ORDER SHEET IN HIGH COURT AT CALCUTTA Special Jurisdiction [Income Tax] ORIGINAL SIDE ITA No. 164 of 2009 S.R. BATLIBOI & ASSOCIATES Versus COMMISSIONER OF INCOME TAX, WEST BENGAL- XIX, KOLKATA BEFORE: Hon'ble JUSTICE GIRISH CHANDRA GUPTA Hon'ble JUSTICE ARINDAM SINHA Date : 9th February, 2015. Mr. R. N. Bajoria, Sr. Adv. Mr. A. Gupta, Adv. Mr. R. Sinha, Adv. Court : assessing officer in disallowing expenditure of sum of Rs.1,26,90,998/- advanced following reasons: assessee could not explain business expediency of incurring such expenses at this abnormal rate. assessee also failed to co-relate payment of such expenses to its sister concern S. R. Batliboi & Co. with revenue in form of fees received during year to justify its payment to sister concern. Considering above facts amount @ 10% of such claim of Rs.12,69,09,983/- (74,83,853 + 11,94,26,130) or 2 Rs.1,26,90,998/- is disallowed and added back being not for purpose of business. This addition is also called for in view of provisions of Sec.40A(a)(2). order was successfully assailed before CIT(A) by assessee. Aggrieved by order of CIT(A), revenue preferred appeal. learned Tribunal reduced amount and restricted disallowance to sum of Rs.1,10,00,000/- for following reasons: We have carefully considered submissions of ld. representatives of both parties and orders of authorities below. We have also perused details of break-up of expenses claimed by assessee on account of conference and seminars aggregating Rs.74,83,853/- placed at pages 161 to 173 of paper book. We have also gone through details of professional expenses placed at pages 174 to 180 of paper book. We observe that assessee has paid Rs.8,00,00,000/-, Rs.1,00,00,000/- and Rs.2,00,00,000/- as per Sl. No. 36, 37 and 38 at pages 177 of paper book, but only narration given is being amount paid as additional manpower supply fees payable to S.R. Batliboi & Co. . No further details have been given to justify as to whether said payment has been made by assessee to its sister concern S.R. Batliboi & Co. wholly and necessarily for business purposes. We observe that A.O. has also stated in assessment order that assessee failed to correlate payment of such expenses to its sister concern S. R. Batliboi & Co. A.O. has also observed that assessee could not explain business expediency of incurring such expenses at this abnormal rate. Hon ble Apex Court has held in case of CIT vs.- Calcutta Agency Limited [19 ITR 191] that if assessee fails to establish fact necessary to support his claim for deduction under section 37(1), claim is not admissible. Hon ble Andhra Pradesh High Court has also held in case of CIT v-s Transport 3 Corporation of India [256 ITR 701] that unsupported payment is not deductible. Considering above cases and facts of case, we are of considered view that decision of Hon ble Delhi High Court cited by ld. A.R. (supra) is not applicable to facts of case before us. Further, assessee has also not given details of services rendered by its sister concern S.R. Batliboi & Co. against which assessee had paid sum of Rs.11,00,00,000/- to it. Considering totality of facts before us and details of expenses aggregating Rs.74,83,853/- on account of conference and seminar expenses at pages 161 to 173 of paper book and payment of Rs.11,94,26,130/- towards professional services, details given at pages 174 to 180 of paper book, we are of considered view that it will be reasonable to restrict disallowance of claim of assessee to payment of Rs.11,00,00,000/- to its sister concern S.R. Batliboi & Co. instead of making disallowance of 10% of total claim of assessee aggregating to Rs.12,69,09,983/-. Hence, we modify orders of authorities below by restricting disallowance of 10% of Rs.11,00,00,000/-, which comes to Rs.1,10,00,000/- as against Rs.1,26,90,998/- made by A.O. and entire amount deleted by ld. CIT(A). Accordingly, Ground No.4 of appeal taken by Department is allowed in part by restricting disallowance to Rs.1,10,00,000/- out of payment of Rs.11,00,00,000/- made by assessee to its sister concern S.R. Batliboi & Co. Challenging aforesaid order, present appeal was filed. appeal was admitted on 12th August, 2009 and following questions of law were framed: i] Whether order of tribunal, disallowing Rs.1,10,00,000/- out of payment made to S.R. Batliboi and Company for services rendered by them is arbitrary and perverse as there are no material whatsoever in support thereof and such findings 4 have been arrived at by ignoring relevant materials and on mere surmises and conjectures ? ii] Whether tribunal was justified in law to uphold disallowance of 10% of amount paid to S. R. Batliboi and Company ? It is not in dispute that assessee debited sum of Rs.11 crores and only narration given in books of account was being amount paid as additional manpower supply fees payable to S.R. Batliboi & Co . It is on this basis that assessee wanted assessing officer to allow aforesaid expenditure of Rs.11 crores, which assessing officer refused to do and learned Tribunal affirmed to extent of 10% of total sum of Rs.11 crores. admitted position is that revenue, for relevant year earned by assessee, increased by 26% whereas expenditures were enhanced by almost 150%. assessee merely on basis of aforesaid entry indicating that sum of Rs.11 crores was paid as additional manpower supply fees could not have claimed deduction. sum of Rs.11 crores must have been arrived at on some basis. There must be appropriate record for that. It is on basis of records and calculation amount must have been arrived at and paid. entry relied upon is mere piece of secondary evidence. What is secondary evidence? Secondary evidence in substance means that better remains behind. What is better that remained behind? Better in this case were pieces of evidence which contained particulars of services rendered and rates applied thereto on basis whereof sum of Rs.11 crores was calculated. Those were pieces of primary evidence which also was best evidence available with assessee which should have been adduced to show that assessee had in fact incurred sum of Rs.11 crores for business expediency. assessee did not do any such thing nor even any attempt was made to 5 do so. Naturally, assessing officer disallowed expenditure and Tribunal upheld it, if we may say so correctly. Mr. Bajoria, learned senior advocate, submitted that misunderstanding on part of assessee was at root of matter which is why appropriate evidence could not be brought to notice of assessing officer. He submitted that opportunity should be granted to assessee to produce all relevant evidence to show that sum of Rs.11 crores was incurred by assessee for appropriate reasons. This question of fact, we are inclined to think, may be enquired into further for purpose of examining grievance of assessee, if any. For that limited purpose, matter is remanded to assessing officer. He shall permit assessee to adduce such evidence as assessee wants to rely upon and shall consider matter in accordance with law. appeal is thus disposed of. (GIRISH CHANDRA GUPTA, J.) (ARINDAM SINHA, J.) sm S. R. Batliboi & Associates v. Commissioner of Income-tax, West Bengal-Xix, Kolkata W.B