“Section 16(1)”
The decision most relied on for Section 16(1) is Hero Cycles Pvt. Ltd. v. CIT (379 ITR 347), cited in 361 judgments on BharatTax.
Leading authorities on Section 16(1)
The Revenue cannot substitute its judgment for that of a businessman regarding the necessity or reasonableness of an expenditure. If an expense is incurred wholly and exclusively for business purposes, it is deductible, and the Revenue cannot question its commercial expediency.
The Supreme Court holds that for income tax purposes, the term 'income' includes 'loss,' allowing for the set-off of a spouse's or minor child's business losses when their income is clubbed with the assessee. This decision emphasizes interpreting tax statutes, especially benevolent provisions, by considering the legislative scheme over a strict literal construction.
The Supreme Court in Pranay Sethi laid down the principles for determining 'future prospects' to be added to the income of a deceased person for calculating compensation under the Motor Vehicles Act. It also clarified principles of judicial discipline, including the binding nature of coordinate bench decisions and how to resolve conflicting Supreme Court judgments.
A charitable trust can claim depreciation on assets when computing the income applied for charitable or religious purposes under Section 11 of the Income Tax Act, for assessment years prior to the introduction of Section 11(6). The restriction on claiming depreciation, as introduced by Section 11(6), is prospective from AY 2015-16.
Courts generally defer to legislative wisdom in economic and tax statutes, upholding classifications and differential treatment when there is a rational basis and they are not arbitrary, as seen in the justification for provisions like Section 115BBDA.
Amounts claimed on account of employees' contributions to Provident Fund (PF) and Employees' State Insurance (ESI), if deposited on or before the due date for filing the income-tax return, cannot be disallowed under Section 43B or Section 36(1)(va) of the Income Tax Act.
An ad hoc disallowance of business expenditure is impermissible merely because a third party incidentally benefits from it. Expenditure genuinely incurred for business purposes, based on commercial expediency, cannot be disallowed on such grounds.
The revenue authorities cannot exclude comparable companies from the final list if the Assessing Officer (AO)/Transfer Pricing Officer (TPO) had not rejected them, even if the revenue representative believes they do not pass the comparability test.
