Delhi High Court

S.S. Associates vs Joint Cit on 22 February, 2002

Equivalent citations: (2004) 88 TTJ Del 152

ORDER

Keshaw Prasad, A.M.

The appeal has been directed by the assessed against order of the Commissioner (Appeals) dated 30-3-2000 pertaining to assessment year 1996-97.

2. Grounds of appeal No. 1 to 6 relate to the disallowance of Rs. 41,32,250 claimed by the assessed on account of advertisement expenses.

3. Briefly, the facts of the case are that assessed is a firm, consisting of two partners. By an agreement with the Government of Manipur it had taken the task of sole distribution of Manipur Government State lotteries for whole of India. As per agreement, the assessed was paying royalty to the Government of Manipur. However, as the task assigned as per agreement had to be accomplished in those states where there was no ban on the sale of state lotteries, it entered into stockiest arrangement with six parties all over India for distribution of lottery tickets in those arears where the sale of lottery tickets was not banned. As per clause 16 of the agreement (which is similar with all the six parties), the assessed 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 assessed 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 assessing officer made examination of the genuineness of such expenses. He noted that the total advertisement expenses incurred by the assessed 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 assessing officer proceeded to make further investigation. For this purpose he required the presence of M/s Popular Advertisement Co. by issue of notice under section 131 of the Act. However, the notice came back unserved. But, subsequently on 3-3-1999, the counsel of the assessed appeared before the assessing officer and produced a person stated to be Shri Naresh Kumar, proprietor M/s Popular Advertisement Co. The assessing officer recorded his statement on that date. Shri Naresh Kumar confirmed the transaction. However, not being satisfied with the statement of Shri Naresh Kumar, the assessing officer issued a letter dated 4-3-1999, asking for further information. In that notice the assessing officer also referred to the statement of Shri Naresh Kumar recorded on the previous day. The assessed furnished a detailed reply vide letter dated 16-3-1999. In the said letter the assessed stated that it had established the identity of the firm M/s Popular Advertisement Co. The proprietor of the company was also produced. Proprietor had confirmed having done the work. He had also confirmed having received payments. He had also confirmed having issued bills to the assessed for the work done. The payments by A/c payee cheque was also confirmed. M/s Popular Advertisement Co. was not related to the assessed and therefore, the provisions of section 40A(2) were not applicable. It was also stated in the said letter that M/s Popular Advertisement Co. was not the benami of assessed. In a nutshell in the said letter it was claimed that the payment to M/s Popular Advertisement Co. was genuine and such payment was made for the services rendered by M/s Popular Advertisement Co. A letter dated 24th March 1999 along with affidavit of Shri Naresh Kumar was also furnished. In support of the genuineness of the payment and the genuineness of M/s Popular Advertisement Co. the balance sheet of M/s Popular Advertisement Co. was also furnished. However, the assessing officer was not satisfied with the averments made by the assessed as well as the averments made in the affidavit. He, therefore, vide his letter dated 24-3-1999, asked the assessed to produce Shri Naresh Kumar, proprietor M/s Popular Advertisement Co. for further investigation. In response to such notice the assessed again produced Shri Naresh Kumar on 26-3-1999, when his statement was again recorded. In this statement Shri Naresh Kumar confirmed the contents of the affidavit. The assessed also furnished certificates from all the six stockiest with whom the stockiest arrangement was entered into, certifying that the assessed through its advertising agent M/s Popular Advertisement Co. had carried out the advertisement work during financial year 1995-96. The areas where the advertisement activity was carried out was also mentioned in the certificate. However, the assessing officer 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 assessed :

(1) Shri Naresh Kumar in his statement recorded on 3-3-1999, had given his address of Kalyanpuri whereas he never resided there;

(2) A perusal of the copies of assessed'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 assessed. 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 income tax return for assessment year 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) Enquiries made from Bank of Baroda, Vasant Vihar revealed that the Bank account was opened by the name of "Vinod Kumar, proprietor M/s Popular Advertisement Co." This account was opened on 23-1-1996, and the first deposit in this account was made by cash of Rs. 3,000 on 6-2-1996. The first cheque issued by the assessed for Rs. 6 lacs was also deposited in this account on 22-2-1996. Shii Naresh Kumar in his examination on oath on 3-3-1999, had stated that he was having his Bank account in Union Bank of India, Bank Street, Karol Bagh and was still maintaining the same account. It means he was not aware of the Bank account opened in Bank of Baroda, Vasant Vihar on 23-1-1996, which proved that the Bank account in the name of Shri Vinod Kumar opened in Bank of Baroda was not the Bank account of Shri Naresh Kumar, as claimed.

(6) On 3-3-1999, Shri Naresh Kumar had stated that he was presently doing the advertisement work of M/s Lalit Enterprises, Kanpur. Till date he had done the work to the tune of Rs. 10 lacs to Rs. 12 lacs. He had also stated that he had received all the payments except a sum of Rs. 1.5 lacs. However, in his affidavit filed on 28-3-1999, he had stated that he had not done any advertisement work in the financial year 1998-99. This suggested that Shri Naresh Kumar was giving statement only to help the assessed.

(7) On 3-3-1999, Shri Naresh Kumar had stated that he did his B.Com in 1989 but in the affidavit he had stated that he was not well educated and therefore, at the time of recording of the statement on 3-3-1999, he was under mistaken belief that it related to the financial year relevant to the assessment year 1996-97. Such statement was, therefore, contradictory.

7. From the facts mentioned above the assessing officer held that Shri Naresh Kumar was actually a part-time accountant and never had done/doing business of advertisement. By preparing bills, etc. in the name of M/s Popular Advertisement Co., he simply was doing the work of "name lender". He had issued bills between April, 1995 to February, 1998 to the tune of Rs. 41,32,250 but has failed to explain as to from where he met the cost of work for which the bills were issued. He further held that the assessed with the help of Naresh Kumar got prepared fabricated documents like bills etc. in the name of M/s Popular Advertisement Co. and with this 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 assessing officer, the appeal was preferred. The Commissioner (Appeals) almost reiterated the facts brought out by the assessing officer and held that the assessed'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 assessed. In a nutshell, he upheld the disallowance made by the assessing officer against which the assessed 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 assessed to prove that such expenditure was a bona fide expenditure and allowable under section 37(1) of the Act. Regarding assessing officer's observation that the notice under section 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 assessing officer had no force. He also stated that though in the assessment order the assessing officer had mentioned that the counsel of the assessed appeared along with one person claimed to be Shri Naresh Kumar, proprietor of M/s Popular Advertisement Co., he had not doubted Shri Naresh Kumar in person. He also stated that the claim of expenditure under section 37(1) and the onus of proving the cash credits under section 88 of the Act were two different aspects. In case an expenditure is claimed, the assessed has only to prove that the work had been done by the person and such payment was relatable to the business carried on by the assessed. As mentioned earlier, the assessed was the sole distributor of lottery ticket of the Government of Manipur in whole of India. There are certain states where the sale of lottery tickets was banned. As the task was to be accomplished in those areas where the sale of lottery tickers was not banned, the assessed entered into stockiest arrangement with various parties. All those parties had confirmed that the assessed got the advertisement done through M/s Popular Advertisement Co. Nowhere the assessing officer had doubted these certificates. In case the assessing officer had any doubt about the certificates he was free to issue summons under section 131 to any of the parties to verify the facts. Thus, once there was a certificate on record the same could not be brushed aside by the assessing officer. Similarly, the task of advertisement was accomplished by M/s Popular Advertisement Co. The proprietor of the advertisement company appeared before the assessing officer twice. He confirmed having accomplished the task, raised the bills and received the money subsequently. Thus, the assessed had proved the existence of the recipient also. While relying on clause 16 of the agreement entered into with the said six parties, learned counsel stated that admittedly it was the duty of the assessed to incur the expenditure on advertisement. It was stated that where the turnover of the assessed was more than Rs. 1,500 crores, this could not be achieved without incurring advertisement expenses. Thus, the assessed had discharged its onus laid on it by virtue of the provisions of section 37(1) of the Act. While relying on the decision of Hon'ble Supreme Court in the case of Roshan Di Hatti v. CIT (1977) 107 ITR 938 (SC), the learned counsel stated that assessed had proved its onus. How the other party had conducted itself was not the concern of the assessed. Reliance was placed on the decision of Delhi Bench of the Tribunal in the case of Instrumed (India) International v. Income Tax Officer (1999) 63 TTJ (Del) 191. In the said case the Tribunal had held that the assessed 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 assessing officer, 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 Income Tax Officer v. 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 assessing officer had acted merely on the basis of surmises and conjectures. Firstly, he was guided by the non-service of summons under section 131 of the Act, but as the proprietor of M/s Popular Advertisement Co. appeared, assessing officer's objections had become infructuous. The assessing officer was also guided by the fact that the payments were not received by the assessed during the year and there was no evidence from where M/s Popular Advertisement Co. received the cloth etc. on credit. Assessing Officer also had in mind the Bank account which was opened in the name of "Shri Vinod Kumar, proprietor M/s Popular Advertisement Co." learned counsel stated that there may be reasons to doubt such transactions but all these doubts were clarified before the assessing officer. It was stated by Shri Naresh Kumar that the Bank account was opened by giving power of attorney to Vinod Kumar. It was under these circumstances that in the Bank Shri Vinod Kumar, proprietor M/s Popular Advertisement was mentioned. Regarding purchase of goods on credits by Popular Advertisement Co. the learned counsel stated that the assessing officer was not making the assessment of M/s Popular Advertisement Co. He was making the assessment of the assessed and assessed had discharged its onus. How the other concern had acted was not the concern of the assessed. Learned counsel, therefore, argued that the entire basis of making disallowance of the advertisement expenses was based on doubts and surmises. By relying on the decision of Hon'ble Supreme Court in the case of Uma Charan Shaw & Bros v. CIT (1959) 37 ITR 271 (SC) the learned counsel stated that there were many surmises and conjectures and the conclusion was the result of suspicion which could not take the place of proof of evidence in such case. Learned counsel also referred to the decision of Hyderabad bench of the Tribunal in the case of Income Tax Officer v. Transport Copn. of India Ltd. (1987) 20 ITD 11 (Hyd). In the said case the Tribunal had held that the payment for advertisement could not be disallowed because proprietor of one advertising agency had given contradictory statement on the same day after accepting the transaction when there was evidence that some advertisement was done. Reliance was also placed on the decision of the Tribunal, Bombay Bench (Third Member) in the case of VIP Industries Ltd. v. 1AC (1991) 36 ITD 70 (Bom)(TM). In the said case it was held that since the payee has proved beyond doubt by the correspondence that took place between them, the basis for the department was mostly suspicion. Learned counsel stated that in case of the assessed the facts were even stronger as the payee was produced before the assessing officer. Learned counsel also placed reliance on the decision of Hon'ble Supreme Court in the case of State of Kerala v. K. T Suaduli Grocery Dealer Etc. 1977 CTR (SC) 260. It was stated that in his order the Commissioner (Appeals) had mentioned that he got certain enquiries conducted but the assessed was not confronted with the facts of these enquiries. assessed 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 assessed 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 v. State Tax Tribunal & Ors. (1987) 167 TTR 498 (SC), MO. Thomakutty v. CIT (1958) 34 ITR 501 (Ker) and C. Vasantlal & Co. v. CIT (1962) 45 ITR 206 (SC). Learned counsel further relied on the decision of Gauhati Bench of the Tribunal in the case of Income Tax Officer v. Assam Jute Products (2002) 120 Taxrnan 58 (Gau)(Mag). This was a case of addition us 68. Assessing Officer found that the assessed had shown receipts of two loans from the creditor. The creditor was produced before the assessing officer and confirmed the loan transactions. The assessing officer ultimately came to the conclusion that the creditor did not have capacity to lend such huge amount of money to the assessed. The Commissioner (Appeals) noted that confirmation certificates related to the loan truncations and also the full particulars of the assets of creditor by way of balance sheet and P&L a/c etc. were filed. He, therefore, deleted the addition. On further appeal the Tribunal held that the assessed had discharged its preliminary onus of proving the identity and also the creditworthiness of the loan creditors. The loan creditor also appeared before the assessing officer and confirmed the genuineness of the loan transaction. In view of these facts the action of the Commissioner (Appeals) was to be upheld. Learned counsel stated that the assessed's case clearly fell within the ratio laid down by Gauhati Bench of the Tribunal and, therefore, the Commissioner (Appeals) was not justified in sustaining the disallowance made by the assessing officer.

11. On the other hand learned Departmental Representative heavily relied on the finding of Commissioner (Appeals). He stated that there were certain contradictions in the statement of Shri Naresh Kumar who had claimed himself to be the proprietor of M/s Popular Advertisement Co. The Bank account was opened in the name of "Vinod Kumar, proprietor Popular Advertisement Co. and therefore, Shri Naresh Kumar could not claim that this was his Bank account. It was also argued that Shri Naresh Kumar had not been able to discharge his onus. The onus was on the assessed to prove entries in its books of account. Having failed to do so the Commissioner (Appeals) was justified in disallowing the deduction. Learned Departmental Representative also relied on the decision reported in 240 ITR 381 (All) (sic) in which it was held that the cross-examination in each and every case was not allowable. He supported the order of the Commissioner (Appeals).

12. We have considered the rival submissions. Facts have been mentioned above. Undoubtedly the expenditure has been claimed under section 37(1) of the Act. This section reads as under

"37(1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessed), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession."

13. Thus, what we have to examine is whether the expenditure was in the nature of capital expenditure or personal expenditure and whether such expenditure was laid out or expended wholly and exclusively for the purpose of business or profession of the assessed. It is not the case of the department that the expenditure incurred by the assessed was either capital expenditure or personal expenditure. This leaves us to consider only one issue as to whether the expenditure incurred by the assessed was laid out or expended wholly and exclusively for the purpose of business or profession carried on by the assessed.

14. As mentioned earlier, the assessed 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 assessed alone could not accomplish this task. It entered into agreement with six stockists who could carry out its business activity. The assessed collected royalty from them. By way of agreement which are placed at pages 102 to 131 of the paper book certain conditions were prescribed. These prescribed the do and do not of either of the parties. As per clause 16 of the agreement, it was provided that the entire advertisement work would be done by the assessed. In other words it was the sole responsibility of the assessed to make advertisement to boost the sale of lottery tickets. The stockists could not have any interference in that. We find that the turnover of the lottery tickets during the year under consideration was more than Rs. 1500 crores. It could not be possible without advertising the lottery tickets in the concerned states. For this purpose it appointed advertising agents. The bulk of the advertising work was done by M/s Popular Advertisement Co. The assessing officer allowed deduction of advertisement expenses incurred on the other two advertising agents. However, in respect of the payment made to M/s Popular Advertisement Co. Assessing Officer started investigation. He first issued summons under section 131 to M/s Popular Advertisement Co. It came back unserved with the remark that no such person existed there assessing officer's doubt started from this stage. However, subsequently the proprietor of M/s Popular Advertisement Co. appeared before the assessing officer whose statement was recorded on 3-3-1999 as well as on 26-3-1999. Firstly the assessing officer doubted the very existence of Shri Naresh Kumar as proprietor of M/s Popular Advertisement Co. The reason given was that the Bank account was opened in the name of Shri Vinod Kumar, proprietor M/s Popular Advertisement Co. It was clarified by Shri Naresh Kumar also. He had stated that he had given a power of attorney to Shri Vinod Kumar and it was under those circumstances that in the Bank the name of Shri Vinod Kumar was mentioned. Such statement of Shri Naresh Kumar has not been rebutted by the assessing officer by any contrary evidence. In case assessing officer had any doubt about Shri Naresh Kumar being the proprietor of M/s Popular Advertisement Co. he was free to make further investigation through Shri Vinod Kumar. However, as nothing has been brought on record the assessing officer has accepted Shri Naresh Kumar to be the proprietor of M/s Popular Advertisement Co.

15. Shri Naresh Kumar confirmed the transaction by his personal appearance. He 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 assessed, 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. Assessing Officer had again examined Shri Naresh Kumar but Shri Naresh Kumar reaffirmed his earlier averments. In addition the assessed 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 assessed. 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 the assessed through M/s Popular Advertisement Co. This evidence was enough to prove that the job had been accomplished. Whether the job was to the satisfaction of the assessed or not should not be the concern of the assessing officer. If the assessed is satisfied with the accomplishment of the job, the department cannot sit over the judgment of the assessed.

16. We have also perused the statement of Shri Naresh Kumar as well as his cross- examination. Nowhere we found any question put by the assessing officer about the nature of work done though Shri Naresh Kumar had categorically stated the mode of advertisement. The provisions of section 37(1) are altogether different than the provisions of section 68. While proving the loan to be genuine, the onus was on the assessed to prove the identity and creditworthiness of the creditor as well as genuineness of the transaction. But in the case of deduction 37(1) the assessed has only to prove that the expenditure was laid out or expended wholly and exclusively for the purpose of assessed's business. The assessed has proved so by producing the recipient who has confirmed having accomplished the job. The certificate from the stockists certifying the advertisement company has raised the bills on the assessed. By these evidence it could have raised the bills on the assessed. By these evidence it could be clearly held that the payment by the assessed was laid out wholly and exclusively for the purpose of its business.

17. It appears that the entire decision of the assessing officer was on the basis of doubts and surmises at the first stage itself. But as has been held by the Hon'ble Supreme Court in the case of Uma Charan Shah & Bros. (supra), doubts and surmises, howsoever strong they may be, cannot take the place of evidence. Delhi Bench of the Tribunal in the case of Instrument (India) International Ltd. (supra) was concerned with the similar issue. In the said case the deduction of commission was disallowed by the assessing officer on the ground that the payee was not a genuine party. The Tribunal held that the assessed had clearly discharged the burden of proving the genuineness of commission payment by producing the documents in the form of letters, confirmation and producing the payee. The onus thereafter shifted on the revenue to prove that the amount of commission claimed to have been paid by the assessed to the agent was sham or bogus transaction. Such a burden is required to be discharged by 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 favor of the assessed at any point of time. In the case of Transport Corporation of India Ltd. (supra) 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 assessing officer held that transaction to be bogus. Assessing officer had also held that 90 per cent of the payment had flown back to that assessed. After thorough examination the Tribunal held that there was absolutely no evidence to show that the payment was not made by the assessed and the payee did not do any advertisement service to the assessed. There was nothing to show that the amounts incurred as expenditure for advertising by the assessed were not spent for said purposes. But 90 per cent of the said amount was received back by the assessed-company. The Tribunal, therefore, upheld the finding of the Commissioner (Appeals) in allowing the deduction. The facts in the case of the assessed are similar. In this case there is nothing on record suggesting that any payment had flown back to the assessed. The fact of advertisement activity has been supported by the evidence.

18. In the case of VIP Industries Ltd. (supra), there was difference of opinion regarding the payment of commission and the issue was referred for the opinion of the Third Member. The then President of the Tribunal, sitting as Third Member held that the department had failed to prove that the arrangement was sham or collusive and therefore, the commission was allowable as deduction. The Third Member further held that the contention of the department that the amounts which were deposited were immediately withdrawn, there was no justification to say that no services were rendered or money withdrawn-had reached the assessed in some way or the other. In the case of the assessed absolutely there is no allegation by the assessing officer that the money had flown back to the assessed in one form or the other.

19. We find that the Gauhati Bench of the Tribunal was seized with similar issue where the addition was made under section 68 of the Act. In that case the confirmation from the creditor was furnished and the creditor was also produced before the assessing officer who confirmed having advanced the loan. The balance sheet and P&L a/c of the creditor was also furnished. However, the assessing officer was not satisfied about the creditworthiness of the creditor. The Tribunal held that the assessed had discharged its preliminary onus of proving the identity and also creditworthiness of the loan creditor. The loan creditor also appeared before the assessing officer and confirmed the genuineness of the loan transaction. Under these circumstances the loan was to be treated as genuine. In the case before us there is not only confirmation from the payee but he also appeared before the assessing officer. He confirmed it even by filing the affidavit. The rendering of services by him were also certified by the six stockists. Thus nothing more was to be proved by the assessed.

20. We find that in para 13 of his order the Commissioner (Appeals) had made the following observation :

"The account was introduced by one Shri Ganpati Traders (having account in the same Bank A/c No. 813). Ganpati Traders account was itself opened a few days before on 23-5-1995. Ganpaty Traders A/c was introduced by another account holder Team Metals (P) Ltd. (A/c No. CC-21). Account opening from contains photograph of Shri Vinod 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 assessed. In case the assessed was confronted with these facts the explanation could have been rendered. Using an evidence against the assessed 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 assessed. In the case reported in (1987) 167 ITR 598 (SC) (supra), (1958) 34 ITR 501 (SC) (supra) and (1962) 45 ITR 206 (SC) (supra) it was held that the assessed has to be confronted with the enquiry in case such enquiry was being used against the assessed. Under these circumstances these observations of the Commissioner (Appeals) have to be ignored. We also find that the assessing officer 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 dated 26-3-1999, Shri Naresh Kumar has confirmed that he was only the proprietor. Shri Vinod Kumar was his relation. He had authorised him to open the Bank account. He had opened the Bank account which was operated. He had further confirmed that he was the proprietor and how he dealt with the Bank and what formalities he did at the time of opening the Bank account he did not have any information. In reply to question No. 44 he had further confirmed that in the beginning, Shri Vinod Kumar had got a power of attorney signed to operate Bank account. What he did any how he did Shri Naresh Kumar had no knowledge. He had also confirmed that money deposited in the Bank had come from him (Naresh Kumar). In view of this clarification the assessing officer/Commissioner (Appeals)'s observation mentioned above also do not hold good.

22. Considering the facts mentioned above we are of the opinion that assessed had discharged its onus of proving the genuineness of the commission payment. The payee has confirmed the transaction. The stockists have confirmed about the advertisement done by the assessed through M/s Popular Advertisement Co. and there being no contrary evidence on record we hold that the claim of advertisement expenses is genuine and allowable deduction. We, therefore, delete the addition sustained by the Commissioner (Appeals) under this head.

23. Ground Nos. 7 & 8 of the appeal relate to the disallowance out of telephone expenses, car expenses and car depreciation assessing officer/Commissioner (Appeals) disallowed 1/10th of the telephone expenses and a part of car expenses and car depreciation for non-business purposes. After hearing the rival submissions we hold that the disallowance sustained by the Commissioner (Appeals) is quite reasonable and no interference in the same was called for. We accordingly uphold the finding of the Commissioner (Appeals) and dismiss the grounds of appeal raised by the assessed.

24. In the result, appeal filed by the assessed is partly allowed.