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TMI Blog2004 (5) TMI 619X X X X Extracts X X X X X X X X Extracts X X X X ..... ction. Explanation.'In this sub-section,' (a) 'Banking company' means a company to which the Banking Regulation Act, 1949 (10 of 1949), applies and includes any bank or banking institution referred to in s. 51 of that Act. (b) 'deposit' means any deposit of money with, and includes any money borrowed by a company, but does not include any amount received by the company (i) '''. (ii) ''' (iii) ''. (iv) ''. (v) from any other company; (vi) '' 4. He has contended that 15 per cent expenditure was to be disallowed under s. 40A(8) but as per Expln. (b)(v) the same is not to be disallowed if it is a deposit received from any other company. He has referred to the details on p. 1 of paper book and contended that under the heading (I) at Sr. No. 2, the deposits were from three companies mentioned at Sr. Nos. (a), (b) and (c) aggregating to Rs. 40,235, and the assessee is claiming that 15 per cent disallowance should not be made out of this interest inasmuch as this interest/expenditure has been incurred by assessee on deposits received from other companies; and as regards other expenditure, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e expenses to defend the chairman and regional manager and to save the reputation of the assessee-company. 6. Learned Authorised Representative of assessee has contended that Explanation to s. 37(1) has, no doubt, been brought into statute book retrospectively with retrospective effect from 1st April, 1962, yet under the said Explanation to s. 37(1), it is only the expenditure incurred for any purposes which is an offence or which is prohibited by law is to be deemed to have not been incurred for the purpose of business or profession and this is in respect of such expenditure that the deduction is not allowable. He has contended that in the instant case, the criminal allegation is still pending and the charges have not been framed, so it cannot be said that the said expenditure was incurred for any purpose, which is an offence or which is prohibited by law and so the said expenditure does not deserve to be disallowed under s. 37(1) r/w Explanation thereto. He has also contended that the assessee is a public limited company and so the expenditure incurred to defend its staff/employee/director cannot be treated to be personal in nature. He has relied on the following decisions : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urse of business will be business expenditure and allowable as deduction. 11. In (1950) 18 ITR 557 (Bom) (supra) the assessee was a private limited company in which director had a controlling interest. The assessee was a trading company. The assessee's director and manager were prosecuted for offences under the Hoarding and Profiteering Prevention Ordinance and Defence of India Rules. The expenses incurred in successfully defending them were held to have been incurred wholly and exclusively for the purpose of assessee's business and were an allowable deduction under s. 10(2)(xv) of the IT Act, 1922. 12. In (1985) 44 CTR (Bom) 103 : (1985) 155 ITR 413 (Bom) (supra) it has been held that where the assessee is an individual or a firm and incurs expenditure in defending the assessee owner or a partner, it incurs the expenditure not wholly and exclusively for its business. It has also been held that where an assessee incurs expenditure for defending one of its employees, the assessee is protecting its business interests and the expenditure could be said to be wholly and exclusively incurred for the purposes of its business. 13. In (2001) 170 CTR (Guj) 458 : (2002) 256 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing allowable . It has also been held that the decisive factor in such cases is not as to who is prosecuted, the assessee or its employees, but what is the intention and motive of the assessee in incurring the expenses. It has also been held that the fact that the assessee incurs expenses on the defence of its employees is no doubt a relevant circumstance to show that the object of assessee in incurring expenses was to save its business reputation and property but that circumstance is not conclusive. 16. Except (2001) 170 CTR (Guj) 458 : (2002) 256 ITR 230 (Guj) (supra) and (1985) 44 CTR (Bom) 103 : (1985) 155 ITR 413 (Bom) (supra), rest all the decisions cited/discussed above are on the provisions of s. 10(2)(xv) of IT Act, 1922, which has existed at the relevant time stood as under : 10(2)(xv). Any expenditure of not being allowance of the nature described in any of cls. (i) to (xiv) inclusive, and not being in the nature of capital expenditure or personal expenses of the assessee laid down or expended wholly and exclusively for such business, profession or occasion. 17. It is in respect of the above statutory provision that the above cited decisions have been rendered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Court in the case of Maddi Venkataraman Co. (P) Ltd. vs. CIT (1998) 144 CTR (SC) 214 : (1998) 229 ITR 534 (SC), which though is on s. 37(1) no doubt, but certain observations therein have relevant bearing on the issue in hand. It has been observed therein that the Hon'ble apex Court has held that one can carry on his trade without violating the law. In fact, s. 37 of IT Act, 1961, presumes that the trade will be carried on lawfully. The Hon'ble Court held that the expenses incurred in transactions carried out in violation of provisions of FERA are not deductible. The Hon'ble Court also observed that it would be against public policy to allow benefit of deduction under one statute, of any expenditure incurred in violation of provisions of another statute or any penalty imposed under another statute. It was also observed in that case that If the deductions claimed by the assessee were allowed, the penal provisions of FERA would become meaningless. It is also to be borne in mind that evasion of law cannot be a trade pursuit . 21. In the aforesaid case, the Hon'ble Supreme Court also considered the case of Haji Aziz Abdul Shakoor Bros. vs. CIT (1961) 41 ITR 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing an employee from criminal proceeding/prosecution for activities which are violative of or in contravention of the provisions of law tantamounts to incurring of expenditure for a purpose which is an offence or which is prohibited by law; and under Explanation to s. 37(1) of IT Act, the same shall be deemed to have not been incurred for the purpose of business or profession and in turn no deduction in respect of such an expenditure will be allowable. As has been held by the Hon'ble apex Court in (1961) 41 ITR 350 (SC) (supra), infraction of law is not a normal incidence of business. 23. As such, considering all the facts and circumstances of the case as also the legal position, we hold the aforesaid expenditure to be hit by the exclusionary mischief spelled out by Explanation to s. 37(1) and in turn to be not allowable as deduction under s. 37(1). We, therefore, find no fault with the orders of authorities below, impugned herein, in disallowing the above expenditure. Accordingly, we decline to interfere with the same. 24. Ground No. 3 disputes the learned CIT(A)'s impugned order in not directing the Dy. CIT to allow deduction under s. 80MM at Rs. 4,06,017 as claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the papers being certificates regarding use of man-hours, etc. could not be furnished before AO/CIT(A) for asst. yr. 1982-83 only, but the same were duly furnished in respect of asst. yr. 1983-84, before AO as well as CIT(A). He has contended that despite furnishing of papers pertaining to use of man-hours for asst. yr. 1983-84, the authorities below still did not grant any relief to the assessee and took the same view of the matter as was taken by them for asst. yr. 1982-83. He has accordingly contended that therefore even if the assessee has furnished those papers for asst. yr. 1982-83 before the authorities below, they would have taken the same view as has been shown for asst. yr. 1983-84. Regarding additional evidence, the learned Authorised Representative of assessee has cited (1989) 179 ITR 231 (P H) (sic). 27. We have considered the rival contentions as also the relevant material on record. However, in (1989) 179 ITR 231 (P H) (supra), there is no decision/ruling on additional evidence on p. 231. Considering the contentions raised before us together with the relevant material on record, we find that the assessee's working of net profit from consultancy services fees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 09 (All) (supra), assessee had incurred some expenditure on Ganesh Pooja on the opening of account books and claimed deduction in respect of the same as business expenditure. The Hon'ble Allahabad High Court held that Ganesh Pooja expenses were incurred by Hindu traders in a customary way at the time of Mahurat or opening of their account books on the auspicious occasion of Diwali and are to be treated as expenditure laid down wholly and exclusively for the purpose of assessee's business and are allowable under s. 37(1). 31. In the order of 'C' Bench of Tribunal, Mumbai in ITA Nos. 7011 and 7060/Bom/1983 for asst. yr. 1982-83 (pp. 40 and 41 paper book), the Tribunal allowed pooja expenses treating the same as customary business expenses and necessary to be done for the welfare of the employees and as such allowable under s. 37(1) of IT Act. 32. In (1979) 119 ITR 387 (Bom) (supra), the assessee carried on the business of manufacture and sale of sugar and incurred an expenditure of Rs. 5,902 and Rs. 6,996 on Satyanarayan Maha Pooja in asst. yrs. 1957-58 and 1958-59, respectively and claimed the same as allowable deduction under s. 10(2)(xv) of the IT Act, 1922, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such is not the fact-situation in the case in hand. In the instant case, the facts are different inasmuch as only a small amount of Rs. 1,604 has been contributed towards expenditure on Pooja and other amount in asst. yr. 1982-83. As such, considering all the facts and circumstances of the case as also the decisions cited by learned Authorised Representative of assessee as discussed above, we are of the view that a small contribution towards pooja expenses made to run the business of the factory smoothly may appropriately be allowed. We, therefore, delete this disallowance. 34. In the result, the assessee's appeal No. 6592/Mum/1991 is allowed in part as indicated above. 35. Now we take up ITA No. 6593/Mum/1991 being for asst. yr. 1983-84. Ground No. 1 disputes the disallowance of expenditure of Rs. 5,933 for contribution towards expenditure on pooja and other occasions. The two rival representatives have relied on their same contentions as raised by them on similar issue raised in asst. yr. 1982-83 discussed above. 36. We have considered the rival contentions as also the facts of the case. In asst. yr. 1982-83, a small amount of Rs. 1,600 was claimed as contribution t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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