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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 ..... laring total income at Rs. 2, 22, 59, 801/-. The Assessing Officer(AO)completed the assessment order u/s. 143(3)of the Act, on 13. 02. 2013, determining its income at Rs. 1. 63 Crores. 2. First Ground of appeal deals with upholding the disallowance of sum of Rs. 58. 66 lakhs out of the total personnel cost of Rs. 1. 53 crores. During the assessment proceedings, the AO found that during the year the assessee had increased salary expenses of its employees in the month 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rts of its employees the assessee secured a project management consultancy contact with a company based in Pune, that the increase in employee cost was to motivate the employees to work harder, that it was a commercial judgment to give increment to its employees, that to decide the issue of allowability of expenditure test of commercial expediency had to be considered, that the reasonableness of expenditure has to be decided from the point of view of the businessman 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 Rs. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , that the disallowance made/confirmed by the AO/FAA was against the provisions of the Act. He referred to the pages 81-87 of the Paper book(PB). The Departmental Representative (DR) supported the order of the FAA. 5. We have heard the rival submissions and perused the material before us. We find that the assessee had debited Rs. 1, 53, 88, 845/- in the FY. 2009-10 in comparison to Rs. 95, 22, 499/- in the FY. 2008-09, under the head Personnel cost, that out of the said expenses of Rs. 1, 53, 88, 845/-, expenses of Rs. 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nableness 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' of 'preservation, protection or advancement of his business 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur, another may not like to incur. The quantum may also differ and vary. Section 37(1) does not curtail or prevent an assessee from incurring an expenditure which he feels and wants to incur for the purpose of business. Expenditure incurred may directly or indirectly benefit the business in the form of increased turnover, better profit, growth, etc. As long as the expenditure incurred is "wholly and exclusively" 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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