2004 (11) TMI 80 - HC - Income Tax

Business expenditure allowability - held that impugned payments were made to those persons who were involved in obtaining tenders for the assessee and who rendered their personal services to enable the assessee to get better business in the market - these payments were held to be genuine in nature and were found to be actually incurred in the course of business activity as business expenditure - Commissioner of Income-tax (Appeals) and the Tribunal after examining the nature of expenditure claimed by the assessee held them as business/revenue expenditure and accordingly allowed to be deducted from the gross total income. - If it is found as a fact that the assessee has incurred expenditure then the Revenue has no right to say that no such expenditure is called for or can be incurred or it is not necessary no case for interference is called for in the impugned order which does not involve any substantial question of law.

Summary

Issues:
1. Allowability of business expenditure of Rs. 38,91,871 in the assessment year.

Analysis:
The High Court of Madhya Pradesh heard an appeal filed by the Revenue under section 260A of the Income-tax Act, 1961, challenging the order passed by the Income-tax Appellate Tribunal. The central issue revolved around the allowability of an amount of Rs. 38,91,871 as business expenditure in the assessment year. Both the Commissioner of Income-tax (Appeals) and the Tribunal had examined the nature of the claimed expenditure and found it to be genuine. The payments were made through DD/cheques to parties involved in obtaining tenders for the assessee, enabling better business prospects. The factual finding established the expenditure as business/revenue expenditure, justifying its deduction from the gross total income.

The Court emphasized that if an assessee has genuinely incurred expenditure for business purposes, the Revenue cannot dispute its necessity or lawfulness. It is the assessee's responsibility to demonstrate the commercial expediency of the expenses for effective business operations. Any lawful payment made in the course of running the business is considered an allowable deduction. The Court concluded that there was no substantial question of law involved in the case, and thus, no interference was warranted in the impugned order. Consequently, the appeal was deemed devoid of substance and dismissed summarily.

In essence, the judgment reaffirms the principle that genuine business expenditures incurred for commercial expediency are allowable deductions, and the Revenue cannot challenge the necessity or lawfulness of such expenses if they are proven to be legitimately incurred in the course of business activities.