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December 2009

Substantial question of law — While allowing the deduction of expenditure, nature of such expenditure is required to be examined — Question of nature of expenses is a substantial question of law.

By Kishor Karia, Chartered Accountant
Atul Jasani, Advocate
Reading Time 1 mins

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  1. Substantial question of law —
    While allowing the deduction of expenditure, nature of such expenditure is
    required to be examined — Question of nature of expenses is a substantial
    question of law.

[CIT v. Oswal Agro Mills
Ltd., (2009) 313 ITR 24 (SC)]

The Supreme Court observed
that in this case, the substantial question of law which arose before the High
Court u/s.260A was as follows :

“Whether the assessee is
entitled to deduction of Rs.1,16,89,327 incurred as ‘issue management
expenses’ ?”

On reading the judgments of
the Tribunal and the High Court, the Supreme Court found that the assessee had
succeeded only on the basis of ‘rule of consistency’. According to the Supreme
Court, the High Court should have examined the nature of the
said expenses, namely, ‘issue management expenses’. The Supreme Court was of
the view that substantial question of law did arise for determination.

Consequently, the Supreme
Court set aside the impugned judgment of the High Court and remitted the
matter to the High Court for fresh consideration in accordance with law.

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