The encumbrance for claiming expenditure as a demonstration is on the taxpayer, understanding that it was actually incurred and was wholly and but in relation to business or profession.
In the contemporary context one of the convenient modes of proving the fact of expenditure is to gain hire by cheque, preferably account-payee cheque, to show the genuineness of payment and thereafter justifying its eligibility for deduction.
All payments by cheque need non necessarily be sacrosanct. The assessing officer (AO) can still master the genuineness and the need for such expenditure, as held in the Schneider electrical India Ltd vs CIT (2008 171 taxman 177 Delhi) case.
In this case, the expenditure towards commission was doubted by the AO and the deduction was denied while computing the total income. The tribunal found factually that there was no agreement between the taxpayer and the commission promoter and there was no material on record to show that the commission agent procured any business to the taxpayer.
It was held that the payment by account-payee cheque by itself is not sufficient to discharge the onus of expenditure and the decision of the tribunal was affirmed by the appeal.
Payments make to an allied concern towards goods or services could be subjected to logical test as contained in Section 40A(2)(a) of the Income-Tax Act. The allied or sister concern for the purpose of applying this reasonable test is cover widely by clause (b) of Section 40A(2).
In CIT vs Paarel Imports & Exports (P) Ltd (171 Taxman 209), the taxpayer paid service charges to a consultancy firm in which its managing theatre director and other directors were partners.
The services rendered by the allied concern were no different from what was done by the directors of the company.
On the basis of facts, the court held that the transaction towards...If you want to get a full essay, put together it on our website: Orderessay
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