Judgment :- Radhakrishnan, J. Income tax Appellate Tribunal, Cochin Bench, on a direction given by this court in O.P.No.3740 of 1996, referred several questions under Section 256(2) of the Income tax Act, arising out of the order of the Tribunal in I.T.A. No.874/Coch/93, for the opinion of this court which we have re-framed and stated in paragraph 6 of this judgment. 2. Assessee is involved in the business of manufacture and sale of beer. It follows the mercantile system of accounting. It filed return of income for the assessment year 1990-91 declaring a total income of Rs.56,14,990/- On going through the accounts it was noticed that the assessee had claimed Rs.59,85,644/- as marketing expenses and service charges. At the same time expenditure under the same head for the period relevant for assessment year 1989-90 claimed was Rs.60,750/-. Due to abnormal increase in the item of expenditure the assessee was directed to furnish a detailed break up of the amount. Following are the details submitted by the assessee. 3. Assessee had stated in the letter dated 27.12.1991 that in view of the extreme competition in all markets, additional expenditure had to be incurred to keep up its share in the market in the State of Kerala and Tamil Nadu. Further they had tapped Maharashtra Market for which also marketing expenditure had to be incurred. Assessee had clarified before the assessing authority that R.J. Associates was responsible for securing orders from the Kerala State Beverages (M & M) Corporation Limited on a monthly regular basis for company’s brands. Further it is also stated that the assessee had entered into agreement dated 8.4.1999 for various liaisoning work to be rendered by the concern R.J. Associates which would help the company to get permit application. The main services to be rendered by the concern M/s. R.J. Enterprises are as follows: (1) Securing orders from Kerala State Beverages (M & M) Corporation Limited (KSBC) on a monthly regular basis for company’s brands; (2) Constantly monitoring the stock position of beer in various KSBC depots and report to company; (3) Getting excise permit from the concerned authorities based on the permit application received from the KSBC (4) Closely following up the dispatch of the goods received reports from the concerned KSBC depots to their H.O. at Trivandum; and (5) Assisting in expediting payments for supplies to KSBC. Assessee had also made clarification regarding payment of Rs.22,72,192/- effected to M/s. Golden Enterprises in respect of the supplies effected to TASMAC. Reference was also made to agreement dated 7.6.1989 entered into by the assessee with M/s. Golden Enterprises to do all such liaisoning with TASMAC to enable the Company to procure orders for company on a regular basis and to constantly monitor the stock position in TASMAC depots and also for arranging redistribution to TASMAC’s retail depots and for payment against supplies to be collected from TASMAC. Assessee had also claimed Rs.20,85,800/- towards corporate and management charges paid to United Breweries Ltd, Bangalore Assessee had also claimed trade scheme expenditure on Maharashtra supplies at Rs.8,52,050/-. 4. Explanation submitted by the assessee was considered by the assessing authority in detail. With regard to the payment effected to M/s. R.J. Associates the assessing authority had sent summons under Section 131 of the Income tax Act to the KSBC Ltd. calling for details and also with regard to the liaisoning work stated to have been undertaken either by R.J. Associates or by KSBC Ltd. KSBC had stated that no liaisoning work was done by M/s. R.J. Associates with the Corporation. Assessing authority also issued summons under Section 131 of the Income tax Act to the proprietor and managing partner of Golden Enterprises. Assessing authority had also sent summons to Managing Director of TASMAC Limited and called for details with regard to the work undertaken by Golden Enterprises. Managing Director of TASMAC had stated that no liaisoning work was entrusted to Golden Enterprises. Assessing authority also examined the claim of the assessee for Rs.20,85,800/- being the amount paid to United Breweries Limited, Bangalore on the sale of 521450 dozens being the expenditure under marketing and service charges paid to United Breweries Limited. Assessing authority had also made enquiry with regard to the claim made by the assessee on account of corporate management charges to United Breweries Limited for the sales of 3,59,050 dozens to H.P.P.L. The assessing authority after collecting various details disallowed part of the same. Aggrieved by the order of the assessing authority the assessee took up the matter before the Appellate Commissioner and the Commissioner dismissed the appeal. Assessee then took up the matter before the Tribunal. Tribunal however deleted the addition of Rs.7,75,602/- claimed by the assessee towards service charges paid to R.J. Associates. Aggrieved by the order of the assessing authority the assessee took up the matter before the Appellate Commissioner and the Commissioner dismissed the appeal. Assessee then took up the matter before the Tribunal. Tribunal however deleted the addition of Rs.7,75,602/- claimed by the assessee towards service charges paid to R.J. Associates. Tribunal took the view that the case of the assessee was well supported by the affidavits filed by R. Ramachandran Nair and Janakiraman and also in view of the agreement executed between the assessee and R.J. Associates. Tribunal on the other hand rejected the contention of the Department and held that the evidence adduced by the assessee in the form of agreements, affidavits and payments thereunder justifies the claims. With regard to the payment effected for Golden Enterprises Tribunal took the view that taking into account the need for marketing services and the opportunity cost of having regular marketing force, payment to M/s. Golden Enterprises was only for business purposes and was in business interest. 5. With regard to corporate management charges paid to United Breweries Limited Tribunal partly allowed the appeal and held that marketing service charges at the rate of Rs.3/- is reasonable and for the other services rendered; by U.B. Limited in so far as up-country of Maharashtra and Bombay regions are concerned. Tribunal also disallowed Rs.1/- out of Rs.4/- as not germane to the services rendered. The order of the Appellate Assistant commissioner was accordingly modified by the Tribunal and substantial relief was granted to the assessee. Various questions of law are raised before this court. 6. We may re-frame the following questions of law for disposal of this case. Whether, on the facts and in the circumstances of the case did the assessee discharge the burden of proof that lay on it in support of the claim for Rs.7,75,602/-? Whether, on the facts and in the circumstances of the case, did the assessee discharge the burden of proof that lay on it in support of the claim for Rs.22,72,192/-? Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and fact in holding that the payment to Golden Enterprises was only for business purpose or and was in business interest? Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and fact in holding that the payment to Golden Enterprises was only for business purpose or and was in business interest? The assessee who had claimed an amount of Rs.59,85,644/- as marketing expenses and service charges has the right to explain under Section 37 of the Income tax Act. Section 37 is a residuary provision explaining the allowance on items of business expenditure. It provides for the deduction of all expenditure wholly and exclusively laid out or expended for the purpose of business, where such expenditure is not expressly covered by any other specific provision of the Act. In order to be eligible for an allowance under Section 37, certain conditions are to be fulfilled for deduction of expenditure wholly and exclusively for the purpose of business. i) The expenditure must not be governed by the provisions of Sections 30 to 36 and 80 VV. ii) The expenditure must have been laid out wholly and exclusively for the purpose of business of the assessee. iii) The expenditure must not be personal in nature. iv) The expenditure must not be capital in nature. It is well settled that burden of proving the above mentioned ingredients is on the assessee. Before the assessee could become entitled to allowance under section 37, assessee must satisfy the assessing authority the entire purpose for which the amount is spent, though generally assessing authorities are not entitled to go into the reasonableness of the expenditure. They are entitled to be satisfied as to the claim of interest on expending that amount. The mere fact that payment has been made under contract or agreement is not conclusive that the expenditure being paid off wholly and exclusively for the purpose of business. Once doubt arises about the bona fide nature of the payment it is likely that it relates to the assessee. According to the assessee payments were made by account payee cheques and R.J. Associates have acknowledged the payment and offered the same as income in their assessment. In relation to marketing and service charges paid to Golden Enterprises assessee contended that it was also made under an agreement dated 7.6.1989 for rendering services to the assessee. According to the assessee payments were made by account payee cheques and R.J. Associates have acknowledged the payment and offered the same as income in their assessment. In relation to marketing and service charges paid to Golden Enterprises assessee contended that it was also made under an agreement dated 7.6.1989 for rendering services to the assessee. The assessing officer noted that the Circular issued by KSBC Limited dated 3.8.1984 prohibited liaison on the part of the representatives of the manufactures for canvassing their brands by approaching its bonded warehouses and wholesale shops and if such canvassing was resorted to KSBC Limited was free to withhold the orders. It was noticed that by another Circular dated 13.7.1992 canvassing of business by any of the representatives of the manufacturers by approaching the Corporation’s bonded warehouses and wholesale shops would invite stringent action including withholding of orders and blacklisting of companies. Further, Managing Director in response to the summons issued under Section 131 of the Income tax act informed the assessing authority that no liaisoning work was done by M/s. R.J. Associated with the Corporation. 7. We are of the view, since liaisoning work with the Corporation has been banned the assessee cannot claim that he had spent money for the purpose of the activity which is already banned by the Corporation. Further it has also come out in evidence that M/s. R.J. Associates was having only two lady partners who in their sworn statements stated that they had absolutely no knowledge about the marketing of any product and that they were not at all involved with the business activities of the firm and the business activities were being looked after by their husbands Sri. C. Janakiraman and Sri A.N. Ramachandran Nair. According to the sworn statement of Sri A.N. Ramachandran Nair, services rendered by them are giving guidance to Sri. Kurup, Sales Officer of the Company. We are of the view, mere existence of an agreement does not give rise to claim for payment of commission and the Income Tax Authorities can go into the question whether the commission paid is properly deductible under Section 37 of the Income Tax Act, 1961. Further, on going through the income tax returns filed by M/s. R.J. Associates, it was found that the net profit returned by that firm was very meagre compared to the commission received by them from the assessee company. 8. Further, on going through the income tax returns filed by M/s. R.J. Associates, it was found that the net profit returned by that firm was very meagre compared to the commission received by them from the assessee company. 8. The assessee had also claimed that they had entered into an agreement with M/s. Golden Enterprises, Madras in respect of supplies effected to TASMAC Ltd., Madras. Agreement dated 7.6.1989 would indicate that Golden Enterprises was a proprietary business of one Bhaskar Reddy. Assessing authority had doubts about the genuineness of the documents and consequently made thorough enquiries. Summons was issued under section 131 of the Income tax Act to the Managing Director of TASMAC Ltd., Madras and the Managing Director stated that M/s. Golden Enterprises had not done any liaison work with M/s. TASMAC. Assessing authority had also issued summons to M/s. Golden Enterprises and visited the premises of the firm at No.9, Bazullah Road, T. Nagar, Madras on 13.11.1992 and recorded the statements of A. Sivakumar Reddy, Director of Balaji Group of Companies whose Head Office is situated in the premises of Golden Enterprises. He was unaware of the existence of the firm Golden Enterprises. When summons was issued to the proprietor/managing partner of M/s. Golden Enterprises, it was received by A. Sivakumar Reddy on 13.11.1992 and the case was posted to 23.11.1992. Mallikarjuna Rao requested for extension and the case was posted to 3.12.1992. Since nobody was turned up on that day, case was adjourned to 17.12.1992. Assessing authority recorded the statement of whole time director of the Company and ultimately came to the conclusion that Golden Enterprises was not involved directly in the marketing and distribution arrangements. Assessing authority had doubted the existence of the firm Golden Enterprises and therefore concluded that the so called payment to Golden Enterprises was done for the purpose of diversion of profits to the assessee company and payment was not made for any commercial expediency, it was not an allowable deduction under section 37 of the Act. 9. We are in full agreement with the reasoning of the assessing authority. We have already indicated that burden is entirely on the assessee to prove those transactions. Agreement entered into between R.J. Associates and Golden Enterprises by itself would not advance the case of the assessee. In this connection we may refer to the decision of the apex court in Swadeshi Cotton Mills Co. We have already indicated that burden is entirely on the assessee to prove those transactions. Agreement entered into between R.J. Associates and Golden Enterprises by itself would not advance the case of the assessee. In this connection we may refer to the decision of the apex court in Swadeshi Cotton Mills Co. Ltd. Vs. Commissioner of Income tax (1967 (63) ITR 57) wherein the apex court dealt with the question whether amount claimed as expenditure was laid out or expended wholly and exclusively for the purpose of the assessee’s business, profession or vocation has to be decided on the facts and in the light of the circumstances of each case. The said principle has been reiterated by the apex court in Lachminarayan Madan Lal v. Commissioner of Income tax, West Bengal (1972 (86) ITR 439). The apex court in the above case held as follows: “The mere existence of an agreement between the assessee and its selling agents or payment of certain amounts as commission, assuming there was such payment, does not bind the Income tax officer to hold that the payment was made exclusively and wholly for the purpose of the assessee’s business. Although there might be such have been made, it is still open to the Income tax officer to consider the relevant facts and determine for himself whether the commission said to have been paid to the selling agents or any part thereof is properly deductible under section 37 of the Act.”