VAAYA RENEWABLE ENERGY (PURNA) PRIVATE LIMITED, MUMBAI V. DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 3(1)`, MUMBAI

ITA 535/MUM/2018

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 7255 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-05-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 04-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N HEMLATHADR
• Assessee Lawyers: HEMAKATARIA
• Keywords: Commercial expediency; Revenue expenditure; Capital expenditure
• Section: 37(1); 32

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES G, MUMBAI , . , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ITA NO.535/MUM/2018 ASSESSMENT YEARS: 2012-13 VAAYA RENEWABLE ENERGY (PURNA) PRIVATE LIMITED, A-9, ENERCON TOWER, VEERA DESAI RAOD, VEERA INDUSTRIAL ESTATE, ANDHERI (WEST), MUMBAI-400053 / VS. DCIT, CENTRAL CIRCLE-3(1), 19 TH FLOOR, AIR INDIA BLDG. NARIMAN POINT, MUMBAI-400021 ( ! /ASSESSEE) ( ' / REVENUE) P.A. NO.AADCV7290F ! / ASSESSEE BY SHRI HEMAKATARIA ' / REVENUE BY MS. N. HEMLATHA-DR # '$ % !& / D ATE OF HEARING : 03/05/2018 % !& / DATE OF PRONOUNCEMENT 03/05/2018 ITA NOS.535/MUM/2018 VAAYA RENEWABLE ENERGY (PURNA) PVT. LTD. 2 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) THE ASSESSEE IS AGGRIEVED BY THE IMPUGNED ORDER DATED 10/10/2017 OF THE LD. FIRST APPELLATE AUTHORI TY, MUMBAI, CONFIRMING THE AD-HOC DISALLOWANCE AMOUNTIN G TO RS.6,48,810/-, BEING 25% OF THE EXPENDITURE INCURRE D ON TRAVELLING. 2. DURING HEARING, THE LD. COUNSEL FOR THE ASSESSE E, SHRI HEMA KATARIA, CONTESTED THE AD-HOC DISALLOWANCE BY CONTENDING THAT THE EXPENDITURE WAS ACTUALLY INCURR ED FOR WHICH THE NECESSARY DETAILS WERE DULY FILED BEFORE THE LD. ASSESSING OFFICER AS WELL AS BEFORE THE LD. COMMISS IONER OF INCOME TAX (APPEAL). IT WAS CONTENDED THAT THE DIRE CTORS ALONG WITH SOME SENIOR EMPLOYEES OF THE ASSESSEE CO MPANY VISITED ABROAD FOR COMMERCIAL CONSIDERATION/BUSINES S PURPOSES FOR WHICH THE BILL AND VOUCHERS RELATING T O SUCH FOREIGN TRAVELLING WERE DULY FILED. ON THE OTHER HA ND, MS. N. HEMALATHA, LD. DR, DEFENDED THE ADDITION BY CONTEND ING THAT THE PURPOSE OF FOREIGN VISIT WAS NEVER EXPLAIN ED BY THE ASSESSEE AND SOME OF THE EMPLOYEES OF THE ASSESSEE FIRM ITA NOS.535/MUM/2018 VAAYA RENEWABLE ENERGY (PURNA) PVT. LTD. 3 OTHER THAN THE DIRECTORS ALSO VISITED ABROAD. THERE FORE, THE DISALLOWANCE WAS RIGHTLY MADE. 2.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS , IN BRIEF, ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF DEVELOPMENT OF NEW TECHNOLOGY/NEW MACHINERY IN THE FIELD OF RENEWABLE ENERGY. THE ASSESSEE COMPANY IS ONE OF THE GROUP COMPANIES OF M/S ENERCON INDIA LTD. (NOW KNOW N AS M/S WIND WORLD (I) LTD.). THE ASSESSEE DECLARED TOT AL INCOME OF RS.27,63,430/- IN ITS RETURN FILED ON 26/09/2012. VIDE NOTICE DATED 13/01/2015, THE ASSES SEE WAS ASKED TO FILE THE DETAILS OF FOREIGN TRAVEL EXP ENSES AND ITS JUSTIFICATION. IN RESPONSE, THE ASSESSEE FILED THE LEDGER ACCOUNT OF FOREIGN TRAVEL EXPENSES, COPIES OF BILLS /VOUCHERS AND DESCRIPTION OF EXPENSES. AS PER THE REVENUE, TH OUGH THE NAME OF THE PERSON WHO TRAVELLED, PERIOD OF TRA VELLING, NAME AND DESIGNATION BUT THE PURPOSE OF TOUR WAS NO T PROVIDED AND THUS DISALLOWANCE @ 25% OUT OF THE TOT AL EXPENDITURE WAS MADE, RESULTING INTO ADDITION OF RS.6,48,810/-. THE MATTER WAS CARRIED IN APPEAL BE FORE THE LD. COMMISSIONER OF INCOME TAX (APPEAL), WHEREIN, T HE AD- ITA NOS.535/MUM/2018 VAAYA RENEWABLE ENERGY (PURNA) PVT. LTD. 4 HOC DISALLOWANCE SO MADE WAS AFFIRMED. THE ASSESSEE IS IN FURTHER APPEAL BEFORE THIS TRIBUNAL. 2.2. IF THE OBSERVATION MADE IN THE ASSESSMENT ORD ER, LEADING TO ADDITION MADE TO THE TOTAL INCOME, CONCL USION DRAWN IN THE IMPUGNED ORDER, MATERIAL AVAILABLE ON RECORD, ASSERTIONS MADE BY THE LD. RESPECTIVE COUNSEL, IF K EPT IN JUXTAPOSITION AND ANALYZED, WE NOTE THAT THE LD. AS SESSING OFFICER MADE AD-HOC DISALLOWANCE OF 25% OF THE FOREIGN TRAVEL EXPENSES ON THE PLEA THAT THE ASSESSEE COULD NOT EXPLAIN THAT THE EXPENSES WERE INCURRED FOR BUSINES S PROMOTION. IT IS A FACT THAT EVEN THE LD. ASSESSIN G OFFICER HAS NOT DISPUTED THE GENUINENESS OF THE EXPENDITURE AND CONTESTED THAT THE EXPENSES WERE NOT INCURRED WHOLL Y AND EXCLUSIVELY FOR BUSINESS PURPOSES. IT IS ALSO A FAC T THAT THE LD. ASSESSING OFFICER HIMSELF ALLOWED 75% OF THE TO TAL EXPENDITURE ON TRAVELLING. ONE OF THE REASON FOR SU CH AD- HOC DISALLOWANCE IS THAT THE PURPOSE OF THE TRIP WAS EXPLAINED AND FURTHER SHRIKUMAR AND RAJESH KHANNA, EMPLOYEES OF WIND WORLD GROUP OF COMPANIES WERE ASSIGNED THE RESPONSIBILITY OF PROMOTION OF NEW TEC HNOLOGY. IT IS ALSO NOT IN DISPUTE THAT BOTH THESE PERSONS A RE ITA NOS.535/MUM/2018 VAAYA RENEWABLE ENERGY (PURNA) PVT. LTD. 5 EMPLOYEES OF THE ASSESSEE COMPANY AND VISITED ABROA D. WE FIND FORCE IN THE ARGUMENT OF THE LD. COUNSEL FOR T HE ASSESSEE THAT ALL THESE PERSONS VISITED ABROAD FOR PROMOTION OF NEW TECHNOLOGY AND UNDERTOOK FOREIGN TRAVELLING. SHRI YOGESH MEHRA AND SHRI SIDDHARTH ME HRA ARE THE MAIN PERSONS OF THE ASSESSEE GROUP AND THE AFOREMENTIONED EMPLOYEE ACCOMPANIED THEM FOR THE PURPOSES OF PROMOTION OF NEW TECHNOLOGY. NO WISE BUSINESSMAN WILL WAIST HIS HARD EARNED MONEY ON FOR EIGN TRIP WITHOUT ANY BASIS. IT IS NOTED THAT RIGHT FROM ASSESSMENT STAGE AND TILL THE STAGE OF THE TRIBUNAL , THE ASSESSEE HAD CLAIMED THAT THE EXPENSES OF FOREIGN TRAVELLING WERE INCURRED FOR THE PROMOTION OF NEW TECHNOLOGY. IN THE ASSESSMENT ORDER, IT IS NOWHERE POINTED OUT THAT THE EMPLOYEES WENT ABROAD FOR PLEASURE TRI P. IT IS ALWAYS NOT NECESSARY THAT ONLY THE SENIOR EXECUTIVE S ARE ONLY PERMITTED AND IF SOME TECHNICAL PERSONS ALSO ACCOMPANIES THEM SUCH EXPENSES CANNOT BE DENIED/DISALLOWED MERELY ON PRESUMPTIVE BASIS. 2.3. IF THE ISSUE IS ANALYZED UNDER THE RELEVANT PROVISIONS OF THE ACT, SECTION 37(1) OF THE ACT SPEAKS ITA NOS.535/MUM/2018 VAAYA RENEWABLE ENERGY (PURNA) PVT. LTD. 6 ABOUT ANY EXPENDITURE (NOT BEING EXPENDITURE IN THE SECTION 30 TO 36) AND NOT BEING IN THE NATURE O F CAPITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASSESSEE BUT LAID OUT OR EXPANDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. ITS OUR BOUNDED DUTY TO ANALYZE THE CLAIM OF DEDUCTION U/S 57 R.W.S 37(1) OF THE ACT. 2.4. NOW, QUESTION ARISES, WHETHER THE PAYMENT OF FOREIGN TRAVELLING EXPENSES IS AN ALLOWABLE DEDUCTI ON? THE OBVIOUS REPLY IS YES. SECTION 57 OF THE ACT SPEA KS ABOUT INCOME CHARGEABLE UNDER THE HEAD INCOME FROM OTHER SOURCES, WHICH SHALL BE COMPUTED AFTER MAKING THE DEDUCTIONS MENTIONED THEREIN. THE SECTION IS REPR ODUCED HEREUNDER FOR READY REFERENCE:- 57. THE INCOME CHARGEABLE UNDER THE HEAD 'INCOME FROM O THER SOURCES' SHALL BE COMPUTED AFTER MAKING THE FOLLOWI NG DEDUCTIONS, NAMELY : ( I ) IN THE CASE OF DIVIDENDS, OTHER THAN DIVIDENDS RE FERRED TO IN SECTION 115-O, OR INTEREST ON SECURITIES, ANY RE ASONABLE SUM PAID BY WAY OF COMMISSION OR REMUNERATION TO A BANK ER OR ANY OTHER PERSON FOR THE PURPOSE OF REALISING SUCH DIVI DEND OR INTEREST ON BEHALF OF THE ASSESSEE ; ( IA ) IN THE CASE OF INCOME OF THE NATURE REFERRED TO I N SUB-CLAUSE ( X ) OF CLAUSE ( 24 ) OF SECTION 2 WHICH IS CHARGEABLE TO INCOME-TAX ITA NOS.535/MUM/2018 VAAYA RENEWABLE ENERGY (PURNA) PVT. LTD. 7 UNDER THE HEAD 'INCOME FROM OTHER SOURCES', DEDUCTI ONS, SO FAR AS MAY BE, IN ACCORDANCE WITH THE PROVISIONS OF CLA USE ( VA ) OF SUB-SECTION (1) OF SECTION 36 ; ( II ) IN THE CASE OF INCOME OF THE NATURE REFERRED TO I N CLAUSES ( II ) AND ( III ) OF SUB-SECTION (2) OF SECTION 56, DEDUCTIONS, SO FAR AS MAY BE, IN ACCORDANCE WITH THE PROVISIONS OF SUB-CLAUSE ( II ) OF CLAUSE ( A ) AND CLAUSE ( C ) OF SECTION 30, SECTION 31 AND SUB- SECTIONS (1) AND (2) OF SECTION 32 AND SUBJECT TO T HE PROVISIONS OF SECTION 38 ; ( IIA ) IN THE CASE OF INCOME IN THE NATURE OF FAMILY PEN SION, A DEDUCTION OF A SUM EQUAL TO THIRTY-THREE AND ONE-TH IRD PER CENT OF SUCH INCOME OR FIFTEEN THOUSAND RUPEES, WHICHEVE R IS LESS. EXPLANATION. FOR THE PURPOSES OF THIS CLAUSE, 'FAMILY PENSION' MEANS A REGULAR MONTHLY AMOUNT PAYABLE BY THE EMPLO YER TO A PERSON BELONGING TO THE FAMILY OF AN EMPLOYEE IN TH E EVENT OF HIS DEATH ; ( III ) ANY OTHER EXPENDITURE (NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE) LAID OUT OR EXPENDED WHOLLY AND EXCLUS IVELY FOR THE PURPOSEOF MAKING OR EARNING SUCH INCOME; ( IV ) IN THE CASE OF INCOME OF THE NATURE REFERRED TO I N CLAUSE ( VIII ) OF SUB-SECTION (2) OF SECTION 56, A DEDUCTION OF A SUM EQUAL TO FIFTY PER CENT OF SUCH INCOME AND NO DEDUCTION SHAL L BE ALLOWED UNDER ANY OTHER CLAUSE OF THIS SECTION . 2.5. IF THE PROVISION OF THE ACT, WHICH IS CORRESPONDING TO THE SECTION 12(2) OF 1922 ACT, USE D IN THIS CONTEXT, THE EXPRESSION INCURRED SOLELY FOR THE PU RPOSES OF MAKING OR EARNING SUCH INCOME, THE USE OF EXPRESSI ON LAID OUT OR EXPANDED WHOLLY AND EXCLUSIVELY IN SEC TION 57(III) OF THE 1961 ACT IS TO SECURE UNIFORMITY WIT H THE LANGUAGE OF SECTION 37(1) OF THE 1961 ACT. AT THE S AME TIME, THE EXPRESSION, FOR THE PURPOSES OF BUSINESS OR PR OFESSION HAS A WIDER IMPLICATION THEN THE EXPRESSION FOR TH E ITA NOS.535/MUM/2018 VAAYA RENEWABLE ENERGY (PURNA) PVT. LTD. 8 PURPOSES OF MAKING OR EARNING INCOME USED IN SECTI ON 57(III) OF THE ACT. THE PURPOSE CONTEMPLATED BY SEC TION 57(III) IS MORE SPECIFIC IN CHARACTER. SO FAR AS, REASONABLENESS OF THE EXPENDITURE ENVISAGED BY SECT ION 57(III) DEPENDS UPON THE FACTS OF PARTICULAR CASE. THE HON'BLE COURT IN CIT VS NEW SAVAN SUGAR AND GOOD REFINING CO. LTD. (1990) 185 ITR 564, 571 (CAL.) HE LD THAT IT IS FOR THE TRIBUNAL TO DECIDE WHETHER THE EXPENDITU RE IS WHOLLY INCURRED FOR THE PURPOSE OF KEEPING THE ASSE SSEE COMPANY IN OPERATION AND EARNING INCOME IN AS MUCH AS THE CONCEPT WHOLLY PERTAINS TO QUANTUM OF THE MON EY EXPENDED. THE HON'BLE COURT FURTHER OBSERVED EVEN IF A PARTICULAR EXPENDITURE IS UN-REMUNERATIVE, SUCH EXPENDITURE IS NONETHELESS A PROPER DEDUCTION, IF S UCH EXPENDITURE IS MADE WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF EARNING SUCH INCOME. 2.6. IF THE ISSUE IS ANALYZED IN THE LIGHT OF SECT ION 37(1) OF THE ACT, BROADLY SPEAKING, WHERE TRAVELLIN G EXPENSES ARE INCURRED FOR PURPOSES OF BUSINESS, IT MUST BE CONSIDERED AS REVENUE EXPENDITURE. THIS PROPOSITION IS SUPPORTED BY HON'BLE APEX COURT IN DALMIA JAIN & CO . LTD. ITA NOS.535/MUM/2018 VAAYA RENEWABLE ENERGY (PURNA) PVT. LTD. 9 VS CIT (1971) 81 ITR 754 (SC) AND MEENAKSHI MILLS L TD. VS CIT (1967) 63 ITR 207 (SC). TO BE MORE PRECISE, TH E TYPE OF EXPENSES, OBJECT OR PURPOSE OF THE EXPENSES HAS TO BE ASCERTAINED FROM THE FACTS OF EACH CASE. IF THE OBJ ECT OR PURPOSE IS TO ENHANCE, THE EXISTING BUSINESS, THE EXPENDITURE WOULD BE OF REVENUE IN NATURE. THE RATI O LAID DOWN IN FOLLOWING CASES SUPPORTS OUR VIEW:- A) CIT V. BENGAL ASSAM INVESTORS LTD., (1969) 72 ITR 319 , 325 (CAL); B) CIT V. LIFE INSURANCE CORPORATION OF INDIA, (1966) 6 2 ITR 827 (CAL); C) PREMIER CONSTRUCTION CO. LTD. V. CIT, (1966) 62 ITR 1 76 (BOM); D) LIBERTY CINEMA V. CIT, (1964) 52 ITR 153, 167 (CAL) ; TRANSPORT CO. PR. LTD. V. CIT, (1962) 46 ITR E) 1009, 1016 (MAD); TRANSPORT CO. LTD. V. CIT, (1957) 3 1 ITR 259, 266-7 (MAD); F) G. VEERAPPA PILLAI V. CIT, (1955) 28 ITR 636 (MAD); G) CIT V. RAMAN & RAMAN LTD.,(1951) 19 ITR 558, 569-70 (MAD). ALSO SEE, LACHMINARAYAN MODI V. CIT, (1955) 28 ITR 322 (ORISSA); H) J. B. ADVANI & CO. LTD. V. CIT, (1950) 18 ITR 557 (B OM); I) MAHABIR PRASAD & SONS V. CIT, (1945) 13 ITR 340 (LA H); J) CENTRAL INDIA SPINNING, WEAVING & MANUFACTURING CO. LTD. V. CIT, (1943) 11 ITR 266 (NAG); K) CIT V. MAHARAJADHIRAJA SIR KAMESHWAR SINGH (1942) 1 0 ITR 214 (PC) L) SOUTHERN V. BORAX CONSOLIDATED LTD. (1942) 10 ITR (SU P) 1 (KB) ITA NOS.535/MUM/2018 VAAYA RENEWABLE ENERGY (PURNA) PVT. LTD. 10 M) ASSOCIATED PORTLAND CEMENT MANUFACTURERS LTD. V. KERR, (1946) 27 TAX CAS 103, 118 (CA) N) EBRAHIM ABOOBAKER V CIT (1971) 81 ITR 664 (BOM.) 2.7. IT IS TO BE SEEN WHETHER THE EXPENDITURE WAS BONAFIDELY INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS [SEE, CIT V. BIRLA COTTON SPNG. & W VG. MILLS LTD., (1971) 82 ITR 166 (SC); CIT V. DHANRAJGIRJI R AJA NARSINGIRJI, (1973) 91 ITR 544, 549 (SC)]. 2.8. SO FAR AS, ISSUE OF QUANTUM OF THE EXPENDITUR E TO BE INCURRED IS CONCERNED, WE ARE OF THE VIEW, IT IS FOR THE ASSESSEE TO DECIDE HOW BEST TO PROTECT HIS OWN INTE REST. IT IS NOT OPEN TO THE DEPARTMENT TO PRESCRIBE WHAT EXPEND ITURE AN ASSESSEE SHOULD INCUR AND IN WHAT CIRCUMSTANCES HE SHOULD INCUR THAT EXPENDITURE. THE RATIO LAID DOWN IN CIT V. DHANRAJGIRJI RAJA NARSINGIRJI, (1973) 91 ITR 544 (SC) SUPPORTS OUR VIEW. IN THAT CASE HIS LORDSHIP OBSERV ED: IT IS TRUE THAT IN SOME OF THE CASES THIS COURT HA S HELD THAT AN EXPENDITURE INCURRED BY AN ACCUSED ASSESSEE TO DEFEND HIMSELF AGAINST A CRIMINAL CHARGE DID NOT FA LL WITHIN THE SCOPE OF SECTION 1O(2)(XV)*. THOSE DECIS IONS WERE RENDERED ON THE FACTS OF THOSE CASES. THAT IS NOT THE POSITION IN THIS CASE.' ITA NOS.535/MUM/2018 VAAYA RENEWABLE ENERGY (PURNA) PVT. LTD. 11 IF THE EXPENDITURE IS INCURRED FOR BUSINESS PURPOS ES HAVING NEXUS WITH THE PROFIT AND PROMOTION OF THE BUSINESS, THEN IT IS AN ALLOWABLE DEDUCTION. WE FI ND SUPPORT FROM THE DECISION IN SAHARANPUR ELECTRIC S UPPLY CO. LTD. V. CIT, (1971) 82 ITR 405 (ALL). SIMILARLY, EXPENDITURE INCURRED BY A FIRM CARRYING ON EXPORT A ND IMPORT BUSINESS IN DEFENDING ONE OF ITS PARTNERS FO R HAVING ACQUIRED FOREIGN EXCHANGE AND NOT FULLY UTILISING I T FOR IMPORT WERE HELD NOT ALLOWABLE ALTHOUGH THE PARTNER WAS ULTIMATELY ACQUITTED [CIT V. CHAMAN LAL & BRA .(197 0) 77 ITR 383 (DELHI)]. THIS CASE WAS, HOWEVER, DISTINGUI SHED IN CIT V. AHMEDABAD CONTROLLED IRON & STEEL ASSN. PR. LTD., (1975) 99 ITR 567 (GUJ), WHERE EXPENSES INCURRED BY COMPANY IN DEFENDING ITS MANAGING DIRECTOR WERE HEL D ALLOWABLE. IN ORDER TO SO CLAIM SUCH EXPENDITURE TH E ASSESSEE HAS NOT ONLY TO PROVE THAT THE EXPENDITURE WAS INCIDENTAL TO THE BUSINESS BUT ALSO TO SHOW THAT TH E EXPENDITURE WAS LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS [INDERM ANI JATIA V. CIT, (1951) 19 ITR 342 (ALL) ON APPEAL, SEE, (19 59) 35 ITR 298 (SC)]. ITA NOS.535/MUM/2018 VAAYA RENEWABLE ENERGY (PURNA) PVT. LTD. 12 2.9. ASSESSEE DEFENDING AN EMPLOYEE, ETC.-WHEN AN EMPLOYEE IS PROSECUTED IN RESPECT OF TRANSACTION IN THE COURSE OF HIS EMPLOYMENT, EXPENDITURE INCURRED IN O R ABOUT HIS DEFENCE IS INCURRED FOR THE PROTECTION OF THE G OOD NAME OF THE BUSINESS AND IS AN ALLOWABLE BUSINESS EXPEND ITURE [ J.B. ADVANI & CO. LTD. V. CIT & EPT, (1950) 18 ITR 557 (BOM) CONSIDERED IN CIT V. H. HIRJEE, (1953) 23 ITR 427 (SC), WHERE THE CORRECTNESS OF ITS ULTIMATE DECISIO N WAS NOT DOUBTED; J.N. SINGH & CO. PR. LTD. V. CIT. (1966) 6 0 ITR 732 (PUNJ)]. 2.10. TO SUM OF THE ISSUE WE FIND THAT HON'BLE JUS TICE P.D. DESAI, IN SMT. VIRMATI RAMKRISHNA VS CIT (1981 ) 131 ITR 659, 672-73(GUJ.), HAS ANALYZED THE STATUTORY L ANGUAGE AND LAID DOWN VARIOUS PRINCIPLES, IN VARIOUS DECIDE D CASES AND MADE FOLLOWING PROPOSITIONS. (I) IN ORDER TO DECIDE WHETHER AN EXPENDITURE IS A PERMISSIBLE DEDUCTION UNDER SECTION 57(III), THE NATURE OF THE EXPENDITURE MUST BE EXAMINED; (II) THE EXPENDITURE MUST NOT BE IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASSESSEE; ITA NOS.535/MUM/2018 VAAYA RENEWABLE ENERGY (PURNA) PVT. LTD. 13 (III) THE EXPENDITURE MUST HAVE BEEN LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING 'INCOME FROM OTHER SOURCES'; (IV) THE PURPOSE OF MAKING OR EARNING SUCH INCOME MUST BE THE SOLE PURPOSE FOR WHICH THE EXPENDITURE MUST HAVE BEEN INCURRED, THAT IS TO SAY, THE EXPENDITURE SHOULD NOT HAVE BEEN INCURRED FOR SUCH PURPOSE AS ALSO FOR ANOTHER PURPOSE OR FOR A MIXED PURPOSE; V) THE DISTINCTION BETWEEN PURPOSE AND MOTIVE MUST ALWAYS BE BORNE IN MIND IN THIS CONNECTION, FOR, WHAT IS RELEVANT IS THE MANIFEST AND IMMEDIATE PURPOSE AND NOT THE MOTIVE OR PERSONAL CONSIDERATIONS WEIGHING IN THE MIND OF THE ASSESSEE IN INCURRING THE EXPENDITURE; (VI) IF THE ASSESSEE HAS NO OPTION EXCEPT TO INCUR THE EXPENDITURE IN ORDER TO MAKE THE EARNING OF THE INCOME POSSIBLE, SUCH AS WHEN HE HAS TO INCUR LEGAL EXPENSE FOR PRESERVING AND MAINTAINING THE SOURCE OF INCOME, THEN, UNDOUBTEDLY, SUCH EXPENDITURE WOULD BE AN ALLOWABLE DEDUCTION; HOWEVER, WHERE THE ASSESSEE HAS AN OPTION AND THE OPTION WHICH HE EXERCISES HAS NO CONNECTION WITH THE MAKING OR EARNING OF THE INCOME AND THE OPTION DEPENDS UPON PERSONAL CONSIDERATIONS OR MOTIVES OF THE ASSESSEE, THE EXPENDITURE INCURRED IN CONSEQUENCE OF THE EXERCISE OF SUCH OPTION CANNOT BE TREATED AS AN ALLOWABLE DEDUCTION; (VII) IT IS NOT NECESSARY, HOWEVER, THAT THE EXPENDITURE INCURRED MUST HAVE BEEN OBLIGATORY; IT IS ENOUGH TO SHOW THAT THE MONEY WAS EXPENDED NOT OF NECESSITY AND WITH A VIEW TO AN IMMEDIATE BENEFIT TO THE ASSESSEE BUT VOLUNTARILY AND ON THE GROUND OF COMMERCIAL EXPEDIENCY AND IN ORDER ITA NOS.535/MUM/2018 VAAYA RENEWABLE ENERGY (PURNA) PVT. LTD. 14 INDIRECTLY TO FACILITATE THE MAKING OR EARNING OF T HE INCOME; (VIII) IF, THEREFORE, IT IS FOUND ON APPLICATION OF THE PRINCIPLES OF ORDINARY COMMERCIAL TRADING THAT THER E IS SOME CONNECTION, DIRECT OR INDIRECT, BUT NOT REM OTE, BETWEEN THE EXPENDITURE INCURRED AND THE INCOME EARNED, THE EXPENDITURE MUST BE TREATED AS AN ALLOWABLE DEDUCTION; (IX) IT WOULD NOT, HOWEVER, SUFFICE TO ESTABLISH ME RELY THAT THE EXPENDITURE WAS INCURRED IN ORDER INDIRECT LY TO FACILITATE THE CARRYING ON OF THE ACTIVITY WHICH IS THE SOURCE OF THE INCOME; THE NEXUS MUST NECESSARIL Y BE BETWEEN THE EXPENDITURE INCURRED AND THE INCOME EARNED; (X) IT IS NOT NECESSARY TO SHOW THAT THE EXPENDITUR E WAS A PROFITABLE ONE OR THAT IN FACT INCOME WAS EARNED; (XI) THE TEST IS NOT WHETHER THE ASSESSEE BENEFITED THEREBY OR WHETHER IT WAS A PRUDENT EXPENDITURE WHICH RESULTED IN ULTIMATE GAIN TO THE ASSESSEE BUT WHETHER IT WAS INCURRED LEGITIMATELY AND BONA FIDE FOR MAKING OR EARNING THE INCOME; (XII) THE QUESTION WHETHER THE EXPENDITURE WAS LAID OUT OR EXPENDED FOR MAKING OR EARNING THE INCOME MUST BE DECIDED ON THE FACTS OF EACH CASE, THE FINA L CONCLUSION BEING ONE OF LAW'. IN THE AFORESAID PROPOSITIONS (VI) IT HAS BEEN CLEA RLY HELD/OBSERVED THAT INCURRING OF EXPENSES FOR PRESER VING AND MAINTAINING OF SOURCE OF INCOME WOULD BE ALLOWA BLE DEDUCTION. ITA NOS.535/MUM/2018 VAAYA RENEWABLE ENERGY (PURNA) PVT. LTD. 15 2.11. LIKEWISE, HON'BLE APEX COURT IN SREE MEENAKS HI MILLS LTD. V. CIT, (1967) 63 ITR 207 (SC), WHERE EX PENSES WERE INCURRED IN FILING A SUIT FOR OBTAINING AN ORD ER RESTRAINING SEIZURE OF GOODS DELIVERED IN CONTRAVEN TION OF THE CONTROL ORDER WERE HELD ALLOWABLE DEDUCTION. IT FOLLOWS FROM THIS DECISION THAT: (I) LITIGATION EXPENSES TO SECURE AN ORDER FROM THE COURT FOR ENABLING AN ASSESSEE TO CARRY ON ITS BUSINESS WITHOUT INTERFERENCE IS AN ALLOWABLE DEDUCTION; (II) EXPENDITURE INCURRED TO RESIST, IN A CIVIL PROCEEDING, THE ENFORCEMENT OF A MEASURE, LEGISLATIVE OR EXECUTIVE, WHICH IMPOSES RESTRICTIONS ON THE CARRIAGE OF A BUSINESS OR TO OBTAIN A DECLARATION THAT THE MEASURE WAS INVALID, WOULD, IF OTHER CONDITIONS ARE SATISFIED, BE ADMISSIBLE AS DEDUCTION; AND (III) THE DEDUCTIBILITY OF EXPENDITURE INCURRED IN PROSECUTING A CIVIL PROCEEDING DEPENDS UPON THE NATURE AND PURPOSE OF THE CIVIL PROCEEDING IN RELATION TO ASSESSEE'S BUSINESS AND CANNOT BE AFFECTED BY THE FINAL OUTCOME OF THAT BUSINESS. ITA NOS.535/MUM/2018 VAAYA RENEWABLE ENERGY (PURNA) PVT. LTD. 16 2.12. IN THE CASE OF CIT VS GANNON DUNKARLAY AND C O. PVT. LTD. (2000) 243 ITR 646 (MAD.), CIT VS ADMINIS TRATOR GENERAL OF MADRAS (1998) 234 ITR 351 (MAD.), CIT VS PATIALA FLOUR MILLS CO. LTD. (1989) 180 ITR 75 (P & H), HINDUSTAN MILK FOOD MANUFACTURING LTD. 179 ITR 302 (P & H), PALANI SIR MURGUN TEXTILES LTD. VS ACIT (2002) 254 ITR 333 (MAD.) DECIDED THE ISSUE IN FAVOUR OF THE ASSES SEE. IN THE CASE OF GANNON DUNKARLAY AND CO. PVT. LTD., THE HON'BLE MADRAS HIGH COURT, WHERE THE EXPENDITURE WA S INCURRED BY THE OFFICIAL LIQUIDATOR TO MAINTAIN THE INFRASTRUCTURE OF THE COMPANY HELD THAT THE EXPENDI TURE WAS DEDUCTIBLE U/S 57(III), AS IT WOULD NOT HAVE BE EN POSSIBLE TO EARN THE INTEREST INCOME WITHOUT INCURR ING SUCH EXPENDITURE. IN THE LIGHT OF THE FOREGOING DISCUSSI ON, RATIO LAID DOWN BY VARIOUS HON'BLE HIGH COURTS/HON'BLE AP EX COURT AND THE FACTS AVAILABLE ON RECORD, IT CAN BE CONCLUDED THAT THE WORD WHOLLY REFERS THE QUANTUM OF EXPEND ITURE AND THE WORD EXCLUSIVELY REFERS TO THE MOTIVE, OB JECTIVE AND THE PURPOSE OF THE EXPENDITURE AND GIVES JURISD ICTION TO THE TAX AUTHORITIES TO EXAMINE THE MATTER. THE T EST LAID DOWN BY THEIR LORDSHIP OF THE HON'BLE APEX COURT IN STATE ITA NOS.535/MUM/2018 VAAYA RENEWABLE ENERGY (PURNA) PVT. LTD. 17 OF MADRAS VS G.J. COELHO (1964) 53 ITR 186 IS THAT THE EXPENDITURE MADE UNDER A TRANSACTION, WHICH IS SO C LOSELY RELATED TO BUSINESS THAT IT COULD BE VIEWED AS AN I NTEGRAL PART OF CONDUCT OF BUSINESS, MAY BE REGARDED AS REV ENUE EXPENDITURE LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS. IDENTICAL RATIO WAS LAID DOWN IN BOMBAY STEAM NAVIGATION COMPANY VS CIT (1965) 56 IT R 52, 61 (SUPREME COURT), CIT VS DELHI SAFE DEPOSIT COMPANY LTD.(133 ITR 756)(SUPREME COURT), CIT VS RAJARAM BANDEKAR (208 ITR 503)(BOM.) AND B.K. KHANN A & COMPANY PVT. LTD. (247 ITR 705)(DEL.). THERE ARE C ERTAIN DECISION, WHERE THE HON'BLE COURT EVEN WENT TO THE EXTENT, WHERE THE EXPENDITURE, IN THE COURSE OF TRADE, WHIC H IS UN- REMUNERATIVE IS NONE THE LESS A PROPER DEDUCTION IF WHOLLY AND EXCLUSIVELY MADE FOR THE PURPOSES OF TRADE. OUR VIEW FIND SUPPORT FROM THE DECISION IN MAYSORE SPINNING AND MFG. COMPANY LTD. VS CIT (1966) 61 ITR 572 (BOM.), VELIMALAI RUBBER COMPANY LTD. VS INCOME TAX OFFICER 188 ITR 262 (MAD.), CALVARY MOUNT ESTATE PVT. LTD. 41 I TR 755 (SUPREME COURT). CONSIDERING THE TOTALITY OF FACTS, THE EXPENSES INCURRED BY THE ASSESSEE ON FOREIGN TRAVEL LING FOR ITA NOS.535/MUM/2018 VAAYA RENEWABLE ENERGY (PURNA) PVT. LTD. 18 PROMOTION OF BUSINESS IS AN ALLOWABLE DEDUCTION, TH US, THE APPEAL OF THE ASSESSEE IS ALLOWED. FINALLY, THE APPEAL OF THE ASSESSEE IS ALLOWED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES AT THE CONCLUSION OF THE HEARING ON 03/05/2018. SD/- (G. MANJUNATHA) SD/- (JOGINDER SINGH) '# / ACCOUNTANT MEMBER $# / JUDICIAL MEMBER # $ MUMBAI; + DATED : 03/05/2018 F{X~{T? P.S/. . . , %$&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. ,-./ / THE APPELLANT 2. 01./ / THE RESPONDENT. 3. 2 2 # 3! , ( ,- ) / THE CIT, MUMBAI. 4. 2 2 # 3! / CIT(A)- , MUMBAI 5. 5'6 0! , 2 ,-& , , # $ / DR, ITAT, MUMBAI 6. 7 8$ / GUARD FILE. / BY ORDER, / (DY./ASSTT. REGISTRAR) , # $ / ITAT, MUMBAI