Search Results For: business expenditure


CIT vs. Tasgaon Taluka S.S.K. Ltd (Supreme Court)

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DATE: March 5, 2019 (Date of pronouncement)
DATE: March 9, 2019 (Date of publication)
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S. 37(1)/40A(2) Business expenditure vs. sharing of profit: The AO has to take into account the manner in which the business works, the modalities and manner in which SAP/additional purchase price/final price are decided and determine what amount forms part of the profit. Whatever is the profit component is sharing of profit/distribution of profit and the rest is deductible as expenditure

Merely because the higher price is paid to both, members and non-members, qua the members, still the question would remain with respect to the distribution of profit/sharing of the profit. So far as the non-members are concerned, the same can be dealt with and/or considered applying Section 40A (2) of the Act, i.e., the assessing officer on the material on record has to determine whether the amount paid is excessive or unreasonable or not

PCIT vs. Sushil Gupta Legal Representative of Late Mahabir Prasad Gupta (Bombay High Court)

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DATE: February 22, 2019 (Date of pronouncement)
DATE: February 26, 2019 (Date of publication)
AY: 1988-89
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Explanation to s. 37(1): Law on concept of "expenditure incurred for any purpose which is an offence or which is prohibited by law" explained in the context of customs redemption fine. Ratio laid down in Hazi Aziz 41 ITR 350 (SC) continues to hold the field even post decisions in the case of Prakah Cotton Mills 201 ITR 684 (SC) and Ahmedabad Cotton Mfg Co 205 ITR 163 (SC). In neither of these two decisions, the ratio laid down in Hazi Aziz, which was a decision of Bench of three Judges, has been diluted (Pannalal Narottamdas 67 ITR 667 (Bom) distinguished)

The Tribunal without adverting to the relevant facts and materials on record granted benefit to the assessee on the lines followed by this Court in the case of Pannalal (supra). The Tribunal without discussing the relevant materials compared the case of the assessee with the facts arising in the judgment of the Supreme Court in the case of Ahmedabad Cotton Mfg Co Ltd (supra) in which it was recorded that the fault or defect in the REP licence was not attributable to the assessee and therefore, the assessee was not to be blamed for indulging in any offence or having incurred any expenditure for the purpose which was prohibited by the law.

Chambal Fertilisers And Chemicals Ltd vs. JCIT (Rajasthan High Court)

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DATE: July 31, 2018 (Date of pronouncement)
DATE: August 23, 2018 (Date of publication)
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S. 40(a)(ii): Education cess is not part of tax. Accordingly, the same is allowable as a deduction and disallowance u/s 40(a)(ii) cannot be made. CBDT Circular referred

That on a plain reading of the above provision of section 40(a) (ii), it is evident that a sum paid of any rate or tax is expressly disallowed by this sub-clause in two cases : (i) where the rate is levied on the profit or gains of any business or profession, and (ii) where the rate or tax is assessed at a proportion of or otherwise on the basis of any such profits or gains. It is evident that nowhere in the said section it has been mentioned that education cess is not allowable. Education cess is neither levied on the profits or gains of any business or profession nor assessed at a proportion of, or otherwise on the basis of, any such profits or gains.

CIT vs. Travancore Cochin Udyoga Mandal (Supreme Court)

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DATE: August 17, 2017 (Date of pronouncement)
DATE: September 9, 2017 (Date of publication)
AY: 1992-93
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S. 37(1): in order to decide whether disputed lease rent is deductible in the year of fixation or in the year the dispute attains finality, the nature of fixation of rent, its payment, recovery etc. and whether it is statutory or contractual, have bearing. The Tribunal is required to bring the facts on record

The question as to whether the fixation of rent and its payment is statutory or contractual and, if so, its effect while claiming deduction under the Income Tax Act and, if so, in which year of assessment is a mixed question of law and fact. In our considered opinion, in order to decide the issue of deduction, the nature of fixation of rent, its payment, recovery etc. and whether it is statutory or contractual, has some bearing over the question

CIT vs. Axis Pvt. Equity Ltd (Bombay High Court)

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DATE: January 30, 2017 (Date of pronouncement)
DATE: February 3, 2017 (Date of publication)
AY: 2007-08
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S. 28/29: There is a distiction between "setting up of business" and "commencement of business". All expenditure after "setting up" is deductible business expenditure even if the business has not commenced. A business is "set up" when steps are taken to recruit employees and take premises etc

A similar issue viz. distinction between setting up of business and commencement of business had come up for consideration before this Court in Western India Vegetable Products Ltd. vs. Commissioner of Income Tax 1954 Vol. 26 ITR Page 151. This Court had held that business is said to have been set up when it is established and ready to be commence. However, there may be an interval between a business which is set up and a business which is commenced. However, all expenses incurred during the interregnum between setting up of business and commencement of business would be permissible deductions

Reliance Infrastructure Ltd vs. CIT (Bombay High Court)

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DATE: December 20, 2016 (Date of pronouncement)
DATE: December 21, 2016 (Date of publication)
AY: 1983-84
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S. 40(a)(ii): Foreign taxes are not hit by the bar in s. 40(a)(ii) and are deductible on the real income theory. After the insertion of the Explanation to s. 40(a)(ii) by the FA 2006, foreign taxes are not deductible only to the extent they are eligible for relief u/s 90 & 91. Amounts not eligible for DIT relief are deductible. The Explanation is declaratory and has retrospective effect

It is not disputed before us that some part of the income on which the tax has been paid abroad is on the income accrued or arisen in India. Therefore, to the extent, the tax is paid abroad on income which has accrued and/or arisen in India, the benefit of Section 91 of the Act is not available. In such a case, an Assessee such as the applicant assessee is entitled to a deduction under Section 40(a)(ii) of the Act. This is so as it is a tax which has been paid abroad for the purpose of arriving global income on which the tax payable in India. Therefore, to the extent the payment of tax in Saudi Arabia on income which has arisen / accrued in India has to be considered in the nature of expenditure incurred or arisen to earn income and not hit by the provisions of Section 40(a)(ii) of the Act. (q) The Explanation to Section 40(a)(ii) of the Act was inserted into the Act by Finance Act, 2006. However, the use of the words “for removal of dobuts” it is hereby declared “…….” in the Explanation inserted in Section 40(a)(ii) of the Act, makes it clear that it is declaratory in nature and would have retrospective effect. This is not even disputed by the Revenue before us as the issue of the nature of such declaratory statutes stands considered by the decision of the Supreme Court in CIT Vs. Vatika Township (P) Ltd. 367 ITR 466 and CIT Vs. Gold Coin Health Foods (P) Ltd. 304 ITR 308

Nimesh N. Kampani vs. ACIT (ITAT Mumbai)

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DATE: June 16, 2016 (Date of pronouncement)
DATE: September 8, 2016 (Date of publication)
AY: 2009-10
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S. 37(1): Expenditure incurred by a director in engaging lawyers to defend himself against cases filed for violation of the law by the Company of which he is a director is not personal expenditure but is allowable as business expenditure

Mr. Nimesh Kampani has been mentioned as one of the accused among several others, for non-payment of these fixed deposits by Nagarjuna Finance Limited. The Andhra Pradesh Government had since filed suit against directors of Nagarjuna Finance Limited including Mr. Kampani. To defend himself, Mr. Kampani has appointed various advocates to represent his case before various courts viz, District Court, High Court of Andhra Pradesh, Supreme Court of India. As the expenditure is incurred to protect his business interest the same is required to be allowed u/s. 37(1) of the Act. Accordingly we direct the A.O. to allow legal expenses of Rs.40,72,750/-

ACIT vs. Jindal Power Limited (ITAT Raipur)

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DATE: June 23, 2016 (Date of pronouncement)
DATE: July 4, 2016 (Date of publication)
AY: 2008-09
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S. 37(1): Expenditure on Corporate Social Responsibility (CSR), though voluntary, is allowable as business expenditure. Explanation 2 to s. 37(1) inserted w.e.f. 01.04.2015 is not retrospective. It applies only to CSR expenditure referred to in s. 135 of the Companies Act and not to voluntary CSR expenditure

The amendment in the scheme of Section 37(1), which has been introduced with effect from 1st April 2015, cannot be construed as to disadvantage to the assessee in the period prior to this amendment. This disabling provision, as set out in Explanation 2 to Section 37(1), refers only to such corporate social responsibility expenses as under Section 135 of the Companies Act, 2013, and, as such, it cannot have any application for the period not covered by this statutory provision which itself came into existence in 2013. Explanation 2 to Section 37(1) is, therefore, inherently incapable of retrospective application any further. In any event, as held by Hon’ble Supreme Court’s five judge constitutional bench’s landmark judgment, in the case of CIT Vs Vatika Townships Pvt Ltd [(2014) 367 ITR 466 (SC)], the legal position in this regard has been very succinctly summed up by observing that “Of the various rules guiding how legislation has to be interpreted, one established rule is that unless a contrary intention appears, legislation is presumed not to be intended to have a retrospective operation

Mangal Keshav Securities Limited vs. ACIT (ITAT Mumbai)

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DATE: September 29, 2015 (Date of pronouncement)
DATE: February 15, 2016 (Date of publication)
AY: 2006-07
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Expl to s. 37(1): Penalties & fines paid to SEBI, BSE etc for breach of regulatory/ procedural requirements are "compensatory" in nature and not for any purpose which is an ‘offense’ prohibited by the law

An ‘offence’ would be the one which will arise as a result to commission of an action which is prohibited by law, and, in all the given situations, no element of any consent of the parties involved can bring any change in its legal consequences. Similarly, any amount paid by the assessee, in the form of compensation, as a consequence of breach of contract between the two parties, cannot be said to be amount paid for any purpose which is an ‘offence’, prohibited by the law. In other words, under the income tax law, one is required to go into the real nature of the transactions and not to the nomenclature that may have been assigned by the parties. Thus, to decide such issues, we are required to see real substance under the Income Tax Law, and not merely its form. Thus, only those payments, which have been made by the assessee for any purpose which is an ‘offence’ or which is ‘prohibited by law’, shall alone would be hit by the explanation to section 37

Multi Act Realty Enterprises Pvt. Ltd vs. ACIT (ITAT Mumbai)

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DATE: August 28, 2016 (Date of pronouncement)
DATE: February 15, 2016 (Date of publication)
AY: 2008-09
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There is a distinction betwen "setting up" and "commencement" of a business. A business is "set up" and expenditure is deductible even if assessee has no customers and no income

The assessee has already purchased residential flat for the purpose of resale/lease, and therefore assessee was apparently ready to do its business. Under these circumstances, it can be said that the business is set up by the assessee during the year under consideration. For the deductibility of expenses incurred after this stage, earning of the business income is not a mandatory condition under the law. The assessee may not have been successful in getting customers or earning the business income, but if the assessee has done requisite preparations and if the assessee can be said to be in a position to cater to its customers, then it can be said that business is set up and it would amount to carrying on the business and accordingly the expenses would stand allowable to the assessee, irrespective of the fact whether actually assessee got any customer and earned any business income during the year or not

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