INCOME TAX ACT, 1961

Section 37(1)

Business expenditure - Ad hoc-disallowance - Reason, downward revision of fee receivable -

Assessee engaged in constructions of hospitals, leasing and sale of medical equipments and dealing in chemicals, medicines and drugs. Assessee entered into agreement for leasing of equipment and construction/maintenance of hospital building with DDF for consideration of 10% and 6% of annual turnover of hospital. The agreements were revised during assessment year 2011-12, wherein percentage of fee agreed was revised downward from 10% to 8% and 6% to 5%, respectively. The revision of the agreement, in accordance with terms of supplementary agreement dt. 21-2-2009 had been contended to be on account of financial difficulties being faced by DDF. AO doubted reasonableness of downward revision in the fee receivable by assessee from DDF and on the basis disallowed expenses incurred by assessee during the year on ad hoc basis.Held: There was no decline in the gross revenue earned by assessee from DDF which had increased in absolute terms vis-a-vis the preceding year and that it was only the percentage of fees agreed between parties originally was revised downward, on grounds of commercial expediency which could not be disputed by AO. Also, when expenses had been incurred by the assessee for the purposes of business and there was no iota nor any single voucher/expense had been pointed out, suggesting that expenditure had not been incurred for the purposes of business or was excessive having regard to the fair market, value therefore, in the absence of any such finding, there was no provision in law which mandated AO to disallow part of an expenditure on ad-hoc basis. Therefore, disallowance was deleted.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2012-13 to 2015-16

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