TaxTMI 
TaxTMI 
2001 (1) TMI 7
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....ureshi, appearing for the Revenue. The circumstances in which the question referred to hereinabove has arisen, in a nutshell, are as under: The assessee, Gujarat Agro Oil Enterprises Ltd., is a subsidiary of Gujarat Agro Industries Corporation Ltd. The assessee-company was appointed by the State of Gujarat as its agent for procurement, storage and distribution of edible oil. There was an allegation that the assessee-company, its officers and one of its directors, Shri Narbheshanker N. Panesari, had indulged in some irregularities or illegalities in the matter of purchase of groundnuts, groundnut seeds, groundnut oil, etc. In the circumstances, the State of Gujarat had appointed a one-man commission of Justice J.M. Sheth under its notification dated December 16, 1976, to make an inquiry and to ascertain whether Shri Panesari, one of the directors of the company, who was also one of the members of a committee which was functioning for the assessee-company, had exceeded his powers and whether the officers of the assessee-company had deliberately connived at the actions of Shri Panesari and whether as a result of such actions, the Government was put to loss. The Commission had al....
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.... Commissioner of Income-tax (Appeals) was of the view that simply because the allegations levelled against the assessee-company, its officers and its director pertained to transactions which had taken place in the past, they could not have been disallowed especially in view of the fact that the advocate was paid fees during the relevant assessment year and as the assessee-company had incurred the expenditure for protecting its reputation, the said expenditure was allowable as business expenditure. Being aggrieved by the order passed by the Commissioner of Income-tax (Appeals), the respondent filed an appeal before the Tribunal. After hearing the concerned parties, the Tribunal allowed the appeal by observing that the expenditure was not incurred for the purpose of business. According to the Tribunal, it was not necessary for the assessee-company to engage an advocate especially when the Commission had access to the entire record of the assessee-company, which was a subsidiary company of a Government corporation. The Tribunal was also of the view that the assessee-company, which was a Government company, should not have incurred expenditure to protect its employees especially whe....
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....ny. It has been further submitted by him that if any expenditure is incurred for the purpose of protection of assets or goodwill of the company, the expenditure so incurred cannot be said to be capital expenditure. According to him, the expenditure was of revenue nature and the Revenue ought to have allowed the same. It has been submitted by the learned advocate appearing for the assessee-company that normally the Revenue should leave it to the assessee whether the assessee should incur a particular type of expenditure for the purpose of protection of its business or reputation. It is always for the businessman to use his prudence in the matter of incurring expenditure and it would not be just and proper on the part of the Revenue to decide whether the expenditure incurred was just or unjust. So as to substantiate the submissions made by him, he has relied upon the judgments delivered in the following cases: Ishwari Khetan Sugar Mills (P.) Ltd. v. CIT [1972] 86 ITR 635 (All); CIT v. H. Hirjee [1953] 23 ITR 427 (SC); CIT v. Navsari Cotton and Silk Mills Ltd. [1982] 135 ITR 546 (Guj); CIT v. Dhanrajgirji Raja Narasingirji [1973] 91 ITR 544 (SC) CIT v. Ahmedaba....
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....if the expenditure is such that it is incurred in connection with some activity or transaction which is directly and substantially connected with the running of the business of the assessee and if it pertains to the business itself, it should be considered as business expenditure. In all such cases it must be shown that the expenditure was laid out wholly and exclusively for the business. It is not in dispute that the officers and the director of the assessee company, against whom allegations had been levelled, had also engaged their advocates to represent their respective cases before the Commission. As the allegations were levelled Against the officers and the director, they were very much interested to see that their cases were represented effectively and they were not held guilty of the charges levelled against them. In view of the said fact, one might think that it was not necessary for the assessee-company to engage its own advocate. The function of the assessee-company was only to render necessary assistance to the Commission. The Tribunal has observed that some of the officers could have rendered assistance to the Commission by placing on record relevant material which w....
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....en adversely affected. Moreover, for the purpose of protecting its reputation and its straight forward officers, the assessee had to engage an advocate to assist the Commission. Though it is not very much relevant, it is worth noting that ultimately it was found by the Commission that the officers and the concerned director had acted in good faith. It was thus finally found that the assessee-company was not having dishonest or unscrupulous officers and the dealings of the assessee-company were just and proper. Had there been any stricture or adverse remarks against the officers or the director of the assessee-company, in the eyes of the public at large the assessee-company would have been treated as an unscrupulous business unit of the State of Gujarat. In our opinion, looking to the facts of the case, the assessee-company was justified in engaging an advocate. The purpose of the assessee-company was not likely to be served by mere production of required record before the Commission. The Commission was also required to be properly assisted by putting several relevant facts before the Commission in its proper perspective so that upon appreciation of all the relevant facts and cir....