TPO cannot decide whether expenses incurred by assessee were necessary or not for business: ITAT

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TPO cannot decide whether expenses incurred by assessee were necessary or not for business: ITAT

Case Details: DCIT v. Rabo India Finance Ltd. - [2021] 127 826 (Mumbai - Trib.)

Judiciary and Counsel Details

  • Vikas Awasthy | Judicial Member & N.K. Pradhan | Accountant Member
  • A. Mohan for the Appellant.
  • Percy Pardiwala and Nitesh Joshi for the Respondent.

Facts of the Case

Assessee was a Non-banking Finance Company (NBFC) engaged in providing loans and investment activities in India. During the assessment, interest paid on ECB, payment of guarantee fee, and services fee, had been disallowed by TPO on the ground that assessee had not been able to establish the need for services and benefit derived from said services.

Assessee filed an appeal before the CIT(A) wherein the additions made in the draft assessment order on account of guarantee fee, service fee, and interest on ECB were deleted. Aggrieved from the order of CIT(A), revenue filed the instant appeal before the Mumbai Tribunal.


The Mumbai Tribunal held that the assessee had borrowed funds from Rabobank Hong Kong to finance its working capital requirements. The interest paid to Rabobank Hong Kong on ECB had been reflected in the books. The tax had been duly deducted by the assessee on the payment of interest. Similarly, in respect of guarantee fee and service fee, the assessee had been able to substantiate that the payments were made for the purpose of assessee’s business.

The TPO couldn’t sit in the judgment whether these expenses were necessary for conducting the business or whether any benefit had been derived from the expenditure so incurred. The law required that the expenditure should have been incurred ‘wholly and exclusively’ for the purpose of business. This condition was duly satisfied in the assessee’s case. Thus, additions were rightly deleted by the CIT(A).

Cases Referred To

  • A.S. Sivan Pillai v. CIT [1958] 34 ITR 328 (Mad.) (para 7.3)
  • CIT v. Lever India Exports Ltd. [2017] 78 88/246 Taxman 133 (Bom.) (para 14)
  • CIT v. EKL Appliances Ltd. [2012] 24 199/209 Taxman 200/345 ITR 241 (Delhi) (para 14)

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