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TMI Blog2013 (4) TMI 342X X X X Extracts X X X X X X X X Extracts X X X X ..... tating that, explanation to section 37(1) is applicable and that the payments made are in the nature of illegal gratification. (c)The learned CIT(A) and the assessing officer erred in observing that, no details as to services rendered were filed. (d)The appellant prays that the amount of Rs.42,09,552/- paid being business expenditure incurred in course of the business be allowed in full and addition deleted. 2. The appellant craves leave to add amend or alter any or all of the ground of appeal. 2. Assessee-company, engaged in the business of manufacturing of Brush Holder, Rocker ring assembly and lead wire, filed its return of income on 31.10.2007 declaring total income at Rs. 3.56 Crores. Initially, the return was processed u/s. 143(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Authority (FAA). He held that any payment made by the assessee-company was against public policy and hence was not allowable expenditure. He relied upon the cases of Bangalore Arrack Co., (201 ITR 25) and Maddi Venkataraman & Co. P.Ltd., (229 ITR 534) delivered by the Hon'ble High Court of Karnataka and Hon'ble Supreme Court. He further held that in view of the explanations inserted to Section 37(1) with retrospective effect from 01-04-1962, expenditure incurred by the assessee was not allowable. He further held that so-called commission was not actually legal expenditure but was the bribe/illegal gratification which was routed through the Books of Accounts of the appellant company in the form of commission paid to the certain persons. He f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Marketing Associates, Patiala for orders from Indian Railways, Diesel Modernisation Works along with copies of Purchase Orders. 5.1. Departmental Representative (DR) submitted that expenditure was not incurred for business and hence was not allowable, that assessee had supplying goods to the Indian Railways and BHEL, that Government agency did not entertain middle- men, that actual nature of services rendered was not explained by the assessee. 6. We have heard the rival submissions and perused the material put before us. Following un-disputed facts emerge from the order of the Revenue Authorities: i) Assessee is engaged in business of manufacturing electrical goods; ii) Indian Railways and BHEL are two main purchasers to whom company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ils services of agents instead of opening branch offices at different places, it can easily be termed a prudent decision. One cannot forget that advertisement for procuring the orders are not always published in national news papers. When goods are required in smaller quantities, tenders are floated in local news papers only. Assessee-company can have access to such tenders through local agents only. In these circumstances, if agents have been paid commission, it has to be held an allowable expenditure. The FAA has disallowed the said expenditure as he was of the opinion that payment made by the assessee-company was against the public policy. We are of the opinion that transactions entered into by the assessee- company and the agents were n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, eliminating a rival trader from operating in the same field will be incidental to the exercise of that fundamental right. On the other hand, if the subject-matter is loosely referred to as trade or business but actually is not recognised as trade or business in respect of which no fundamental right exists and only the State has the exclusive privilege in indulging in such a trade or business, different considerations should prevail. In the latter case, the State may engage in this trade of a pernicious character only because it is inevitable to do so having regard to the public interest such as the absolute need to raise revenue for the State which in turn is utilised for the public welfare. It may also be a case where the State engages ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Maddi Venkataman (supra), assessee had carried out business in violation of provisions of Foreign Exchange (Regulation) Act. Hon'ble Supreme Court held that "Assessee was expected to carry on the business in accordance with law. If the assessee contravened the provisions of the Foreign Exchange (Regulation) Act to cut down its losses or to make larger profits while carrying on the business, it was only to be expected that proceedings would be taken against the assessee for violation of that Act. The expenditure incurred for evading the provisions of the Act and also the penalty levied for such evasion could not be allowed as deduction." In the case of Indraprastha Agency (supra), question was about alleged bribes paid by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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