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TMI Blog2017 (3) TMI 85X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee. - ITA No. 3494/Mum/2010 - - - Dated:- 22-2-2017 - Shri Rajendra, A. M. and Sanjay Garg, J. M. Revenue by : Shri Pavan Kumar Beerla Assessee by : Shri F. V. Irani ORDER Per Rajendra, AM Challenging the order dt. 17. 03. 2010 of CIT(A)-8, Mumbai the assessee has filed the present appeal. Assessee-company, a share broker, filed its return of income on 31. 10. 2007 declaring its total income of ₹ 390. 03 crores. The Assessing Officer(AO) completed assessment on 30. 03. 2009, determining its income at ₹ 401. 55 crores. 2. First effective Ground of appeal is about disallowance of bad debts of ₹ 32. 93 lakhs made by the AO invoking the provisions of section 36(1)(vii)of the Act. Before us, the Authorised Representative(AR) and the Departmental Representative (DR) stated that identical issue was dealt with by the Tribunal in the earlier years, and the Hon'ble Bombay High Court has upheld the order of the Tribunal for AY 2002-03 to 2004-05. We would like to reproduce the relevant portion of the order of the Tribunal, dt. 27. 7. 2011 (ITA. s. / 3272/Mum/06, 1501 and 1052/Mum/2007-AY. s 2002-03 to 2004-05)and it reads as under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity of depreciation on uninterrupted power supply (UPS). Representatives of both the sides agreed that issue had been deliberated upon by the Tribunal while adjudicating appeals for AY. s 2006-07(supra), and 2010-11(ITA No. 2096 1232/M/ 2014). Respectfully, following the above Ground No. 5 is decided in favour of the assessee. 5. Last Ground of appeal is about confirming disallowance of ₹ 2. 62 crores. During the assessment proceedings, the AO found that assessee had paid a sum of ₹ 2, 62, 90, 536/-to various clients in Valsad region on account of is regularities committed by one of its sub brokers. He directed the assessee to explain as to why the said amount should be allowed as revenue expenditure. After considering the submission of the assessee dated 25/03/2009, the AO held that the assessee had entered into a member sub broker agreement with Chetan Dinesh Modi (CDM), proprietor of Modi Financial Services (MFS)that sub broker was solely responsible for any loss or damages arising out of the sub group s activities/ misappropria - tions, that CDM along with his employee committed fraud by transferring the shares of market on the basis of blank demerit slips given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee had submitted detailed working of the payment made to various clients, that it had filed civil suit against CDM in the honorable Bombay High Court. 5. 2. After considering the submission of the assessee and the order of the AO, the FAA held that payment for settlement of claim of various clients of its sub broker was not an expenditure but a debt, that it had filed a suit against CDM and had treated the amount as a debt by issue of a debit note, that the settlement was arrived only to ensure that clients would withdraw the name of the assessee and its directors from the police compliant, that CDM was arrested on 25. 11. 06, that the reputation of the assessee was not at stake that it was well known that the sub broker was involved in the forgery, that as a principle the assessee was not responsible for acts and omissions of its agents, that claim made by the assessee was not allowable u/s. 28 or 37 or 36(1)(vii) of the Act. 5. 3. During the course of hearing before us, the AR argued that expenditure has to be allowed even it is not arising out of legal obligation, that the expenditure was incurred wholly and exclusively for business purposes and because of commer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its trade going on and that the expenditure must be incurred by the assessee as a trader and not in any other capacity. The word wholly refers to the quantum of expenditure and the word exclusively refers to the motive, objective and purpose of the expenditure. The expression wholly and exclusively appearing in section 37, does not mean necessarily. ii. An expenditure need not have been incurred with the object of gaining a direct and immediate benefit ; it would be, rather, sufficient even if it was incurred in order to indirectly facilitate the carrying on of the business. iii. An expenditure, incurred for commercial expediency is allowable u/s. 37 of the Act. The term 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. iv. A voluntary payment and not necessarily a payment under an obligation contractual or other -wise could be allowed as a deduction. If the assessee, which carries on a business finds that it is commercially expedient to incur certain expenditure directly or indirectly, it would be open t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the confidence of the customers and maintaining the goodwill of the business Even though there was no legal obligation to incur an expenditure, if it was incurred in the interests of the business, e. g. , for preserving the goodwill of the business, it can be allowed as business expenditure. It is also not necessary that expenditure should have been incurred in cash; it may be incurred by setting off amounts due to the assessee against amounts payable by him. We would also like to refer to the case of Calcutta Landing Shipping Co. Ltd. (65ITR1). In that matter, the board of directors of the assessee-company, whose employee was murdered while on the company's business, sanctioned payment of pension to his wife at graded rates for a number of years as also passage money and railway fare for her and children to proceed to England as well as other sums. The assessee's claim for deducting the payments under section 10(2)(xv) was negatived by the department and the Tribunal. On a reference, the Hon ble Calcutta High Court held as under: The expression commercial expediency is an expression of wide import and expenditure in commercial expediency includes such ..... X X X X Extracts X X X X X X X X Extracts X X X X
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