TMI Blog2010 (5) TMI 63X X X X Extracts X X X X X X X X Extracts X X X X ..... re, added back Rs. 18 lakhs out of the aforesaid expenditure, to the income of the assessee-company. – CIT(A) confirmed the disallowance only to the extent of Rs 9 lakhs in first round – in the second round (remand back from ITAT) CIT(A) deleted the addition made by AO and allowed the full expenditure. Held that: Section 37(1) of the Income Tax Act, to the extent it is relevant, provides that any expenditure, not being in the nature of capital expenditure or personal expenses of the assessee, laid out or expended wholly or exclusively for the purpose of the business or profession would be allowed in computing the income chargeable under the head “Profit and Gains of the Business or Profession.” - It is not permissible for the Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sale had decreased to Rs 2.15 crore in the Assessment Year 1998-99, as against Rs 2.43 crores earned in the Assessment Year 1997-98. The Assessing Officer, therefore, added back Rs. 18 lakhs out of the aforesaid expenditure, to the income of the assessee-company. In the appeal filed by the assessee, the Commissioner of Income Tax (Appeals) confirmed the disallowance only to the extent of Rs 9 lakhs. 3. Cross appeals against the order of the Commissioner of Income Tax (Appeals) were filed by the Revenue and the assessee. The Tribunal restored the issue back to the CIT (Appeals), taking the view that the basic question, which needed to be addressed, was whether the expenditures were wholly for the business purposes or not. It was held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e IMTEX exhibition was held every three years and there was steep increase in the exhibition expenditure. He was of the view that since there was a direct co-relation between the commission earned by the assessee and the sale of the products of the Principals, any expenditure for the purpose of increasing sale would be a valid business expenditure in the hands of the assessee. 6. While dismissing the appeal filed by the Revenue, it was noted by the Tribunal that nothing had been brought on record, by the Assessing Officer, to suggest that the expenditure was not incurred for the business purpose of the assessee. In the opinion of the Tribunal, if somebody, other than the assessee, benefited from the expenditure incurred by it, that would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by its Principals. Therefore, the assessee-company was under a contractual obligation to contribute half of the expenses incurred on participation in the exhibition. It would be difficult to say that the expenses incurred in performance of the contractual obligation of the assessee-company would not be expenditure for the business of the assessee-company. An obligation incurred, while entering into a commercial contract, has to be taken as a business expenditure within the meaning of Section 37 (1) of the Act unless it is shown that the contract itself was a sham document and was made with an ulterior motive. What is required to be established is a nexus between the expenditure incurred and the business purpose of the assessee. It is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contributed more than 68% of the expenditure incurred on participation in the exhibition. 10. In CIT vs. Chandulal Keshavlal Co.: 38 ITR 601, the assessee, which was the Managing Agent, getting commission under an agreement with the managed company, had waived a portion of the commission payable to it. Upholding the part waiver of the commission, it was held by the Supreme Court that if the payment or the expenditure is incurred for the purpose of the trade of the assessee, it does not matter that the payment may inure to the benefit of a third party. The Court was of the view that a sum of money expended, not of necessity and with a view to a direct and immediate benefit to the trade, but voluntarily and on the grounds of commercial e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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