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2015 (4) TMI 918 - AT - Income TaxClaim of expenditure against payment of compensation - revenue expenditure or capital expenditure or otherwise - Short notice payment for termination of Toll Manufacturing Agreement - Held that:- The tax authorities must not look at the matter from their own view point, but that of prudent businessman. In any case if the assessee took a decision to discontinue the arrangement under the TMA with CCL in its best business interest then, such decision of the businessman cannot be questioned without doubting the genuineness of the arrangement and consequent payment of compensation. It is none of the job of the tax authorities to see how the assessee does business, in the best interest of its business. The payment in question has a direct nexus with the business activity of the assessee and, therefore, it was incurred for the business of the assessee and for commercial expediency. In the case of Sales Magnesite Pvt. Ltd. [1994 (11) TMI 38 - BOMBAY High Court], it was held that the question whether it was necessary for commercial expediency or not, is a question that has to be decided from the point of view of the businessman and not by subjective standard of reasonableness of the Revenue. Also in case of Bombay Steam Navigation Co., it was held that Whether a particular expenditure is revenue expenditure incurred for the purpose of business must be determined on a consideration of all the facts an circumstances, and by the application of principles of commercial trading. The question must be viewed in the larger context of business necessity or expediency. If the outgoing or expenditure is so related to the carrying on or conduct of the business, that it may be regard as an integral part of the profit-earning process and not for acquisition of an asset or a right of a permanent character, the possession of which is a condition of the carrying on of the business, the expenditure may be regarded as revenue expenditure. In view of the above discussion, and facts and circumstances of the case, we find that the payment of compensation was a business contractual obligation of the assessee and therefore, the expenditure was incurred for business as well as commercial expediency of the assessee. Accordingly the payment is an allowable business expenditure. - Decided in favour of assessee.
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