TMI Blog2018 (1) TMI 733X X X X Extracts X X X X X X X X Extracts X X X X ..... . Disallowance out of expenditures claimed - Held that:- We find that the ld. Authorities below have made the disallowance on adhoc basis, that too without rejecting the books of account of the assessee. Moreover, the ld. Authorities below have failed to pin point any particular expenditure which was of disallowable nature. Therefore, adhoc disallowance made by the authorities below deserves to be deleted - Decided against revenue - ITA No. 5105/Del./2015 - - - Dated:- 12-1-2018 - Shri H. S. Sidhu, Judicial Member And Shri L. P. Sahu, Accountant Member For The Appellant : Sh. Arvind Kumar, Advocate For The Respondent : Sh. Arun Kumar Yadav, Sr. DR ORDER Per L.P. Sahu, A.M.: This is an appeal filed by the assessee against the order of ld. CIT(A)-20, New Delhi dated 18.05.2015 for the assessment year 2011-12 on the following grounds : 1. That the Ld. CIT (A) has erred in law and in facts in holding that the litigation settlement expenses are not an allowable deduction u/s 37(1) of the income Tax Act,1961 as it is not incurred wholly and exclusively for the purposes of the profession of the assessee /appellant. 2. That the Ld. CIT(A) has e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee that on the facts and circumstances of the case it is not applicable. He also concluded that the company M/s India Magnetics Limited is not related to the business or profession of the assessee and the assessee has not got any benefit from the above named company. The assessee is a practicing advocate in the Delhi High Court, Supreme Court and Arbitral Tribunals and proprietor of Satinder Kapoor Associates. When the company M/s India Magnetics Limited defaulted and subsequently went into liquidation and lenders enforced the personal guarantees of the assessee, the assessee incurred expenses which were in no way related to the business or profession of the assessee. Therefore, he disallowed the claim of the assessee under section 37 (1) of the Income Tax Act, since it was not expended wholly and exclusively for the purpose of business or profession. 5. The Ld. Assessing Officer also disallowed 10% lump sum adhoc disallowance under section 37 (1) being the personal nature and which are not fully utilized for the purpose of the business for claiming expenditure on conveyance, depreciation, interest on car loan, telephone, vehicle running and maintenance expenses and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Hon'ble Court however by way of an example observed in this every para that in case of an actor undertaking plastic surgery to prevent age being reflected on the screen, it could well be argued as regards the claim of deduction on account of such plastic surgery. 2.1 It is humbly submitted before the Hon'ble Tribunal the case of the appellant, who is in active profession of law including International Arbitration, the onetime litigation settlement expense made in order to avoid needless detraction in DRAT proceedings which affected his professional commitments and took considerable amount of time away from his profession, was a commercially expedient decision taken by him to bolster his professional receipts and also to buy mental peace which is so very essential to his profession . Needless to add that in the facts of the case the appellant had also received a legal notice from DRAT to show cause as to why he should not be arrested, and in case of the eventuality of his arrest it was his reputation as an Advocate / Lawyer which was at stake and once such reputation is tarnished it would have affected his professional income for all times to come, which would have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diency and principles of ordinary commercial trading. If the payment or 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. Another test is -whether the transaction is properly entered into as a party of the assessee's legitimate commercial undertaking in order to facilitate the carrying on of its business; and it is immaterial that a third party also benefits thereby. But in every case it is a question of fact whether the expenditure was expended wholly and exclusively for the purpose of trade or business of the assessee. In the instant case the finding was that it was laid out for the purpose of the assessee's business and there was evidence to support this finding. In the instant case in order to justify deduction the sum must be given up for reasons of commercial expediency; it may be voluntary, but so long as it is incurred for the assessee's benefit the deduction would be claimable. F. As regards the ad-hoc disallowance of vehicle related expenses etc. @ of 10% made by the AO and confirmed by the Ld. CIT it is submitted that the same has been made purely on ad-ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... For the sake of convenience, the relevant findings of the ld. CIT(A) are reproduced as under : 5.1. I have carefully considered the assessment order and submissions thereof. The facts of the case as per assessment order are that the assessee had incurred an expense of ₹ 39,01,750/- as litigation settlement expenses. The details regarding the same were called for and filed by the assessee. In brief, the assessee submitted that the expense were incurred on account of one time settlement for release of a personal guarantee given for loan taken by a company i.e. M/s India Magnetics Limited from a consortium of financial institutions and banks. In view of the default by the borrower company which subsequently went into liquidation and as the lenders were unable to recover the complete amount from the borrower, the lenders enforced the personal guarantee of the appellant before the Debt Recovery Tribunal due to which the appellant faced the possibility of detention as per sec 25 of the DRT Act 1993. The assessee offered for one time settlement in lieu of release of his personal guarantee and ultimately settled the dispute. It was claimed by the assessee that the expense had bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be an expense incurred to bring into existence a capital asset; and lastly, it should not be an expense of a personal nature. 22.1 In our view, the assessee's claim under section 37 of the IT Act does not fulfill the first condition which is that the expense in issue have been Incurred wholly and exclusively for the purposes of the assessee's profession. 22.2 As observed hereinabove, an impaired heart would handicap functionality of a human being irrespective of his position, status or vocation in life. Expenses incurred to repair an impaired heart would thus add perhaps to the longevity and efficiency of a human being per se. The improvement in the efficiency of the human being would be in every activity undertaken by a person. There is thus no direct or immediate nexus between the expenses incurred by the assessee on the coronary surgery and his efficiency in the professional field per se. Therefore, to claim a deduction on account of expenses incurred by the assessee on his coronary surgery under section 37(1) of the IT Act would have to be rejected. There is, as a matter of fact, no evidence brought on record, which would suggest that the assessee could ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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