While invoking the provisions of s 40A(2), the reasonableness of expenditure for the purposes of business has to be judged from the point of view of a businessman and not that of the revenue and after considering the nature of the business

Hive Communications Pvt. Ltd. Vs CIT (Delhi High Court) – It is not for the Assessing Officer to dictate what the business needs of the company should be and he is only to judge the legitimacy of the business needs of the company from the point of view of a prudent businessman. The benefit derived or accruing to the company must also be considered from the angle of a prudent businessman.

The term “benefit” to a company in relation to its business, it must be remembered, has a very wide connotation and may not necessarily be capable of being accurately measured in terms of pound, shillings and pence in all cases. Both these aspects have to be considered judiciously, dispassionately without any bias of any kind from the view-point of a reasonable and honest person in business.

Hive Communications Pvt. Ltd. v CIT

High Court of Delhi

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