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TMI Blog2005 (8) TMI 577X X X X Extracts X X X X X X X X Extracts X X X X ..... have been paid by the assessee to various Government officials to procure orders for supply of medicines. The Assessing Officer disallowed the claim on the ground that sales were made directly to Government as also the claim of commission was not supported by any evidence excepting the vouchers given by the field employees. In other grounds the revenue is aggrieved due deletion of other two additions by Ld. CIT(A) in respect of commission amounting to Rs. 4,10,269 and Rs. 6,91,771 paid to M/s. Rahul Enterprises and M/s. Rahul Steels Industries. The Assessing Officer disallowed the above commission payments stating that the assessee was not able to produce any evidence to prove that the employees and the firms have rendered any services for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... confirmed by them that they contacted various officials like Regional Medical Officer and other officials for procuring supply orders. It was also stated by Sri Om Prakash Bhararia that he used to get feed back from various hospitals about the requirement of DM RHS and approach them for obtaining orders in favour of the assessee. However, the assessee could not produce any evidence in support of its contention that M/s. Rahul Enterprises and M/s. Rahul Steel Industries have rendered any service to the assessee for which commission was paid. The Assessing Officer also relied on the decision of Hon ble Supreme Court in the case of Lachmi Narayan Madanlal v. CIT [1972] 86 ITR 439 wherein it has been observed that mere existence of an arr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the names of the vendors are short listed based on evaluation of the pre-qualifications, technical and financial bids. Once names are short listed the department places orders as and when need arise based on the price fixed on the evaluation of financial bids. In the second procedure double bid system or triple bid system, i.e. , pre-qualifications, technical and financial bids, is followed. In evaluation of pre-qualifications bids, the names of vendors on the basis of past records are short listed and thereafter the technical bids are evaluated which contain the details of the technical aspects of the products as well as technical qualifications and assistance to be provided by the vendor. From technically qualified vendors, the financial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s procured orders directly from Government departments. Therefore, the firms and employees were mere conduit for the payments to be made to the Government officials by the assessee. Reliance has been placed on Explanation to section 37(1) of the Act according to which an expenditure incurred for the purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession. The assessee before the Assessing Officer has not been able to file conclusive evidence to prove that services were rendered by the assessee to the Government departments. Mere existence of an agreement would not entitle the assessee to claim that the expenditure was incurred wholly and exclusively for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itle the assessee to claim deduction of the payment of commission for the purposes of the business. 9. We also find that the assessee has not been able to controvert the finding of the Assessing Officer that the employees and the two firms were only conduit between the assessee and the Government officials. There- fore, the assessee s case is hit by the provisions of Explanation to section 37(1) of the Act, which provides that the payments which are prohibited or are against the public policy are not allowable as deduction. 10. In the case of Gwalior Roadlines v. CIT [1988] 234 ITR 230 Hon ble Madhya Pradesh High Court held that the payments allegedly made by a transport operator to RTO, Gangmen and Traffic Police authority am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pernicious consequences to the nations life as a whole. 13. On a careful consideration of the facts and circumstances of the case and the above mentioned judicial pronouncements we are of the view that the payment made to the employees of the assessee-company and two firms were not incurred wholly and exclusively for the purpose of assessee s business. The payments made against public policy are not permitted as deduction under Explanation to section 37(1) of the Act. We therefore, set aside the order of the CIT(A) and restore that of the Assessing Officer. The revenue s appeal is accordingly allowed. 14. The cross-objection filed by the assessee is only to support the order of the CIT(A). In view of our finding in the revenue s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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