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TEST OF ‘COMMERCIAL EXPEDIENCY’ FOR DETERMINING EXPENDITURE

Income Tax - By: - Mr. M. GOVINDARAJAN - Dated:- 9-11-2017 - Expenditure is usually allowed to be deducted in the income of a business entity. We came across many a litigation in allowing or disallowing a particular type of expenditure in an assessment year. Such litigation rose up to the level of Supreme Court. The expression commercial expediency is an expression of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business. It may not have been incur .....

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the purposes of the business, the expenditure has to be adjudged from the point of view of the business and not of revenue. In Income Tax Officer, Ward - 1 (3), New Delhi V. M/s Alpasso Industries Private Limited - 2017 (11) TMI 187 - ITAT, New Delhi, decided on 31.10.2017, the assessee acted as an agent of M/s Hyosung Corporation Power and Industrial Systems PG Korea. The said company was awarded a purchase order worth of $16,73,76,986 for supply of transformers by M/s Power Grid Corporation o .....

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o the Assessing Officer that it provided requisites services to procure purchase order supply of power transformers from PGCIL and incurred necessary expenses of travelling, conveyance, telephone etc., for providing the services, as reflected in the profit and loss account. The Assessing Officer observed that AGR has not provided detail of services rendered to the assessee and no supporting documentary evidence which could prove the fact of having expert technical staff and field experience in p .....

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aged in manufacturing and counseltancy and commission business and board of directors of the company were supported by a team of dedicated qualified technical and commercial professionals; The said company rendered coordination and follow up services and for rendering such services, only communication facility was required as most of the work was done telephonically or verbally and sometimes might have to visit various offices and expenses for which were accounted in the respective head in the p .....

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rporation only on 29.12.2008 and 05.03.2009 i.e, much after the date of the agreement with subagent; In the contract agreement with subagent, there was no mention of a specific service to be provided by the subagent and the percentage of commission of payment on the basis of the services was also not provided; The assessee as well as AGR failed to give the date wise details of services provided by the sub-agent and expenses incurred, person contacted, report submitted by the sub-agent; The Asses .....

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ne telephonically or verbally and sometimes the agent has to visit various offices leaving behind almost no paper work. It is not necessary that always reports are prepared and submitted by the agents to earn income. The assessee has secured orders with the services of sub agent which clearly established that such business has been carried on. The Commissioner (Appeals) allowed the appeal and deleted the addition of commission paid. The Commissioner (Appeals) held that the appellant has submitte .....

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peals). The Revenue submitted the following before the Tribunal- The assessee has not furnished any documentary evidence in support of the services rendered by the sub agent; The assessee has not given specific of the services rendered except the general description of coordination and follow up services; The assessee has not given evidence of any interaction of the sub agent with the authorities of the PGCIL in the process of coordination and follow up services, despite specifically being asked .....

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mission payment was justified; The assessee submitted the following before the Tribunal- The assessee took services of the subagent in immediately preceding year i.e., assessment year 2009 - 10 and the commission expenses has been allowed; In view of the principle of consistency, the commission payment during the year should also be allowed; It is well settled that the Revenue cannot justifiably claim to put itself in the armchair of the businessman or in the position of the board of directors a .....

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