INCOME TAX ACT, 1961

Section 37(1)

Business expenditure - Allowability - Allegation that assessee diverted expenses from government grant head to its profit and loss account showing it as salary paid -

AO alleged that assessee diverted expenditure from Government grant head to normal profit and loss account thereby debiting this amount as salary. Therefore, according to AO, it was clear that sudden and huge rise in expenditure on account of wages was due to debit of grants related expenditure amounting to Rs. 1.78 crores, which would not otherwise have been claimed as a loss or adjusted against profits. AO accordingly made the addition. Held: Assessee-Corporation was receiving grants on annual basis and the said grants have been used by the Corporation in accordance with the directions of the Government. In preceding assessment year, AO accepted same claim of the assessee without any objection. Therefore, when same policy have been followed by the assessee and accepted by AO, he should not have taken a different stand. Further assessee has made it very specifically clear that salary was paid to all old employees who worked for the assessee and expenses were genuine. All tax deducted were on salary and amount paid to the Government. Therefore, Explanation-1 to section 37 would not be attracted in the case of assessee.

REFERRED :

FAVOUR : In assessee's favour

A.Y. :

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