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TMI Blog2002 (2) TMI 321X X X X Extracts X X X X X X X X Extracts X X X X ..... of the agreement (which is similar with all the six parties), the assessee was to arrange/provide publicity and distribute gifts on all India basis at his own discretion and without interference of the stockiest to enhance the sale of tickets by the stockist and agents. In view of these provisions the assessee incurred the expenses on providing publicity and distribution of gifts on all India basis. A sum of Rs. 41,84,925 was accordingly debited to the P L A/c under this head. 4. During the course of assessment proceedings the AO made examination of the genuineness of such expenses. He noted that the total advertisement expenses incurred by the assessee was as under: (1) Payment to M/s Popular Advertisement company Rs. 41,32,250 (2) M/s Air Aids Rs. 2,690 (3) M/s Anamika Associates Rs. 49,985 5. The AO proceeded to make further investigation. For this purpose he required the presence of M/s Popular Advertisement Co. by issue of notice under s. 131 of the Act. However, the notice came back unserved. But, subsequently on 3rd March, 1999, the counsel of the assessee appeared before the AO and produced a person stated to be Shri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntioned in the certificate. However, the AO was not satisfied with the genuineness of the payment as well as the genuineness of the existence of M/s Popular Advertisement Co. He found the following contradictions in the submissions of the assessee: (1) Shri Naresh Kumar in his statement recorded on 3rd March, 1999, had given his address of Kalyanpuri whereas he never resided there; (2) A perusal of the copies of assessee s account shows that from April, 1995, to February, 1996, the advertiser submitted bills to the tune of Rs. 41,32,250 and during this period not a single paise had been received by M/s Popular Advertisement Co. from the assessee. Shri Naresh Kumar had failed to explain the source of expenditure incurred by him on such advertisement. He even failed to name the parties from whom he took cloth etc. (3) Though Shri Naresh Kumar stated that he was doing advertisement for other parties also but it was very strange that he did not own even a single telephone. (4) Shri Naresh Kumar had stated that he had filed IT return for asst. yr. 1996-97 but the could not tell the amount of income declared. He also could not specify the ward where he was being assessed. (5) E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manipulation tried to reduce its income by claiming bogus advertisement expenses to the tune of Rs. 41,32,250. He, therefore, disallowed the entire claim of expenditure amounting to Rs. 41,32,250. 8. Aggrieved by the order of the AO, the appeal was preferred. The CIT(A) almost reiterated the facts brought out by the AO and held that the assessee s transactions with Shri Naresh Kumar were not true. The entire expenditure of Rs. 41,32,250 alleged to have been incurred on account of advertisement was neither genuine nor had been spent for the purposes of business of the assessee. In a nutshell, he upheld the disallowance made by the AO against which the assessee is in appeal before us. 9. It is argued by the learned counsel that admittedly when an expenditure has been claimed in the P L a/c the onus was on the assessee to prove that such expenditure was a bona fide expenditure and allowable under s. 37(1) of the Act. Regarding AO s observation that the notice under s. 131 sent to M/s Popular Advertisement Co. came back unserved, the learned counsel stated that once Shri Naresh Kumar had appeared, the objections raised by the AO had no force. He also stated that though in the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he decision of Delhi Bench of the Tribunal in the case of Instrumed (India) International vs. ITO (1999) 63 TTJ (Del) 191. In the said case the Tribunal had held that the assessee having clearly discharged that burden of proving the genuineness of commission payments made by it by producing documents in the form of letters of confirmation of agents and by producing agent before the AO, the payments made were to be allowed as deduction. Reliance was also placed on the decision of Special Bench of the Tribunal in the case of ITO vs. French Dyes Chemicals (I) (P) Ltd. (1985) 21 TTJ (Bom) 412 : (1984) 10 ITD 224 (Bom). 10. It was stated by the learned counsel that the AO had acted merely on the basis of surmises and conjectures. Firstly, he was guided by the non-service of summons under s. 131 of the Act, but as the proprietor of M/s Popular Advertisement Co. appeared, AO s objections had become infructuous. The AO was also guided by the fact that the payments were not received by the assessee during the year and there was no evidence from where M/s Popular Advertisement Co. received the cloth etc. on credit. AO also had in mind the bank account which was opened in the name of "Shr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of these enquiries. Assessee was not accordingly allowed any opportunity to rebut the contents of the enquiry. In the case referred to above, the Hon ble Supreme Court had held that tax proceedings were no doubt quasi-judicial proceedings and the S.T. authorities were not bound strictly by the rule of evidence, nevertheless the authorities must base their order on materials which were known to the assessee and after he was given a chance to rebut the same. For this purpose the learned counsel also relied on the decision reported in Kaira Glue Factory vs. State Tax Tribunal Ors. (1987) 65 CTR (SC) 233 : (1987) 167 ITR 498 (SC), M.O. Thomakutty vs. CIT (1958) 34 ITR 501 (Ker) and C. Vasantlal Co. vs. CIT (1962) 45 ITR 206 (SC). Learned counsel further relied on the decision of Gauhati Bench of the Tribunal in the case of ITO vs. Assam Jute Products (2002) 120 Taxman 58 (Gau)(Mag). This was a case of addition us 68. AO found that the assessee had shown receipts of two loans from the creditor. The creditor was produced before the AO and confirmed the loan transactions. The AO ultimately came to the conclusion that the creditor did not have capacity to lend such huge amount of money ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure was laid out or expended wholly and exclusively for the purpose of business or profession of the assessee. It is not the case of the Department that the expenditure incurred by the assessee was either capital expenditure or personal expenditure. This leaves us to consider only one issue as to whether the expenditure incurred by the assessee was laid out or expended wholly and exclusively for the purpose of business or profession carried on by the assessee. 14. As mentioned earlier, the assessee is the sole distributor for the sale of lottery tickets of Manipur Government State Lotteries for whole of India. There are certain states where the sale of lottery tickets are banned. Thus the area of operation was limited to those states where the sale of lottery tickets were not banned. Needless to say various State Governments had come out with the sale of lottery tickets and the area of their operation was also almost those states. Thus, there was tough competition for the sale of lottery tickets. It involved a mode of advertisement expenses. But as the area of operation was different states spread all over India, the assessee alone could not accomplish this task. It ente ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also filed the P L a/c and balance sheet of his concern. This amply proves his existence as well as the existence of his concern. This concern has also done the job of other parties as late as in 1999. Thus, it could not be said that M/s Popular Advertisement Co. was not equipped with handling job of advertisement. Once M/s Popular Advertisement Co. has confirmed having accomplished the job and assessee, was also satisfied with the job entrusted to M/s Popular Advertisement Co. there was no reason to doubt the capacity of M/s Popular Advertisement Co. Neadless to say that even affidavit confirming the transaction was filed. AO had again examined Shri Naresh Kumar but Shri Naresh Kumar reaffirmed his earlier averments. In addition the assessee had furnished certificates from six stockists who were appointed to accomplish the job. Those stockists were also very much concerned in the quantum of sales. They had already paid certain sums by way of royalty to the assessee. Thus, unless the sales got boosted in their respective area there was always danger of not even recovering the amount which they had paid by way of royalty. All of them had certified that the advertisement was done by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y bringing on record positive material or evidence and not merely on the basis of suspicion and surmises. The Tribunal further observed that the Department has also not brought any material on record to show that the amount shown as commission payment has directly or indirectly flown back in the favour of the assessee at any point of time. In the case of Transport Corporation of India Ltd. the issue was similar. In that case the payment was made under the bill and the same was withdrawn by self cheque by the payee. The AO held that transaction to be bogus. AO had also held that 90 per cent of the payment had flown back to that assessee. After thorough examination the Tribunal held that there was absolutely no evidence to show that the payment was not made by the assessee and the payee did not do any advertisement service to the assessee. There was nothing to show that the amounts incurred as expenditure for advertising by the assessee were not spent for said purposes. But 90 per cent of the said amount was received back by the assessee-company. The Tribunal, therefore, upheld the finding of the CIT(A) in allowing the deduction. The facts in the case of the assessee are similar. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inod Kumar. It is therefore, clear that the account in question did not belong to Shri Naresh Kumar but to Shri Vinod Kumar." 21. We have noted the observation of the learned counsel that these enquiries were got made behind the back of the assessee. In case the assessee was confronted with these facts the explanation could have been rendered. Using an evidence against the assessee with which it has not been confronted amounts to the denial of natural justice and could not be admitted as a piece of evidence. We find substance in the submission of the learned counsel for the assessee. In the case reported in (1987) 167 ITR 598 (SC), (1958) 34 ITR 501 (SC) and (1962) 45 ITR 206 (SC) it was held that the assessee has to be confronted with the enquiry in case such enquiry was being used against the assessee. Under these circumstances these observations of the CIT(A) have to be ignored. We also find that the AO had questioned Shri Naresh Kumar about the bank account maintained in the name of Vinod Kumar, proprietor M/s Popular Advertisement Co.". Vide reply to section No. 42 of the statement dt. 26th March, 1999, Shri Naresh Kumar has confirmed that he was only the proprietor. Shri Vi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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