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TMI Blog2023 (12) TMI 452X X X X Extracts X X X X X X X X Extracts X X X X ..... ievances revolve around a single issue, namely ld. CIT(Appeals) has erred in confirming the addition of Rs. 1,00,00,000/-, which was made by the ld. Assessing Officer by disallowing an expenditure of Rs. 1,00,00,000/- paid to M/s. JK Tyre & Industries Limited. 3. Brief facts of the case are that the assessee-company at the relevant time was engaged in manufacturing of automotive rubber tubes and mixing of natural rubber compound on job work basis and on production. It has filed its return of income on 30.09.2013 declaring income of Rs. (-)2,32,09,879/-. The case of the assessee was selected for scrutiny assessment and a notice under section 143(2) dated 05.09.2014 was issued and served upon the assessee. 4. On scrutiny of the accounts, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e controversy, therefore, we deem it appropriate to take note of this Explanation, which reads as under:- "Explanation 1:- For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence of which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure". 7. A perusal of Section 37 would indicate that it is a residuary provision for permitting the assessee to claim expenditure but such expenditure should not be in the nature described in Sections 30 to 36 and it should not be in the nature of capital expenditure. The expenditure ought to have been incur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can continue to work on behalf of M/s. JK Tyre & Industries Limited for job work basis. Therefore, the expenditure was not incurred for any infringement of law rather, it is a by- product of commercial activity. For example, the assessee was required to manufacture a tyre by using 10Kg. of rubber, but it had used 11 Kg. or 9 Kg., tyre will not be to the specification of the principal and that would spoil the market of the principal and users will raise complaint. The principal would have to replace them that would lead to some expenditure as well as bad name in the market, so the compensation given by the assessee was on account of these commercial transactions. Therefore, both the authorities are incorrect in categorizing the expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X
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