Commercial expediency test protects bona fide business lease expenses; imprudence-based disallowance not sustained, rentals allowed.

Application of the commercial expediency test: expenditures for leasing three unused dozers were held to be assessable from the businessman's viewpoint and not subject to substitution by tax authorities; reasonableness is measured by bona fide business judgment. The leases were not challenged for genuineness or as related party transactions, and no diversion of funds was alleged. Consequently, an assessing officer's disallowance grounded solely on alleged imprudence was held unsustainable and the lease rentals are allowable as business expenditure for the assessee.

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Issues: Whether the Assessing Officer could disallow lease rentals paid for three unused dozers on the ground that hiring four dozers when only one was used was an imprudent business decision.

Analysis: The issue requires application of the commercial expediency test governing deductions for business expenditure. The Court applied established precedent that reasonableness must be judged from the viewpoint of the businessman and that tax authorities cannot substitute their commercial judgment for that of the assessee where the expenditure is bonafide, relates to the business, and there is no allegation of diversion of funds or lack of genuineness. The Court noted that the leasing transactions were not challenged as non-genuine or between related parties and that the decision regarding the number of dozers to hire fell within the assessee's commercial discretion. Authorities cited establish that the department may not prescribe what expenditure the assessee should incur or the circumstances in which it should be incurred.

Conclusion: The Assessing Officer's disallowance on the ground of imprudence is not sustainable; the lease rentals for the three dozers are allowable as business expenditure in favour of the assessee.

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