“proximate nexus”

The Assessing Officer must establish a proximate nexus between the expenditure to be disallowed and the investments made. The Assessing Officer must record satisfaction before making disallowance under Section 14A and must not proceed on mere suspicion.

Corporate club membership fees, including admission and subscription fees, incurred wholly and exclusively for business purposes to improve business relations and prospects, are allowable as revenue expenditure. This principle applies when there is a proximate nexus between the expenditure and the business.

Interest expenditure under Section 36(1)(iii) is deductible for borrowed funds invested for business purposes, even if the investment does not immediately generate income, provided there is a proximate nexus to the assessee's business.

A business loss is deductible if it has a direct and proximate nexus with business operations or is incidental to them, applying a commercial standard, even without an explicit statutory provision for its deduction.

A loss is deductible as a business loss only if it arises during the course of or is incidental to business operations, requiring a direct and proximate nexus with the business. If profits from an activity are taxable, losses from it are deductible.

The Assessing Officer must establish a proximate nexus between the expenditure and the investments before invoking Section 14A(2) and Rule 8D for disallowance. Failure to do so renders the invocation illegal and the addition liable for deletion.

An indirect connection between expenditure and income can be sufficient to establish the required nexus for deductibility under Section 57(iii). The connection need not be direct.

Expenditure must be solely for promoting business to qualify for deduction under Section 37. The assessee bears the burden to prove expenses were incurred wholly and exclusively for business purposes.