2007 (5) TMI 230

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....T was right in law in holding that the assessee corporation was entitled to the deduction of the sum of Rs.207428/- for the assessment year 1977-78?" 2. The facts are not in dispute. The assessee is a corporation which is registered as a company under the Companies Act,1956 and is known as Punjab State Industrial Development Corporation (for brevity 'the Corporation'). The Corporation entered into an agreement with M/s Oswal Woolen Mills Ltd. (for brevity 'the company') for profitable implementation and operation of steel billets project and purposes incidental/ancillary there to. It is appropriate to mention that the Corporation had received from the Government of India a licence for carrying on business for the manufacture of 50000 ton....

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....ment year 1974-75 which constituted brought forward amount of Rs. 7,00,000/- and fresh loans of Rs. 8,98,000/-. The assessee received interest for the afore-mentioned three assessment years amounting to Rs. 64,724/-, Rs. 34,136 and Rs. 1,08,567/-. The amount of interest was assessed in the hands of the assessee in the respective assessment years by way of interest received on loans and advances. However, the assessee had to refund this sum of Rs. 2,07,428/- on account of the instructions issued by the Industrial Financial Corporation (IFCI) to the effect that All India Financial Institutions, as a matter of policy, did now allow the promoters to charge interest on the amount that may be advanced by them to the companies promoted by them for....

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....iness. Such expenditure may be incurred voluntarily and without any necessity and if it is incurred for promoting the business and to earn profits the assessee can claim deduction even though there was no compelling necessity to incur such expenditure. The Allahabad High Court in the case of CIT v. J. K. Bankers, [1979] 120 ITR 924, observed that an assessee who agreed to a reduction of its rate of commission with retrospective effect in order to continue the business relationship in terms of a subsequent agreement acted for the reasons of commercial expediency. In the case of the assessee on the facts and circumstances of the case it is clear that the amount to be refunded was on commercial expediency. Since the books of accounts of the as....