, emphasizing the necessity for expenses to be wholly and exclusively for business purposes. The Tribunal's reliance on section 133(4) was also highlighted, reinforcing the obligation to disclose recipient details to tax authorities. Conclusion: The Tribunal's decision to reject the deduction claims for selling expenses as secret commissions was upheld by the High Court, emphasizing the burden of proof on the assessee to establish the business purpose of such expenses. The Court affirmed the Tribunal's interpretation of the relevant provisions of the Income Tax Act and dismissed the assessee's appeal, directing them to bear the costs of the reference.
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