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2017 (6) TMI 779

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..... untarily towards charity which cannot be allowed as a deduction. Further an important aspect to be noted here is that the assessee has handed over constructed houses to the Government of Karnataka in terms of MoU. It is not the case of the assessee that the assessee was granted mining license in consideration of expenditure incurred by the assessee. Needless to mention, these kind of contracts are opposed to public policy and void under the provisions of section 23 of the Contract Act. Therefore, it cannot be said that the appellant had incurred this expenditure wholly and exclusively for the purpose of business. - Decided against assessee. - IT APPEAL NOS. 782 & 1495/BANG./2016 - - - Dated:- 17-5-2017 - VIJAY PAL RAO, JUDICIAL MEMBER .....

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..... n the interest of equity and justice. 3. Briefly facts of the case are that the assessee is a partnership firm engaged in the business of extraction and trading of iron ore. Return of income for the assessment year 2011-12 was filed vide electronic mode on 30/9/2011 declaring income of ₹ 84,57,630/-. After processing said return of income u/s 143(1) of the Income-tax Act, 1961 ['the Act' for short] the case was selected for scrutiny assessment by issuing notice u/s 143(2) dated 18/9/2013 and the assessment was finally completed at total income of ₹ 18,45,98,940/-. The disparity between the assessed income and the returned income is on account of additions of the following two items: i. disallowance of expenditu .....

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..... s deduction u/s 37(1) of the Act. Accordingly, he disallowed the same. The AO disallowed a sum of ₹ 1,61,30,480/- incurred in construction of said houses. The AO also disallowed ₹ 10,823/- being penalty paid and debited to P L Account. 5. Being aggrieved, an appeal was preferred before the CIT(A), who, vide impugned order confirmed the order of the AO. Being aggrieved, the assessee is in appeal before us in the present appeal. 6. Learned counsel for assessee submitted that merely because expenditure is allowable u/s 80G, it does not debar the assessee to claim same as business deduction u/s 37(1). The provisions of section 80G and 37(1) are not mutually exclusive. He further submitted that for the purpose of deciding allow .....

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..... m deduction u/s 37(1) the conditions to be satisfied are that a item of expenditure should not be an item of expenditure described in sections 30 to 36 and should not be described as capital expenditure or personal expenses of the assessee. It should be laid out or expended wholly and exclusively for the purpose of business or profession. Needless to mention, all the three conditions should be cumulatively satisfied. There is no dispute as to satisfaction of the first two conditions mentioned supra. The only dispute is regarding satisfaction of the condition that the expenditure was laid out and expended wholly and exclusively for the purpose of business. In order to claim deduction u/s 37(1), it is not necessary to establish the necessity .....

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..... he ex- employees. The employees of today may become the ex- employees tomorrow. Any expenditure laid out or expended for their benefit, if it satisfied the other requirements, must be allowed as deduction under section 37(1) of the Act. It may also be stated, as observed by the Supreme Court in the aforesaid case, that the fact that somebody other than the assessee is also benefited or incidentally takes advantage of the provision made, should not come in the way of the expenditure being allowed as a deduction under section 37(1) of the Act. But, nevertheless, it must be an expenditure allowable as deduction under the Act. But the onus lies on the assessee to prove that the expenditure was incurred for the purpose of business. Once t .....

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