Section 40A(2)(b) of the Income Tax Act

When there is a nexus between an expenditure and the purpose of business, incurred on grounds of commercial expediency, the Revenue cannot question its reasonableness or assume the role of the businessman to compel profit maximization. This principle applies even if the business is not that of the assessee itself.

Disallowance under Section 14A of the Income-tax Act cannot exceed the exempt income earned during the relevant period. If no exempt income is earned by the assessee in the relevant year, no disallowance under Section 14A is warranted.

Business expenditure should not be disallowed merely because it incidentally or indirectly benefits a third party or sister concern, provided the expenditure is commercially expedient from the assessee's perspective.

The discount arising from the grant of Employee Stock Option Plans (ESOPs) is an allowable business expenditure under Section 37(1) of the Income-tax Act, 1961, as it is an ascertained liability, not a contingent one, and constitutes a revenue expense rather than a capital expense.

The necessity and reasonableness of business expenditure, including the utilization of borrowed funds, must be judged from the perspective of a businessman based on commercial expediency, and cannot be dictated by revenue authorities. The onus is on the assessee to demonstrate the business purpose and commercial expediency.

Expenses incurred for obtaining a loan for the purpose of the assessee's business, such as debenture discount, bank guarantee charges, and stamp duty, are considered revenue expenditure. These liabilities, though potentially spread over time, are deductible as revenue expenses.

The provisions of Section 2(22)(e) are not applicable to a concern receiving a payment from a closely held company, even if a shareholder of the company holds a substantial interest in that concern, unless the concern itself is the registered shareholder of the company.

Interest on borrowed capital utilized for acquiring a capital asset is capitalized until business commences. Once business is set up, this interest is deductible under section 36(1)(iii) even if the asset has not yet been put to use, accepting commercial accounting standards in the absence of contrary statutory provisions.

The onus lies on the assessee to demonstrate that interest-bearing funds were advanced or utilized for genuine business purposes and commercial expediency to claim interest expenditure as a deduction.

The revenue cannot question the commercial expediency or wisdom of an expenditure incurred by a businessman, as the businessman is the best judge of their own business interests. The department's role is limited to verifying if the expenditure was genuinely incurred and was wholly and exclusively for business purposes.