Satinder Kapur, New Delhi V. ACIT, New Delhi

ITA 5105/DEL/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 4131 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-01-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 11-08-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Business expenditure; Question of law
• Section: 37(1); 37

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL, DELHI BENCH C, NEW DELHI BEFORE : SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER ITA NO. 5105/DEL./2015 ASSESSMENT YEAR: 2011-12 SATINDER KAPUR, C - 39, ANAND NIKETAN, NEW DELHI. PAN ANVPK 7040C (APPELLANT) VS. ACIT, CIRCLE 49(1), NEW DELHI. (RESPONDENT) APPELLANT BY SH. ARVIND KUMAR, ADVOCATE RESPONDENT BY SH. ARUN KUMAR YADAV, SR. DR ORDER PER L.P. SAHU, A.M.: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A)-20, NEW DELHI DATED 18.05.2015 FOR THE ASSESSMENT YEAR 2011-12 ON THE FOLLOWING GROUNDS : 1. THAT THE LD. CIT (A) HAS ERRED IN LAW AND IN FACTS IN HOLDING THAT THE LITIGATION SETTLEMENT EXPENSES ARE NOT AN ALLOWABLE DEDUCTION U/S 37(1) OF THE INCOME TAX ACT ,1961 AS IT IS NOT INCURRED WHOLL Y AND EXCLUSIVELY FOR THE PURPOSES OF THE PROFESSION OF THE ASSESSEE /APP ELLANT. 2. THAT THE LD. CIT(A) HAS ERRED IN LAW AND IN CONFIR MING THE ADHOC DISALLOWANCE OF 10% OF EXPENSES ON VEHICLE REPAIR A ND MAINTENANCE, INTEREST ON CAR LOAN, CONVEYANCE AND DEPRECIATION E TC AMOUNTING TO RS. 128617 MADE BY THE ASSESSING OFFICER ON SURMISES AN D CONJECTURE, WITHOUT POINTING OUT ANY DEFECTS IN THE BOOKS OF ACCOUNTS A ND WITHOUT PROVIDING ANY OPPORTUNITY TO EXPLAIN THE SAME. DATE OF HEARING 06.11.2017 DATE OF PRONOUNCEMENT 12.01.2018 ITA NO. 5105/DEL./2015 2 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E 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) WA S 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 PRO FESSION AND OTHER SOURCES. HE IS A LAWYER. 3. DURING THE COURSE OF SCRUTINY PROCEEDINGS THE AS SESSING OFFICER OBSERVED THAT THE ASSESSEE HAS DEBITED LITIGATION S ETTLEMENT EXPENSES OF RS. 39,01,750/- IN HIS INCOME AND EXPENDITURE ACCOUNT. THE ASSESSING OFFICER ASKED TO EXPLAIN WHETHER THESE EXPENSES WERE INCIDE NTAL TO BUSINESS AND PROFESSION. IN RESPONSE TO THE ABOVE QUARRY, THE AU THORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED A DETAILED WRITTEN SUBMISSIO N. IN HIS WRITTEN SUBMISSIONS HE SUBMITTED THAT THE ASSESSEE HAD TO INCUR EXPENSES ON ACCOUNT OF ONE TIME SETTLEMENT FOR RELEASE OF PERSONAL GUA RANTEES 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 CONSORTIUM OF FINANCIAL I NSTITUTIONS AND BANKS INCLUDING IFCI, IDBI, KOTAK MAHINDRA BANK ETC. IN VIEW OF DEFAULT BY THE BORROWER COMPANY WHICH SUBSEQUENTLY WENT INTO LIQUI DATION AND AS THE ITA NO. 5105/DEL./2015 3 LENDERS WERE UNABLE TO RECOVER THE COMPLETE AMOUNT FROM THE BORROWER, THE LENDERS ENFORCED THE PERSONAL GUARANTEE OF THE ASSE SSEE BEFORE THE DEBT RECOVERY TRIBUNAL DUE TO WHICH THE ASSESSEE HAD TO SPEND CONSIDERABLE TIME AND RESOURCES IN THE LITIGATION PROCESS APART FROM LOSS OF REPUTATION AND THE POSSIBILITY OF DETENTION AS PER THE PROVISIONS OF T HE DRT ACT. 1993, SECTION 25 WHICH IS QUOTED IN WRITTEN SUBMISSIONS. 4. THE AR OF ASSESSEE ALSO RELIED ON SOME CASE LAWS WHICH WERE FILED BEFORE THE ASSESSING OFFICER. THE ASSESSING OFFICER DID NOT ACCEPT THE ARGUMENTS AND SUBMISSIONS FILED BY THE ASSESSEE BEF ORE HIM AND HE DISTINGUISHED THE CASE LAWS RELIED BY THE ASSESSEE THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE IT IS NOT APPLICABLE. HE ALSO CONCLUDED THAT THE COMPANY M/S INDIA MAGNETICS LIMITED IS NOT RELATED TO THE BUSINESS OR PROFESSION OF THE ASSESSEE AND THE ASSESSEE HAS NOT GOT ANY BENEFIT FROM THE ABOVE NAMED COMPANY. THE ASSESSEE IS A PRACTICING A DVOCATE IN THE DELHI HIGH COURT, SUPREME COURT AND ARBITRAL TRIBUNALS AND PRO PRIETOR OF SATINDER KAPOOR & ASSOCIATES. WHEN THE COMPANY M/S INDIA MA GNETICS LIMITED DEFAULTED AND SUBSEQUENTLY WENT INTO LIQUIDATION AN D LENDERS ENFORCED THE PERSONAL GUARANTEES OF THE ASSESSEE, THE ASSESSEE I NCURRED EXPENSES WHICH WERE IN NO WAY RELATED TO THE BUSINESS OR PROFESSIO N OF THE ASSESSEE. ITA NO. 5105/DEL./2015 4 THEREFORE, HE DISALLOWED THE CLAIM OF THE ASSESSEE UNDER SECTION 37 (1) OF THE INCOME TAX ACT, SINCE IT WAS NOT EXPENDED WHOLLY AN D EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OR PROFESSION. 5. THE LD. ASSESSING OFFICER ALSO DISALLOWED 10% LU MP SUM ADHOC DISALLOWANCE UNDER SECTION 37 (1) BEING THE PERSONA L NATURE AND WHICH ARE NOT FULLY UTILIZED FOR THE PURPOSE OF THE BUSINESS FOR CLAIMING EXPENDITURE ON CONVEYANCE, DEPRECIATION , INTEREST ON CAR LOAN, TE LEPHONE, VEHICLE RUNNING AND MAINTENANCE EXPENSES AND THE TOTAL DISALLOWANCE WAS MADE OF RS. 128617/- WHICH IS 10% OF THE TOTAL EXPENDITURES UNDER THE A BOVE HEADS OF EXPENDITURE. 6. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER THE ASSESSEE APPEALED BEFORE THE FIRST APPELLATE AUTHORITY AND HE MADE DE TAILED SUBMISSIONS AND RELIED ON SOME CASE LAWS ALSO BEFORE HIM. THE LD. C IT (A), AFTER CONSIDERING THE DETAILED SUBMISSIONS OF THE ASSESSEE, CONFIRMED THE ACTION OF THE ASSESSING OFFICER AND HE ALSO RELIED ON SOME CASE LAWS. AGGRI EVED BY THE ORDER THE CIT (A), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 7. THE LD. AR SUBMITTED A WRITTEN SYNOPSIS BEFORE U S WHICH IS AS UNDER : 1. THAT THE REASONING OF THE LD. AO TO DISAL LOW 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 PERSO NAL IN NATURE AND THEREFORE THE ITA NO. 5105/DEL./2015 5 SAID EXPENSE MADE TO DISCHARGE THE SAID GUARANTEE I S 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 ITA T 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 FAC T THAT LOAN WAS TAKEN BY THE ASSESSEE STANDING IN AS PERSONAL GUARANTEE IN HIS P ERSONAL CAPACITY, IS NOT A RELEVANT FACTOR TO DETERMINE THE ALLOWABILITY OF THE CLAIM O F SUCH EXPENSE. 2. THAT THE FINDING OF THE LD. CIT (A) BASED ON THE REASONING THAT THE FACTS OF THE APPELLANT'S CASE IS SIMILAR TO THE CASE OF SHANTI B HUSHAN (SUPRA) , IS AGAIN FLAWED FOR THE REASON THAT THE CASE OF SHANTI BHUSHAN WAS RELA TED TO ALLOWABILITY OF EXPENSES INCURRED ON REPAIR OF HIS IMPAIRED HEART WHICH WOUL D THUS ADD TO THE LONGEVITY AND EFFICIENCY OF A HUMAN BEING PER SE, AS OBSERVED BY HON'BLE COURT IN PARA 22.2 OF THE SAID DECISION. THE HON'BLE HELD IN THE SAID DECISIO N THAT THE IMPROVEMENT IN THE EFFICIENCY OF THE HUMAN BEING WOULD BE IN EVERY ACT IVITY UNDERTAKEN BY A PERSON AND THUS THERE IS NO DIRECT OR IMMEDIATE NEXUS BETWEEN THE EXPENSES INCURRED BY THE ASSESSEE ON THE CORONARY SURGERY AND HIS EFFICIENCY IN THE PROFESSIONAL FIELD PER SE. THAT THEREFORE SUCH CLAIM OF DEDUCTION IS NOT ALLOW ABLE U/S 37(1). 3. THE HON'BLE COURT HOWEVER BY WAY OF AN EXAMP LE OBSERVED IN THIS EVERY PARA THAT IN CASE OF AN ACTOR UNDERTAKING PLASTIC SURGER Y TO PREVENT AGE BEING REFLECTED ON THE SCREEN, IT COULD WELL BE ARGUED AS REGARDS THE CLAIM OF DEDUCTION ON ACCOUNT OF SUCH PLASTIC SURGERY. 2.1 IT IS HUMBLY SUBMITTED BEFORE THE HON'BLE TR IBUNAL THE CASE OF THE APPELLANT, WHO IS IN ACTIVE PROFESSION OF LAW INCLUDING INTERN ATIONAL ARBITRATION, THE ONETIME LITIGATION SETTLEMENT EXPENSE MADE IN ORDER TO AVOI D NEEDLESS DETRACTION IN DRAT PROCEEDINGS WHICH AFFECTED HIS PROFESSIONAL COMMITM ENTS AND TOOK CONSIDERABLE AMOUNT OF TIME AWAY FROM HIS PROFESSION, WAS A COMM ERCIALLY EXPEDIENT DECISION TAKEN BY HIM TO BOLSTER HIS PROFESSIONAL RECEIPTS A ND ALSO TO BUY MENTAL PEACE WHICH IS SO VERY ESSENTIAL TO HIS PROFESSION . NEEDLESS T O ADD THAT IN THE FACTS OF THE CASE THE APPELLANT HAD ALSO RECEIVED A LEGAL NOTICE FROM DRA T TO SHOW CAUSE AS TO WHY HE SHOULD NOT BE ARRESTED, AND IN CASE OF THE EVENTUAL ITY OF HIS ARREST IT WAS HIS REPUTATION AS AN ADVOCATE / LAWYER WHICH WAS AT STA KE AND ONCE SUCH REPUTATION IS TARNISHED IT WOULD HAVE AFFECTED HIS PROFESSIONAL I NCOME FOR ALL TIMES TO COME, WHICH WOULD HAVE BEEN IRRETRIEVABLE DAMAGE TO THE INCOME GENERATING SOURCE ITSELF. 2.2 RELIANCE IS ALSO PLACED IN THIS REGARD BY THE APPELLANT ON THE TEST LAID DOWN BY THE HON'BLE HIGH COURT OF BOMBAY ON PARA 16 OF THE DECISION IN CASE OF DHIMANT HIRALAL THAKAR VS. CIT (64 TAXMANN.COM 177), WHICH IS REPRODUCED AS UNDER:- 'THE WORDS USED IN SECTION 37(1) OF THE ACT IS WHOL LY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS. IN THIS CASE, THE FINDING OF FACT IS TH AT IT IS INCURRED FOR THE PERSONAL PURPOSES. BE THAT AS IT MAY, THE WORDS USED ARE 'WH OLLY AND EXCLUSIVELY FOR THE ITA NO. 5105/DEL./2015 6 PURPOSES OF BUSINESS OR PROFESSION'. IN NORMAL UNDER STANDING 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 TH E PURPOSE OF PROFESSION WOULD NOT BE COVERED BY SECTION 37(1) OF THE ACT. ONE HAS TO EXA MINE 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/WOUL D 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 PROF ESSION, WOULD THE APPLICANT HAVE INCURRED THE EXPENDITURE TO IMPROVE HIS EYES AND TH E ANSWER HAS TO BE 'YES1 KEEPING IN VIEW THE NORMAL CONDUCT OF HUMAN AFFAIRS. THIS IS BE CAUSE EFFECTIVE EYE SIGHT IS A NECESSITY FOR LIVING A LIFE OF A COMPLETE HUMAN. TH EREFORE, IN THIS CASE THE EXPENDITURE IS PERSONAL AND INCIDENTAL BENEFIT IF ANY IS TO THE PRO FESSION CARRIED OUT BY THE APPLICANT. THE SUPREME COURT IN THE CASE OF(D) 'DELHI SAFE DEP OSIT CO. LTD. (133 ITR 756)' CONSIDERING AS TO WHAT WOULD BE THE TRUE TEST OF THE EXPENDITURE LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF TRADE OR BUSINESS H ELD THAT IT WOULD BE AN EXPENDITURE INCURRED BY THE ASSESSEE AS INCIDENTAL TO HIS TRADE FOR THE PURPOSE OF KEEPING THE TRADE GOING AND OF MAKING IT PAY AND NOT IN ANY OTHER CAP ACITY THAN OF A TRADER. ' 2.3 RELIANCE IS ALSO PLACED BY THE APPELLANT ON T HE TEST LAID DOWN BY THE HON'BLE SUPREME COURT OF INDIA IN THE DECISION IN CASE OF CIT VS. CHANDULAL KESHAVLAL & CO, (38 ITR 601), THE RELEVANT PART OF WHICH IS REPRODUCED AS UNDER: - 'IN DECIDING WHETHER A PAYMENT OF MONEY IS A DEDUCT IBLE EXPENDITURE ONE HAS TO TAKE INTO CONSIDERATION QUESTION OF COMMERCIAL EXPEDIENC Y AND PRINCIPLES OF ORDINARY COMMERCIAL TRADING. IF THE PAYMENT OR EXPENDITURE I S INCURRED FOR THE PURPOSE OF THE TRADE OF THE ASSESSEE IT DOES NOT MATTER THAT THE P AYMENT MAY INURE TO THE BENEFIT OF A THIRD PARTY. ANOTHER TEST IS -WHETHER THE TRANSACTI ON IS PROPERLY ENTERED INTO AS A PARTY OF THE ASSESSEE'S LEGITIMATE COMMERCIAL UNDERTAKING IN ORDER TO FACILITATE THE CARRYING ON OF ITS BUSINESS; AND IT IS IMMATERIAL THAT A THIR D PARTY ALSO BENEFITS THEREBY. BUT IN EVERY CASE IT IS A QUESTION OF FACT WHETHER THE EXP ENDITURE WAS EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF TRADE OR BUSINESS OF THE ASSESSEE. IN THE INSTANT CASE THE FINDING WAS THAT IT WAS LAID OUT FOR THE PURPOSE OF THE ASSESSEE'S BUSINESS AND THERE WAS EVIDENCE TO SUPPORT THIS FINDING. IN THE INSTAN T CASE IN ORDER TO JUSTIFY DEDUCTION THE SUM MUST BE GIVEN UP FOR REASONS OF COMMERCIAL E XPEDIENCY; IT MAY BE VOLUNTARY, BUT SO LONG AS IT IS INCURRED FOR THE ASSESSEE'S BENE FIT THE DEDUCTION WOULD BE CLAIMABLE. F. AS REGARDS THE AD-HOC DISALLOWANCE OF VEHICLE RE LATED EXPENSES ETC. @ OF 10% MADE BY THE AO AND CONFIRMED BY THE LD. CIT IT IS S UBMITTED THAT THE SAME HAS BEEN MADE PURELY ON AD-HOC BASIS AND SINCE THE BOOKS AND ACCOUNT OF THE APPELLANT HAVE NOT BEEN REJECTED, THERE NO BASIS TO DISALLOW THE C LAIM IN CASE OF PROFESSIONAL WHO HAS TO NECESSARILY INCUR SUCH EXPENSES IN THE COURS E OF HIS PROFESSION AND WHICH EXPENSES ARE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS / PROFESSION. G. IT IS THEREFORE HUMBLY SUBMITTED BEFORE THE HON' BLE TRIBUNAL TO ALLOW BOTH THE GROUNDS OF APPEAL, FOR WHICH THE APPELLANT SHAL L EVER PRAY. ITA NO. 5105/DEL./2015 7 8. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESEN TATIVE RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. HE SUBMITTED THAT EXPENDITURE INCURRED BY THE ASSESSEE IS ONE-TIME SETTLEMENT FOR PERSONAL GUARAN TEE GIVEN FOR OBTAINING LOAN BY M/S INDIA MAGNETICS LTD. THE ASSESSEE HAS N OT 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 NEXU S BETWEEN THE BUSINESS OR PROFESSIONS OF THE ASSESSEE AND THE IMPUGNED EXPENS ES. THE CASE LAWS RELIED BY THE ASSESSEE ARE NOT APPLICABLE AND DISTINGUISHA BLE ON FACTS OF THE ASSESSEES CASE BECAUSE THERE IS NO DIRECT OR INDIR ECT NEXUS WITH ASSESSEE BUSINESS FROM THE COMPANY IN WHICH HE WAS A GUARANT OR. 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 MA TERIALS AVAILABLE ON RECORD AND ORDER OF THE AUTHORITIES BELOW. THE AUTH ORIZED REPRESENTATIVE OF THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES. WE HAVE TO DECIDE HERE WHETHER THE AMOUNT IN QUESTI ON CAN BE TREATED AS EXPENDITURE LAID OUT OR EXPENDED WHOLLY AND EXCLUSI VELY FOR THE PURPOSE OF THE BUSINESS OR PROFESSION OF THE ASSESSEE, WHICH I S ADMISSIBLE AS A DEDUCTION ITA NO. 5105/DEL./2015 8 UNDER SECTION 37. THE FACTS FOUND IN THE PRESENT CA SE ARE THAT THE ASSESSEE WAS CARRYING ON PROFESSION OF ADVOCATE. THE ASSESSEE H AD GIVEN THE GUARANTEE FOR OBTAINING LOAN BY THE COMPANY M/S INDIA MAGNETICS L TD. THERE IS NO DIRECT/INDIRECT NEXUS BETWEEN THE ASSESSEES PROFES SION AND THE COMPANY FOR WHICH HE GAVE HIS GUARANTEE. THE ASSESSEE IS ALSO U NABLE TO PROVE THAT THE ASSESSEE HAS RECEIVED ANY DIRECT INDIRECT BENEFIT F OR BECOMING A GUARANTOR FOR THE ABOVE COMPANY. THE LD. CIT(A) HAS, THEREFORE, D ONE GOOD REASONED ORDER ON THIS ACCOUNT, WHICH NEEDS NO INTERFERENCE. FOR T HE SAKE OF CONVENIENCE, THE RELEVANT FINDINGS OF THE LD. CIT(A) ARE REPRODUCED AS UNDER : 5.1. I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORD ER AND SUBMISSIONS THEREOF. THE FACTS OF THE CASE AS PER ASSESSMENT ORDER ARE THAT THE ASSESSEE HAD INCURRED AN EXPENSE OF RS. 39,01,750/- AS LITIGATION SETTLEMENT EXPENSES. THE DETAILS REGARDING THE SAME WERE CALLED FOR AND FILED BY THE ASSESSEE. IN BRIEF, THE ASSESSEE SUBMITTED THAT THE EXPENSE WERE INCURRED ON ACCOUNT OF ONE TI ME SETTLEMENT FOR RELEASE OF A PERSONAL GUARANTEE GIVEN FOR LOAN TAKEN BY A COMPAN Y I.E. M/S INDIA MAGNETICS LIMITED FROM A CONSORTIUM OF FINANCIAL INSTITUTIONS AND BANKS. IN VIEW OF THE DEFAULT BY THE BORROWER COMPANY WHICH SUBSEQUENTLY WENT INT O LIQUIDATION AND AS THE LENDERS WERE UNABLE TO RECOVER THE COMPLETE AMOUNT FROM THE BORROWER, THE LENDERS ENFORCED THE PERSONAL GUARANTEE OF THE APPE LLANT BEFORE THE DEBT RECOVERY TRIBUNAL DUE TO WHICH THE APPELLANT FACED THE POSSI BILITY OF DETENTION AS PER SEC 25 OF THE DRT ACT 1993. THE ASSESSEE OFFERED FOR ONE T IME SETTLEMENT IN LIEU OF RELEASE OF HIS PERSONAL GUARANTEE AND ULTIMATELY SETTLED TH E DISPUTE. IT WAS CLAIMED BY THE ASSESSEE THAT THE EXPENSE HAD BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSES AND WAS ALLOWABLE U/S 37(1) OF THE ACT IN VIEW OF THE FACT THAT IT WAS COMMERCIALLY EXPEDIENT FROM THE APPELLANT'S PROFESS IONAL PERSPECTIVE AS HIS PROFESSIONAL REPUTATION AND STANDING WERE AT STAKE. THE ASSESSEE WOULD HAVE BEEN LIABLE TO ARREST AND DETENTION HAD THE MATTER NOT B EEN SETTLED. THE ASSESSEE CLAIMED THAT THE EXPENSE WAS NOT FOR INFRINGEMENT OF ANY LA W 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 SUBM ITTED THE RELEVANT DOCUMENTS AS A PROOF OF THE GUARANTEE AND THE SETTLEMENT ARRIVED A T WITH THE CONSORTIUM OF BANKERS, BEFORE THE LD. ASSESSING OFFICER. THE AFORESAID CON TENTION OF THE ASSESSEE WERE NOT ACCEPTED BY THE ASSESSING OFFICER AND THE EXPENSE W AS DISALLOWED U/S 37(1) OF THE INCOME TAX ACT 1961 ON THE BASIS THAT THE EXPENSE W ERE IN NO WAY RELATED TO THE BUSINESS AS THE COMPANY WHICH DEFAULTED IS NOT RELA TED TO THE BUSINESS OR ITA NO. 5105/DEL./2015 9 PROFESSION OF THE APPELLANT AND HENCE THE AMOUNT IS NOT EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS OR PROFESS ION. 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 T HE 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 EXPENDITURE SHOULD NOT BE OF PERSONAL NATURE. THE EXPENDITURE SHOULD HAVE BEEN INCURRED WHOLLY OR EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OR PROFESSION. THE BUSINESS SHOULD BE COMMENCED. THE HON'BLE' DELHI HIGH COURT IN THE CASE OF MR. S HANTI BHUSHAN VS. COMMISSIONER OF INCOME TAX, WHEREIN THE ASSESSEE CLAIMED MEDICAL EXPENSE AS BUSINESS EXPENSES ON THE BASIS THAT THE SAME WERE ESSENTIAL FOR HIS P ROFESSION AND WOULD HAVE A DIRECT IMPACT ON HIS EARNING CAPACITY, HELD AS UNDER:- IT IS TRITE LAW THAT THE CLAIM FOR DEDUCTION UNDER SECTION 37 OF THE IT ACT SHOULD SATISFY THREE CONDITIONS: FIRSTLY, IT SHOULD BE AN EXPENSE W HICH IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE ASSESSEE'S BUSINE SS OR PROFESSION; SECONDLY, IT SHOULD NOT BE AN EXPENSE INCURRED TO BRING INTO EXISTENCE A CAPITAL ASSET; AND LASTLY, IT SHOULD NOT BE AN EXPENSE OF A PERSONAL NATURE. 22.1 IN OUR VIEW, THE ASSESSEE'S CLAIM UNDER SECTIO N 37 OF THE IT ACT DOES NOT FULFILL THE FIRST CONDITION WHICH IS THAT THE EXPENSE IN ISSUE HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE ASSESSEE'S PROF ESSION. 22.2 AS OBSERVED HEREINABOVE, AN IMPAIRED HEART WOULD HAN DICAP FUNCTIONALITY OF A HUMAN BEING IRRESPECTIVE OF HIS POSITION, STATUS OR VOCATION IN LIFE. EXPENSES INCURRED TO REPAIR AN IMPAIRED HEART WOULD THUS ADD PERHAPS TO THE LONGEVITY AND EFFICIENCY OF A HUMAN BEING PER SE. THE IMPROVEMENT IN THE EFFICIEN CY OF THE HUMAN BEING WOULD BE IN EVERY ACTIVITY UNDERTAKEN BY A PERSON. THERE IS THU S NO DIRECT OR IMMEDIATE NEXUS BETWEEN THE EXPENSES INCURRED BY THE ASSESSEE ON THE CORONARY SURGERY AND HIS EFFICIENCY IN THE PROFESSIONAL FIELD PER SE. THEREF ORE, TO CLAIM A DEDUCTION ON ACCOUNT OF EXPENSES INCURRED BY THE ASSESSEE ON HIS CORONARY S URGERY UNDER SECTION 37(1) OF THE IT ACT WOULD HAVE TO BE REJECTED. THERE IS, AS A MATTER OF FACT, NO EVIDENCE BROUGHT ON RECORD, WHICH WOULD SUGGEST THAT THE ASSESSEE COULD HAVE CONTINUED IN THE SAME STATE WITHOUT THE MEDICAL PROCEDURE UNDERTAKEN BY HIM. ON THIS ASPECT, THE BEST EXAMPLE WHICH COMES TO MIND, WHICH PERHAPS, IN A GIVEN CASE WOULD BE CONSIDERED AS AN EXPENSE AMENABLE UNDER SECTION 37 OF THE IT ACT WOU LD BE THAT OF AN ACTOR UNDERTAKING PLASTIC SURGERY TO PREVENT AGE BEING RE FLECTED ON SCREEN. IT COULD BE ARGUED IN THE CASE OF AN ACTOR THAT HE COULD HAVE E XISTED IN THE STATE HE WAS WITHOUT ITA NO. 5105/DEL./2015 10 HAVING GONE UNDER THE KNIFE OF A PLASTIC SURGEON. S UCH 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 D ISTINGUISHABLE. 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 WH ILE RUNNING AN ERRAND FOR THE ASSESSEE COMPANY IN USA. BASED ON THE FINDINGS RETU RNED 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 T HE 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 I N THE NEGATIVE AND AGAINST THE ASSESSEE. THE HON'BLE COURT HAS THUS HELD THAT THE CLAIM OF T HE ASSESSEE DID NOT FULFILL THE FIRST CONDITION OF CLAIM OF EXPENSES UNDER SECTION 37(1) THAT THE EXPENSE SHOULD HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOS E OF BUSINESS. THE FACTS OF THE APPELLANT'S CASE ARE SIMILAR, THERE IS NO DIRECT NE XUS BETWEEN THE LITIGATION EXPENSES AND THE BUSINESS OF THE APPELLANT. THE EXPENSES CAN NOT BE THEREFORE ALLOWED AS A BUSINESS/ PROFESSIONAL EXPENSE. THE ADDITION MADE B Y THE ASSESSING OFFICER IS THEREFORE SUSTAINED. 10. THE ASSESSEE COULD NOT CONTROVERT THE TEST LAID DOWN FOR CLAIMING DEDUCTION U/S. 37(1), AS DISCUSSED BY THE LD. CIT(A ). THE ASSESSEE ALSO FAILED TO PROVE THAT THEY HAD GOT ANY BENEFIT FOR BECOMING A GUARANTOR OF THE SAID COMPANY. THEREFORE, ONE-TIME SETTLEMENT CHARGES PAI D TO BANKS IS NOT AN ALLOWABLE EXPENDITURE UNDER SECTION 37 OF THE INCOM E TAX ACT. WE, ACCORDINGLY, DO NOT FIND ANY JUSTIFICATION TO INTER FERE WITH THE REASONED ORDER MADE BY THE LD. CIT(A) ON THIS COUNT. ITA NO. 5105/DEL./2015 11 11. AS REGARDS THE OTHER ISSUE REGARDING PARTIAL DI SALLOWANCE OUT OF EXPENDITURES CLAIMED BY THE ASSESSEE, WE FIND THAT THE LD. AUTHORITIES BELOW HAVE MADE THE DISALLOWANCE ON ADHOC BASIS, THAT TOO WITHOUT REJECTING THE BOOKS OF ACCOUNT OF THE ASSESSEE. MOREOVER, THE LD. AUTHORITIES BELOW HAVE FAILED TO PIN POINT ANY PARTICULAR EXPENDITURE WHIC H WAS OF DISALLOWABLE NATURE. THEREFORE, ADHOC DISALLOWANCE MADE BY THE A UTHORITIES BELOW DESERVES TO BE DELETED IN VIEW OF VARIOUS JUDICIAL PRONOUNCEMENTS MADE BY HIGHER COURTS. WE ACCORDINGLY, ALLOW THIS GROUND OF APPEAL RAISED BY THE ASSESSEE. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 12.01.2018. SD/- SD/- (H.S. SIDHU) (L.P. SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 12.01.2018 *AKS* COPY OF ORDER FORWARDED TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES, NEW DELHI