Case Law Details
DCIT Vs Deloitee Haskins and Sells (ITAT Ahmedabad)
The first controversy that arises for our adjudication whether the interest free advances were given by the assessee to its group concern as a measure of commercial expediency in the given facts and circumstances. The expression “commercial expediency” refers to those transactions/ expenditures which are not required to be incurred under any provisions of the law. But it refers to such expenditure, a prudent businessman incurs for the purpose of business. Such expenditures might not have been incurred under any legal obligation, but the same are allowable as a business expenditure if it was incurred on grounds of commercial expediency.
The “commercial expediency” depends upon the wisdom of the businessman and the Revenue has no role to play to decide as to what is “commercial expediency”. The Revenue cannot occupy the position of the assessee and assume the role to decide whether a particular expenditure is required to be incurred, having regard to the facts and circumstances of the case. There cannot be any compulsion on the assessee to maximize his profit. The income-tax authorities should enter into the shoes of the assessee to see how a prudent businessman would act in the given facts and circumstances. It is because the Revenue does not seem to have understood the market conditions in which businesses are carried on. But at the same time, the Income-tax Department (Revenue), beyond doubt, is not precluded from assuming powers against those who try to circumvent law through unacceptable and prohibited means.
Likewise, the provisions of section 37(1) of the Act does not curtail or prevent an assessee from incurring an expenditure which he feels and wants to incur for the purpose of business. Expenditure incurred may be direct or may even indirectly benefit the business in form of increased turnover, better profit, growth, etc. Various courts have held that as long as the expenditure incurred is “wholly and exclusively” for the purpose of business, the Assessing Officer cannot by applying of his own mind, disallow whole or a part of the expenditure. The Assessing Officer cannot question the reasonableness by putting himself in the arm-chair of the businessman and assume status or character of the assessee and that it is for the assessee to decide whether the expenses should be incurred in the course of his business or profession or not. Courts have also held that if the expenditure is incurred for the purposes of the business, incidental benefit to some other person would not take the expenditure outside the scope of Section 37(1) of the Act. Further, it is settled law that the commercial expediency of a businessman’s decision to incur a particular expenditure cannot be tested on the touchstone of strict legal liability to incur such expenditure.
FULL TEXT OF THE ITAT JUDGEMENT
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