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2022 (1) TMI 246 - HC - Income TaxExpenditure allowable as business expenditure u/s 37(1) - expenditure on account of processing fees on a loan taken by the third party - what is the nature of transaction and as to how the CIT(A) held the expenditure to be of revenue in nature? - HELD THAT - No uncertain terms held that CIT(A) has examined each and every aspect of the case and held in favour of the assessee. But with regard to the issue whether the expenditure is allowable as business expenditure, under Section 37(1) CIT(A) has taken note of the various decisions on the point, namely the positive test and the negative test, which are to be applied, and thereafter proceeded to examine the facts, and held that the case of the assessee is entirely different from that of the case of M/s Ruia Sons P Ltd. In this regard, it is relevant to take note of the finding recorded by the CIT(A). This finding was reexamined by the Tribunal and the Tribunal has on facts concurred with the CIT(A). No substantial questions of law.
Issues:
1. Allowability of expenditure on processing fees for a loan taken by a third party. 2. Consideration of Section 37 of the Income Tax Act for third-party payments. 3. Allowability of processing fee as a deduction under Section 37(1) of the Income Tax Act. Issue 1: Allowability of expenditure on processing fees for a loan taken by a third party. The appeal by the revenue challenged the order of the Income Tax Appellate Tribunal allowing the expenditure on processing fees for a loan taken by a third party. The Revenue contended that the assessee failed to produce the debit note raised by ICICI bank, which was crucial evidence not examined by the Commissioner of Income Tax (Appeals) and the Tribunal. However, the CIT(A) found the payment to be in the form of brokerage or commission, facilitating the acquisition of a brand name that substantially improved the appellant's business earnings. The Tribunal upheld the CIT(A)'s decision, emphasizing that the expenditure was revenue in nature and allowable as business expenditure under Section 37(1) of the Act. Issue 2: Consideration of Section 37 of the Income Tax Act for third-party payments. The Revenue argued that the Tribunal erred in not considering the provisions of Section 37 of the Income Tax Act, which disallow deductions for third-party payments not related to business provisions. However, the CIT(A) and the Tribunal analyzed the nature of the expenditure, applying both positive and negative tests to determine its allowability as business expenditure. The CIT(A) differentiated the case from previous precedents, emphasizing the improvement in the appellant's business earning capacity due to the payment made to a third party. The Tribunal concurred with the CIT(A)'s findings, concluding that the expenditure was allowable under Section 37(1) of the Act. Issue 3: Allowability of processing fee as a deduction under Section 37(1) of the Income Tax Act. The Tribunal's decision focused on the factual nature of the transaction and the CIT(A)'s detailed examination of the case. The Tribunal upheld the CIT(A)'s findings, emphasizing that the expenditure incurred by the appellant for the payment made to a third party was revenue in nature and facilitated substantial improvement in the appellant's business earnings. The Tribunal concurred with the CIT(A)'s analysis, dismissing the appeal and upholding the allowability of the processing fee as a deduction under Section 37(1) of the Income Tax Act. In conclusion, the High Court dismissed the appeal, stating that there were no substantial questions of law raised for consideration. The Court upheld the decisions of the CIT(A) and the Tribunal, affirming the allowability of the expenditure on processing fees for a loan taken by a third party as a deduction under Section 37(1) of the Income Tax Act.
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