Allowability of Business Expenditure and case laws

Any expense that is laid out or spent wholly and exclusively for business or professional purposes (and not of the kind described in sections 30 to 36, nor of the kind that constitutes capital spending or personal expenses of the assessee) is allowed in calculating the income charged under the head "Profits and gains of business or profession."

For the purpose of clearing up any confusion, it is hereby declared that any expenses incurred by a taxpayer for any purpose that is illegal or illegal under the law will not be considered to have been incurred for the requirement of business or profession, and no deduction or allowance will be made in relation to such expenses.

Get your NGO registered under section 80g of income tax act.

No allowance shall be allowed for expenses spent by an assessee for advertising in any memento, booklet, tract, pamphlet, or similar document produced by a political party, despite the provisions of the preceding sub-section.

The purpose of this provision is to allow the assessee to deduct business expenses that are not covered by sections 30 to 36. As a result, this part functions as a generic, all-purpose section for deducting expenses. You can get benefits under the 80g exemption.

Now, the following factors must be present in order to claim a deduction under this section:-

  (a) The cost shouldn't be classified as a capital expense.

  (b) The costs shouldn't be paid by any of sections 30 to 36 headings.

  (c) The expense must be made for commercial purposes or while conducting business.

  (d) The money should not be used for personal expenses.

  (e) The expense should not be rejected in accordance with this section's second sub-section.

  (f) The money spent shouldn't be used for any unlawful activity or to break the law.

Only the latter part of the list, incidents involving spending for illicit purposes or in violation of any local laws, is covered in this article, and they do so from the standpoint of the assessee.

There were several cases where decisions were made on a case-by-case basis about the allowability of expenditures, whether they were lawful or not. The Supreme Court affirmed in Mahalakshmi Sugar Mills Co. Ltd. v. CIT (123 ITR 429) and CIT v. Hyderabad Allwyn Metal Works Ltd. (172 ITR 113 SC) that when an amount paid by the assessee could be considered to be compensatory (reparatory) in character, it would be allowed. This principle seems to have existed even in the pre-amendment era. Everyone shall gain knowledge on 80g limit.