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TMI Blog1992 (9) TMI 118X X X X Extracts X X X X X X X X Extracts X X X X ..... -Do- 1979-80 1,923 -Do- 1981-82 1,860 Re : Drafting, filing and hearing of Writ petn. 1982-83 28,513 -------------- Rs. 56,770 -------------- Out of the above expenditure of Rs. 56,770, the ITO allowed only Rs. 10,000 and disallowed the balance. Apparently the ITO thought that section 40A(12) authorised the allowance of only Rs. 10,000. The assessee contested the disallowance on the ground that under section 40A(12) an amount of Rs. 10,000 is allowable in respect of each assessment year in respect of which the expenditure is incurred and the amount mentioned in the section is not the overall limit. The CIT(Appeals) noted that the words used in the section supported the assessee's stand and, therefore, directed the ITO to allow the entire expenditure. He, however, directed the ITO to maintain a record to ensure that expenditure above Rs. 10,000 in respect of each assessment year is not allowed to the assessee under section 40A(12). 3. It is against the decision of the CIT(Appeals) that the department has preferred the appeal. The appeal relates to the assessment year 1986-87 for which the previous year ended on 31-3-1986. Section 40A(12) of the IT Act is as under : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (12) was inserted in substitution of the provisions of section 80VV and the purpose of inserting section 40A(12) was to increase the limit of Rs. 5,000 prescribed by section 80VV to Rs. 10,000 and to give the benefit of the allowance only to those who had income from business. He submitted that the provisions of section 40A(12) have to be interpreted in consonance with the object and purpose sought to be achieved and cannot be interpreted in a literal manner which would result in an absurd result. He submitted that we should prefer the interpretation which would avoid absurdity. According to him, where the plain literal meaning of the statutory provision produces a manifestly absurd and unjust result which could never have been intended by the Legislature, the language should be modified so as to achieve the obvious intention of the Legislature in order to produce a rational construction. He invited our attention to the decision of the Supreme Court in the case of K. P. Varghese v. ITO [1981] 131 ITR 597 on this aspect, specially the observations of the court with regard to the interpretation of statutory provisions appearing in page 604. He further submitted that the interpretatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar even if it related to previous accounting years. The court noticed the circular issued by the CBDT on 24-8-1928 stating that the cost of audit and similar operations conducted specially for income-tax purposes, whether in connection with assessments, or appeals or with revision petitions, cannot be allowed as a deduction from taxable profits was clearly not in accord with law. In the case before the Madhya Pradesh High Court the assessment proceedings related to the assessment year 1953-54, wherein the assessee claimed to deduct a sum of Rs. 14,000 on account of professional fees paid to an income-tax adviser in connection with the services rendered by him in the assessment proceedings. It was an admitted fact that the fees related to more than one accounting year. It was under those facts that the expenditure was held by the High Court to be allowable expenditure. A Full Bench of the Nagpur Bench of the Bombay High Court held in the case of R. B. Bansilal Abirchand Spg. Wvg. Mills v. CIT [1971] 81 ITR 34, that the expenses reasonably incurred by an assessee for preparation and conduct of income-tax proceedings before the Income-tax Officer or laid out in conducting appeals, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... honestly incurred. The court further held that even otherwise the expenditure was incidental to the business and was necessitated by commercial expediency. The court noticed that the earning of profits and the payment of taxes are not isolated and independent activities of a business. These activities were continuous, taking place from year to year during the whole period for which the business continues. It was further held by the court that if the assessee takes any steps for reducing its liability to tax which results in more funds being left for the purpose of carrying on the business there is always the possibility of higher profits. 6. The above decisions would show that the expenses of the kind with which we are concerned in the present appeal are allowable under section 10(2)(xv) of the old Act as business expenditure. The decisions would apply with equal force to the provisions of section 37(1) of the IT Act, 1961 and this proposition cannot be disputed. Therefore, prior to the insertion of the provisions of section 80VV in the IT Act, 1961 with effect from 1-4-1976, the principles governing the allowance of the expenditure incurred in connection with the income-tax proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessment year in question. The Legislature obviously thought that the provisions of section 80VV are unnecessarily stringent in the sense that the monetary limit was an overall limit, not related to the proceedings in connection with each assessment year. In our opinion, the introduction of sub-section (12) of section 40A clearly is a manifestation of the intention of the Legislature to broaden the allowance and to fix a limit of Rs. 10,000 in respect of each assessment year to which the proceedings relate. For example, if the assessee has, during the relevant year of account, incurred Rs. 20,000 each as expenditure in respect of the proceedings relating to the earlier four assessment years, the total expenditure incurred by him would be Rs. 80,000 but under section 40A(12) the expenditure allowable will be @ Rs. 10,000 for each of the four assessment years to which the proceedings relate. That in our opinion, is the meaning to be attributed to the use of the words " for any assessment year " appearing in section 40A(12). It is significant to note that the provisions of section 37(1) were also correspondingly amended. When section 40A(12) was inserted, the reference to section ..... X X X X Extracts X X X X X X X X Extracts X X X X
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