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TMI Blog2017 (3) TMI 1183X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, or an expenditure in the nature of capital expenditure or, if, an Assessee is an individual, it involves defrayment of personal expenses. In ascertaining as to whether the expenditure has been laid out or expended wholly and exclusively for the purpose of business, what is to be borne in mind, is that, it is incurred on account of commercial expediency of the Assessee. The fact that the expenditure incurred by an Assesseee is not propelled on account of any legal obligation, or that, it benefits a third party, would not come in the way of it being allowed, as long as it is incurred due to commercial expediency. As to what is commercial expediency is to be looked at by Income Tax Authorities by placing themselves in the shoes of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gment of the Court was delivered by Rajiv Shakdher, J. ) 1. This appeal is directed against the judgment of the Income Tax Appellate Tribunal (in short 'the Tribunal'), dated 11.08.2016, qua the Assessment Year (A.Y) 2006-07. 2. The only issue, which arose for consideration, before the Tribunal was, whether the order of the Commissioner of Income Tax (Appeals) [in short, 'the CIT(A)'], dated 23.12.2010, was required to be sustained. 3. The CIT(A) vide order dated 23.12.2010, had reversed the findings of the Assessing Officer, with regard to the disallowance of the expenditure, claimed by the Assessee qua legal fee and the expenses incurred towards Professional Indemnity Insurance. 3.1. To be noted, the Assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hows that, the appellant, being aggrieved by the assessment order, carried the matter in appeal to the CIT(A). The CIT(A) reversed the view taken by the Assessing Officer and returned the following findings of fact, and allowed the expenses incurred, both towards legal fee and Professional Indemnity Insurance, under Section 37(1) of the Act. ....7.1 The first finding of the Assessing Officer namely, incurring of expenditure of ₹ 1.93 Crores towards legal fees to recover ₹ 80,16,570/- is misconstrued on the facts of the case. The expenses according to the Appellant were incurred to protect the source of income and hence the comparison attempted by the Assessing Officer is not correct. The expenses incurred to protect and mai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsaction which according to me is proved beyond doubt by the Appellant. .... 8. A perusal of the aforesaid extract from the order of the CIT(A) would show that before him, an additional ground appears to have been taken by the Revenue, which was, that the payment of legal fee, in the first instance, had been made to Hammonds U.K., by the Director of the Assessee company, one, Shri.Brijnath via his personal account. 9. This aspect of the matter was also gone into by the CIT(A), who affirmed the genuineness of the transaction and allowed the deduction qua legal fee by holding that the modus operandi of payment was not relevant. 10. The Revenue, being aggrieved, carried the matter in appeal to the Tribunal. The Tribunal, in turn, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so note that, though, this is not a submission, which was pressed before us, the amount paid towards Professional Indemnity Insurance, by the Assessee to Hammonds U.K., was also in order, as even though, Hammonds, was required to take out an insurance under the U.K. law, the legal adviser was entitled to recover the same from his client, i.e., the Assessee. 13.1. Therefore, on both counts, according to us, there is no flaw in the judgment of the Tribunal, as also that of the CIT(A). 14. Before we conclude, we may only indicate that the test to be employed for examining as to whether or not a particular expenditure incurred by an Assessee, be allowed, is that, which is, provided in Section 37 itself. Therefore, what is required to be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manage the business. Therefore, as long an expense is incurred, wholly and exclusively for the purpose of the business carried on by the Assessee, it ought to be, ordinarily, allowed under Section 37 of the Act. (See Sassoon J. David Co. (P) Ltd., V. CIT, (1979) 118 ITR 261). 14.3. Thus, if, the aforesaid principles are applied, it is clear that notwithstanding the fact that the legal fee paid was more than the compensation received by the Assessee, the same, was amenable for deduction under Section 37 of the Act. Likewise, in so far as the expense incurred towards Provisional Indemnity Insurance was concerned, it could not have been disallowed, merely, by reason of the fact that Hammonds, U.K., was required to take out the insurance. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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