***
***
ALLOW ABILITY OF EXPENDITURE (SECTION 37)
1. Conditions for allow ability of expenditure:
- There should be an expenditure of revenue nature incurred during the previous year.
- The expenditure should not be Capital in nature.
- It should be incurred in connection with business or profession carried on by the assessee.
- It should have been expended wholly and exclusively for the purpose of such business or profession.
- The expenditure should not be in the nature as prescribed u/s 30 to 36.
- It should not be in the nature of personal expenditure.
- It should not be incurred for any purpose, which is an offence or in contravention of any provision of law.
2. General principles for claiming expenditure u/s 37
- Motive to earn profit is not essential.
- Giving direct benefit is not essential.
- Purpose and concern shall be verified.
- Allowed even if third party is benefited.
- Prudence is a basic principle of accounting.
- Commercial feasibility related to business.
3. Advertisement expenditure u/s 37(2B): No allowance is available in respect of expenditure incurred by an assessee on advertisement in any brochure, tract, pamphlet or the like published by a political party. Other remaining expenses on advertisement are deductible according to the provisions.
4. A few instances of expenditure allowed u/s 37:
- Recurring expenses incurred on imparting basic training to apprentices.
- Expenses incurred on the occasion of diwali and mahurat.
- Initial expenditure on the first installation of fluorescent tube lights is treated as capital expenditure and all subsequent expenditure for replacement of tubes is treated as revenue expenditure.
- Loss through embezzlement by an employee.
- Professional Tax paid by a person carrying on business or trade.
- Rebate or bonus passed on by the consumer co-operative stores to their members on the value of the purchases made by them during a year.
- All expenditure on maintenance of a tea garden including expenditure on the maintenance of an area that has not reached maturity.
- Deposit made under “own your telephone” scheme.
- Annual listing fee paid to the Stock Exchange.
- Expenses incurred on civil defense measures as specified by the board, even when there is no emergency.
- Litigation expenses for defending monopoly rights.
- Litigation expenses incurred in restraining another company from using assessee’s trade mark.
- Brokerage paid for raising loan to finance business.
- Stamp and registration charges for the purpose of entering into agreement for obtaining overdraft facilities.
- Amount spent towards stamps, registration fees, lawyer’s fees etc for obtaining loan or raising money by issue of debentures (not shares).
