TMI Blog2013 (7) TMI 739X X X X Extracts X X X X X X X X Extracts X X X X ..... annot be held that the expenditure laid out or incurred is not wholly for the business of the assessee-company - Following decision of Commissioner of Income-tax Versus V. S. Dempo and Co. P. Ltd. [2010 (10) TMI 711 - Bombay High Court] - Decided against Revenue. - ITA Appeal No. 8 of 2007 - - - Dated:- 1-4-2013 - N. Kumar And B. Manohar, JJ. For the Appellant : E.I. Sanmathi. For the Respondent : S. Parthasarathi. JUDGMENT:- PER : N. Kumar The revenue has preferred this appeal challenging the order passed by the Tribunal directing the deletion of disallowance. 2. The assessee was engaged in the manufacture of insulation paper boards. During the year 1995-96, the assessee entered into an agreement with M/s. Flexsol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure is excessive or unreasonable having regard to the fair market value of the goods and services or the facilities for which the payment is made. No comparative date was brought on record by the assessing authority that the payment made by the assessee is excessive. Over and above the services mentioned in the agreement, they might have been given some more services like preparation of feasibility report etc. However, there cannot be a valid reason for making disallowance under Section 40A(2)(b) of the Act. Accordingly, he allowed the appeal and permitted deletion of the disallowance. Aggrieved by the said order, the revenue is in appeal. 5. The learned counsel for the revenue assailing the impugned order contended that the material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed as a deduction." 9. In terms of the aforesaid provision, when the assessee incurs an expenditure in respect of which payment has been or is to be made to any person referred to in clause (b) of the sub-section and the Assessing Authority is of the opinion that such an expenditure is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made or the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to him therefrom, so much of the expenditure as it so considered by him to be excessive or unreasonable, shall not be allowed as a deduction. To attract this provision, assessee has to incur an expenditure by making paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibed in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), 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" 11. A reading of the aforesaid provision makes it clear any expenditure 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'. It was contended as the total amount paid is Rs. 48,00,000/- and the actual expenditure incurred by the subsidiary company is Rs. 25,00,000/-, the enti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidiary company is a newly formed company. The assessee has entered into an agreement and a sum of Rs. 4,00,000/- is paid. Subsidiary company has manufactured the goods for the assessee and unfortunately, there was labour trouble and the workers were deployed for the other purpose which benefited the assessee. Profit margin is not taken into account. These facts have not been properly appreciated by the assessing authority as well as the lower appellate authority. The Tribunal was justified in not interfering with the said order and directing the deletion of disallowance. It is just and proper. We do not find any error or any infirmity in the said order. Accordingly, substantial question of law is answered in favour of the assessee and agai ..... X X X X Extracts X X X X X X X X Extracts X X X X
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