Unilateral claim based on internally generated documents without any independent evidence cannot be allowed as business expenditure

Brief of the case:

• The ITAT Delhi in the case of DCIT vs. M/s Leroy Somer & Controls held that the internally generated documents by company without confirmation of the same by the other party are not sufficient to make a claim of discount. Therefore, unilateral claims without any independent evidence cannot be allowed as business expenditure.

Facts of the case:

• The assessee company is engaged in the business of manufacturing of electronics goods claimed exemption u/s 80IB. It filed return of income declaring an income of Rs.63,77,436/- which was later on picked up for the scrutiny. The AO made several additions to the returned income including disallowing Rs. additional discount claimed to have been paid to M/s Sudhir Gensets Ltd. amounting to Rs. 46 lacs, the same was confirmed by CIT(A).
• CIT(A) upheld the disallowance by holding that the assessee has not been able to furnish any evidence or explain as to how and why expenses in question were helpful in promoting its business and what benefit had the business of the company acquired therefrom.
• Aggrieved assessee is in appeal before ITAT.

Contention of the Assessee:

• It was submitted that customer(M/s Sudhir Gensets) was not clearing its dues fully because it was claiming to set off the same against the cost incurred by the customer in indirect marketing of assessee’s products which has ultimately benefitted assessee.
• Considering such a claim of the customer, the company finally decide to settle and the Head (F&A) who was asked to coordinate the negotiation between the Directors and marketing heads. Against the claim of Rs.49.09 lacs, it was submitted the amount of Rs.46 lacs was negotiated.
• The offering of additional discount was necessary keeping in view the demands of commercial expediency, based upon ordinary principles of commercial trading, so as to settle dispute in the interest of exigencies of the business.
• It was also submitted that the immediate benefit to the assessee was settlement of account, and the indirect benefit derived by the assessee was to have harmonious business relationship.
• Therefore, the expenditure was incurred wholly and exclusively for the purpose of business keeping in view the exigencies of business and the exigencies of business it was submitted do not need the existence of a contract. 
  

Contention of the Revenue:

• It was submitted by the learned counsel for the revenue that the evidences filed by the assessee were internal self- created documents in the absence of the basic evidence of a dispute at all cannot beaccepted.On record it was submitted there is not a single evidence of M/s Sudhir Gensets actually insisting for a commission over and above the commission already earned as per arguments etc.
• Merely making a claim as business expenditure without any independence evidence cannot be allowed as deduction.

Held by ITAT:

• ITAT agreed with the findings of the AO and CIT(A) that the assessee could not produce any concrete material to substantiate its claim for allowability of additional discount was allowed under the business exigencies. The assessee in support of its claim relied upon the copy of board resolution and a copy of Account settlement, which reveals that Assessee has paid additional discount of Rs.20,40,017/- for the year 1999-2000 and Rs.22,57,370/- for the year 2000-01 and Rs. 6,11,192/- for the year 2001-02.

• Assessee failed to furnish the copy of agreement to show that there was any clause of payment of additional discount payable on the sales transactions made with the party.There is no evidence filed during the course of hearing neither before AO nor before CIT(A) and ITAT to prove that discount @ 3.5% was payable to the party after a period of3-4 year. Further there is no mention of such claim in the Notes to accounts for these years.
• The evidences filed by the assessee cannot be relied upon as these are only self-generated documents without any confirmation of the any representative of the buyer(M/s Sudhir Gensets).
• The self-serving note of the Director (Finance &Accounts) who stated that the disputes have been settled at a specific amount on a specific date without any reference as to who on behalf of the M/s Sudhir Gensets Ltd. was negotiating for the claim does not inspire any confidence whatsoever. Thus the assessee’s claim based on these evidences has rightly been rejected because of lack of independent authentication which does not inspire any confidence whatsoever either on in its authenticity nor on its genuineness.
• As regards the alternate claim of the assessee to allow the claim as bad debts ,the same is not acceptable because no such claim was made before the AO and nor has it been raised by way of a ground and have only come as an afterthought.
• In result the appeal filed by assessee was dismissed.