08 July 2011
a. State with reasons whether the following expenses are admissible as deduction while computing “Profits and Gains from Business or Profession.” i. Travelling expenses of Rs.20000 incurred by a director on a tour to USA in connection with negotiation of purchase of new Machinery ii. Interest paid to Bank Rs.15000 in connection with overdraft obtained for paying dividend. iii. Rs.20000 were spent in the previous in connection with statutory income tax proceedings. iv. An expenditure of Rs.20000 incurred towards cost of neon signs fixed on office premises for advertising the products of the assessee.
08 July 2011
Any expenditure incurred wholly and exclusively for the purposes of business is allowed as deduction unless the same is restriced by any specific provision of the Act. Thus expenditure mentioned in point 1 and point 4 are allowable as deduction. Any legal expenditure for Income Tax proceedings is allowable as deduction as any other legal and professional expenses. From your query it is not clear whether you are talking about any prior period expense which will not be allowed in current year if the same has not been crystalised in the current year. As far as interest on overdraft for payment of dividend is concerned, in my opinion the same should be allowed as the overdraft has been resorted to manage the cash flow of the company and certainly not incurred for earning any exempt income.
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