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TMI Blog2016 (7) TMI 910X X X X Extracts X X X X X X X X Extracts X X X X ..... ure is to be incurred or under which it head it has to incurred. Assessee has to decide its business needs and no other person is authorised to do so. Whether or not to incur any expenditure or how much expenditure to be incurred is the prerogative of an assessee. The employee are not hit by the provisions of section 40A of the Act, so, the FAA was not justified in questioning the reasonableness of the expenditure. Both of them have ignored the principle of commercial expediency. Phrase commercial expediency would include such purpose as is expected by the assessee to advance its business interest and may include measures taken for preservation, protection or advancement of its business interests. AO has no role to decide the ‘Laxman-Rekha’ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h of February, 2010 and March, 2010, that it had increased its salary expenses almost 60% over the corresponding expenses in the earlier financial year. The assessee was asked to justify the increase in salary. Explanation, given by the assessee, was not accepted by the AO, as it had increased the salary to its employees in spite of the fact that there was no increase in the income during the year and also in the subsequent years. He further held that no nexus had been established between the expenditure incurred and the business of the assesse, that the consultancy income earned by the assessee during the year was ₹ 5, 82, 652/-, that the employees of the company had not made any efforts to increase the income throughout the year and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essman and not of the AO, that in any consultancy business the only resourse were the employees, that the salary expenditure was incurred wholly and exclusively for the purpose of business and to earn revenue. After considering the submission of the assessee, he held that out of ₹ 1. 53 crores, expense of ₹ 1. 25 crores had been debited under the head salary, bonus etc. and was paid to Rahul Anand, that excessive expenditure was incurred under the head personnel cost though the income of the assessee had reduced from ₹ 15. 03 lakhs to ₹ 5. 82 lakhs, , that on the one hand income of the assessee had decreased from 100% to 38% and on the other hand its expenses increased from 100% to 161. 61%, that it had earned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the head Personnel cost, that out of the said expenses of ₹ 1, 53, 88, 845/-, expenses of ₹ 1, 24, 39, 835/- had been debited under the head salary, bonus and other allowances and paid, that the AO disallowed the expenditure holding it to be excessive and unreasonable, that the AO and the FAA compared the figures of expenses and the income for the year under appeal with other years, that both were of the view that the expenditure was not incurred wholly and exclusively for the business of the assessee . 5. 1. The short issue to be decided in the case before us is as to whether the AO and the FAA were justified in disallowing the expenditure incurred by the assessee during the year under consideration. The only objection o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness interest. Here, we would like to refer to the case of Yum Restaurants India P. Ltd. ( 371 ITR 139)of the Hon ble Delhi High Court wherein basic principles regarding allowing an expenditure and limits of the AO. s have been deliberated upon as under: In examining a claim for deduction under section 37(1) of the Income-tax Act, 1961, on the ground of commercial expediency, what is to be seen is not whether it was compulsory for the assessee to make the payment but whether it was of commercial expediency. As long as the payment is made for the purposes of the business and not by way of penalty for infraction of any law, the payment would be allowable as a deduction. The commercial expediency of a businessman s decision to incur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usively 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. (emphasis by us). A perusal of the above two judgments clearly show that reasonableness of an expenditure cannot and should not be the deciding factor while allowing an expenditure u/s. 37 of the Act. In the case before us, both the authorities have misdirected themselves and ventured in to prohibited territory. Therefore, their action cannot be endorsed. Reversing the order of the FAA, we decide the effective ground of appeal in favour of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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