Skip to main content

Prior approval of govt. not required for lawfull expenditure

Jai Surgicals Ltd vs. ACIT (ITAT Delhi)

Expl to s. 37: If the purpose of the expenditure is not an offence/ prohibited by law, fact that prior approval of the Govt. was not obtained cannot be the basis of disallowance

The Explanation to s. 37(1) is a deeming provision and disallows expenditure incurred by an assessee for ‘any purpose’ which is either an offence or prohibited by law. The inquiry to determine the applicability or otherwise of the Explanation is restricted to ascertaining the purpose of the expenditure. In simple words, the investigation should be carried out to see the object and consideration for the expenditure incurred. If the purpose of the expenditure is neither to commit an offence nor is prohibited by any law, then there can be no question of disallowance. It means that the offence or prohibition under law should be judged with the ‘purpose’ of the expenditure on a standalone basis divorced from the fulfillment or otherwise of the procedural formalities attached with and necessary for the incurring of such expenditure. To put it in simple words, if the expenditure is otherwise lawful and neither amounts to offence nor is prohibited by law, but the procedural provisions attached for incurring it are not complied with, no doubt irregularity will creep in, but such irregularity would not make the expenditure itself as unlawful so as to be brought within the scope of the Explanation. On facts, the payment of job work charges is not an offence or prohibited by law. The fact that there was no prior approval from the Central Government u/s 297 of the Companies Act does not make the expenditure of job work charges disallowable (CIT vs. Dhanpat Rai & Sons (2014) 98 DTR (P&H) 209 distinguished).

 Article referred: http://itatonline.org/archives/index.php/jai-surgicals-ltd-vs-acit-itat-delhi-expl-to-s-37-if-the-purpose-of-the-expenditure-is-not-an-offense-prohibited-by-law-fact-that-prior-approval-of-the-govt-was-not-obtained-cannot-be-basis-of-di/

Comments

Post a Comment

Most viewed this month

Michigan House Approves 'Right-to-Work' Bill

Amid raucous protests, the Republican-led Michigan House approved a contentious right-to-work bill on  Dec 11 limiting unions' strength in the state where the (Union for American Auto Workers)  UAW was born. The chamber passed a measure dealing with public-sector workers 58-51 as protesters shouted "shame on you" from the gallery and huge crowds of union backers massed in the state Capitol halls and on the grounds. Backers said a right-to-work law would bring more jobs to Michigan and give workers freedom. Critics said it would drive down wages and benefits. The right-to-work movement has been growing in the country since Wisconsin fought a similar battle with unions over two years ago. Michigan would become the 24th state to enact right-to-work provisions, and passage of the legislation would deal a stunning blow to the power of organized labor in the United States. Wisconsin Republicans in 2011 passed laws severely restricting the power of public s...
Post a Comment
Read more

Power to re-assess by AO and disclosure of material facts

In AVTEC Limited v. DCIT, the division of the Delhi High Court held that AO is bound to look at the litigation history of the assessee and cannot expect the assessee to inform him.  In the instant case, the Petitioner, engaged in the business of manufacturing and selling of automobiles, power trains and power shift transmissions along with their components, approached the High Court challenging the re-assessment order passed against them. For the year 2006-07, the Petitioner entered into a Business Transfer Agreement with Hindustan Motors Ltd, as per which, the Petitioner took over the business from HML.  While filing income tax return for the said year, the petitioner claimed the expenses incurred in respect of professional and legal charges for the purpose of taking over of the business from HML as capital expenses and claimed depreciation. Article referred: http://www.taxscan.in/assessing-officer-bound-look-litigation-history-assessee-delhi-hc-read-order/8087/
Post a Comment
Read more

The recovery of vehicles by the financier not an offence - SC

Special Leave Petition (Crl.) No. 8907  of 2009 Anup Sarmah (Petitioner) Vs Bhola Nath Sharma & Ors.(Respondents) The petitioner submitted that  respondents-financer had forcibly taken away the vehicle financed by them and  illegally deprived the petitioner from its lawful possession  and  thus,  committed  a crime. The complaint filed by the petitioner had been  entertained  by  the Judicial Magistrate (Ist Class), Gauhati (Assam) in Complaint Case  No.  608 of 2009, even directing the interim custody of the vehicle (Maruti  Zen)  be given to the petitioner vide order dated  17.3.2009.  The respondent on approaching the Guwahati High  Court against this order, the hon'ble court squashed the criminal  proceedings  pending   before  the  learned Magistrate. After hearing both sides, the Hon'ble Supreme Court decided on 30th...
7 comments
Read more