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2014 (7) TMI 83 - ITAT DELHIDisallwance u/s 37 of payment made to job worker / related parties - consideration paid without obtaining prior approval of the Central Government in accordance with the provisions of section 297 of the Companies Act, 1956 - assessee submitted that the post facto approval for the transactions with the related parties undertaken during the year, was obtained from the Company Law Board on payment of compounding charges for the condonation of delay and hence there was no violation of law - Manufacture and export of surgical blades – Whether it can be said that the assessee incurred an expenditure for any purpose which is an offence or which is prohibited by law - Held that:- If the 'purpose' of expenditure is not to commit an offence or is otherwise not prohibited by law, then any breach of some procedural statutory provision necessary to be complied with before incurring such expenditure, would not per se convert the otherwise lawful purpose into an offence or prohibition under law so as to attract the wrath of the Explanation - A line of distinction needs to be drawn between the cases where the purpose of the expenditure incurred itself is unlawful on one hand and the cases where the purpose of expenditure is lawful but there is some lapse in complying with the procedural provisions for incurring such expenditure on the other. Relying upon CIT v. Dhanpat Rai & Sons [2014 (1) TMI 1086 - PUNJAB & HARYANA HIGH COURT] - the expenditure has been instantly disallowed on account of job work charges paid by the assessee to M/s Razormed Inc. - when the language of the Explanation is crystal clear and does not encompass the incurring of expenses for a lawful purpose, such as the job charges, within its ambit, it is wholly impermissible to import a further requirement in the language of the Explanation to make the otherwise lawful purpose as unlawful for lack of the prior approval of the Central Government - the 'purpose' of incurring the expenditure of job charges is neither an offence nor is prohibited by law, we fail to comprehend as to how the otherwise lawful purpose would become contingent upon obtaining or not obtaining the prior approval of the Central Government - such expenditure in itself is neither an offence nor prohibited by any law and there is a valid and lawful quid pro quo for the same - CIT(A) erred in sustaining the disallowance of ₹ 41.24 lac incurred on payment of job work charges – Decided in favour of Assessee.
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