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TMI Blog2018 (1) TMI 733X X X X Extracts X X X X X X X X Extracts X X X X ..... opportunity to explain the same." 2. The brief facts of the case are that the assessee filed his return of income on 29.09.2011 declaring a total income of Rs. 37,94,050/-. The case was selected for scrutiny and the notice u/s 143 (2) was issued on 16.08.2012 which was duly served upon the assessee within the stipulated time and other statutory notices were also issued to the assessee. During the year under consideration, the assessee derived income from profession and other sources. He is a Lawyer. 3. During the course of scrutiny proceedings the Assessing Officer observed that the assessee has debited litigation settlement expenses of Rs. 39,01,750/- in his income and expenditure account. The Assessing Officer asked to explain whether these expenses were incidental to business and profession. In response to the above quarry, the Authorized Representative of the assessee submitted a detailed written submission. In his written submissions he submitted that the assessee had to incur expenses on account of one time settlement for release of personal guarantees given for loan taken by a company i.e. M/s India Magnetics Limited for which he was guarantor. The loan was taken from a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the detailed submissions of the assessee, confirmed the action of the Assessing Officer and he also relied on some case laws. Aggrieved by the order the CIT (A), the assessee is in appeal before the tribunal. 7. The Ld. AR submitted a written synopsis before us which is as under : "1. That the reasoning of the Ld. AO to disallow the claim of one time settlement expense is that the Guarantee given by the assessee to the Consortium of Banks for the loan taken by M/s India Magnetic Ltd. was personal in nature and therefore the said expense made to discharge the said Guarantee is a personal expenditure incurred in his personal capacity and therefore is not allowable as deduction u/s 37(1) of the Act. 1.1 It is humbly submitted before the Hon'ble ITAT that the allowability or otherwise of the expenditure claimed by an assessee in his business/ profession is to be examined with reference to the point in time and the predominant purpose for which the expense is incurred and therefore the fact that loan was taken by the assessee standing in as Personal Guarantee in his personal capacity, is not a relevant factor to determine the allowability of the claim of such expense. 2. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and exclusively for the purposes of business. In this case, the finding of fact is that it is incurred for the personal purposes. Be that as it may, the words used are "wholly and exclusively for the purposes of business or profession". In normal understanding the word "wholly" would mean entirely and the word "exclusively" would mean solely. Thus, any element of expenditure not laid out entirely and solely for the purpose of profession would not be covered by Section 37(1) of the Act. One has to examine this from the perspective/prism of the person who does makes the expenditure. In this case, the benefit, if any, of improvement in the eyes may/would also ensure to the applicant not only in the profession but also in all other walks of life. However, the test would really be whether in the absence of being in business or profession, would the applicant have incurred the expenditure to improve his eyes and the answer has to be 'yes1 keeping in view the normal conduct of human affairs. This is because effective eye sight is a necessity for living a life of a complete human. Therefore, in this case the expenditure is personal and incidental benefit if any is to the profession ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... both the grounds of appeal, for which the appellant shall ever pray." 8. On the other hand, the Ld. Departmental Representative relied on the orders of the lower authorities. He submitted that expenditure incurred by the assessee is one-time settlement for personal guarantee given for obtaining loan by M/s India Magnetics Ltd. The assessee has not got any direct and indirect benefit from this company which is taxable in the hands of the assessee. There is also no direct and indirect nexus between the business or professions of the assessee and the impugned expenses. The case laws relied by the assessee are not applicable and distinguishable on facts of the assessee's case because there is no direct or indirect nexus with assessee business from the company in which he was a guarantor. In view of these, the lower authorities has done good reasoned order and it does not require any interference and the case laws relied by the lower authorities are squarely applicable. 9. After hearing both the sides and perusing the materials available on record and order of the authorities below. The authorized representative of the assessee reiterated the submissions made before the lower authori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or infringement of any law and was a purely commercial transaction and was of revenue nature as it did not create any benefit of enduring nature or result in a new asset. The appellant submitted the relevant documents as a proof of the guarantee and the settlement arrived at with the consortium of bankers, before the Ld. Assessing Officer. The aforesaid contention of the assessee were not accepted by the Assessing Officer and the expense was disallowed u/s 37(1) of the income tax act 1961 on the basis that the expense were in no way related to the business as the company which defaulted is not related to the business or profession of the appellant and hence the amount is not expended wholly and exclusively for the purposes of business or profession. In appeal the appellant reiterated his submissions made before the Assessing Officer and claimed that the expense had been incurred for the purpose of business. The necessary conditions for allowance under section 37 are * Such expenditure should not be covered under the specific section i.e. sections 30 to 36. * Expenditure should not be of capital nature * The expenditure should be incurred during the previous year. * The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out having gone under the knife of a plastic surgeon. Such are not the facts in the instant case. 22.3 In this regard, even the judgment of the Bombay High Court in Mehboob Productions (supra), which was cited before us, is distinguishable. As indicated above, only the assessee had come up before it with regard to the Tribunal's decision disallowing 1/3rd of the expenses reimbursed by the assessee company to its Director who had suddenly suffered a serious heart attack while running an errand for the assessee company in USA. Based on the findings returned by the Tribunal, that the Director was the "driving force" of the company and that he had gone to USA in connection with nomination of the film produced by the assessee company for an award - the Division Bench of the Bombay High Court, concluded that there was no good reason to disallow the remaining expenses as the revenue had not challenged the findings on the ground of perversity. 23. In view of the foregoing reasons, we are of the opinion that the concurring judgments and orders of the authorities below ought not to be disturbed. It is ordered accordingly. The question of law is thus answered in the negative and aga ..... X X X X Extracts X X X X X X X X Extracts X X X X
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