The Tax Publishers2019 TaxPub(DT) 7102 (Ahd-Trib)

INCOME TAX ACT, 1961

Section 37(1)

Reasonableness of employee's expense was not relevant to claiming deduction of expenses under section 37(1), when AO had nowhere disputed factum of rendition of services by Directors/employees. Further, AO had not disallowed any expenses under section 40A(2)(b). Additionally commercial expediency business rationale of a particular expenditure incurred by assessee for smooth functioning and furtherance of its business was its prerogative and hence, same could not be questioned by AO, therefore, disallowance was deleted.

Business expenditure - Employee benefit expenses considered as not reasonable - No dispute as regards rendition of services by employees and section 40A(2)(b) not invoked by AO - Commercial expediency

Assessee claimed employee's benefit expenses at Rs. 6.25 crores as against such expenditure of last year shown at Rs. 2.83 crores. Since there was a sharp increase in salary expenses as compared to turnover. AO made disallowance of Rs. 3.41 crores.Held: Reasonableness of employee's benefit expenses was not relevant to claiming deduction of expenses under section 37(1), when AO had nowhere disputed factum of rendition of services by Directors/employees. Further, AO had not disallowed any expenses under section 40A(2)(b). Additionally commercial expediency/business rationale of a particular expenditure incurred by assessee for smooth functioning and furtherance of its business was its prerogative and hence, same could not be questioned by AO, therefore, disallowance was deleted.

REFERRED : Sassoon J. David & Co. Pvt. Ltd. v. CIT (1979) 118 ITR 261 (SC) : 1979 TaxPub(DT) 1025 (SC), CIT v. Panipat Woollen & General Mills Co. Ltd. (1976) 103 ITR 66 (SC) : 1976 TaxPub(DT) 652 (SC), CIT v. Dhanrajgirji Raja Narasingirji (1973) 91 ITR 544 (SC) : 1973 TaxPub(DT) 452 (SC), CIT v. Malayalam Plantations Ltd. (1964) 53 ITR 140 (SC) : 1964 TaxPub(DT) 320 (SC), CIT v. Jagannath Kisonlal (1961) 41 ITR 360 (SC) : 1961 TaxPub(DT) 144 (SC), P.W.S. Engineers Ltd. v. Dy. CIT (Tax Appeal No. 209 of 2015) : 2016 TaxPub(DT) 3200 (Guj-HC), CIT v. Sales Magnesite Pvt. Ltd. (1995) 214 ITR 1 (Bom) : 1995 TaxPub(DT) 796 (Bom-HC) and CIT v. Jagannath Kisonlal (1956) 30 ITR 654 (Bom) : 1956 TaxPub(DT) 145 (Bom-HC).

FAVOUR : In assessee's favour.

A.Y. : 2013-14

IN THE ITAT, AHMEDABAD BENCH

SUBSCRIBE TaxPublishers.inSUBSCRIBE FOR FULL CONTENT