Meaning of “Any expenditure”

The meaning of any expenditure under section 37(1) of the Income Tax Act is not defined in the act itself. But we can take guidance from decisions by various high courts. Here are excerpts of courts orders in which the Hon’ble Income Tax Appellate Tribunal tried to explain the meaning of any expenditure.

Meaning of any expenditure defined by court

The phrase ‘any expenditure‘ used in section 37(1) of the Income Tax Act came up before hon’ble ITAT- Rajkot in ITO vs. Rajesh A. Boricha [2013] 38 taxmann.Com 435 (Rajkot – Trib.) and it explained.

Meaning : The use of phrase ‘any expenditure’ in section 37 is wide and comprehensive enough to include all forms of expenditure irrespective of whether they are direct or indirect expenditure. It is, thus, clear that the term ‘any expenditure’ used in section 37 is wide enough to include all outlays, charges, costs, prices which are laid out or expended wholly and exclusively for the purposes of business irrespective of whether it is in the nature of direct or indirect expenditure/costs.

There are no words in section 37 from which it can be inferred that the provisions of section 37 are intended to cover indirect costs/expenditure alone. Since section 37 specially deals with ‘any expenditure’, the general provisions of section 28 would not apply to those expenses which are specially covered by section 37.

Section 37(1) of the Income Tax Act

General.

37.(1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head “Profits and gains of business or profession”.

Explanation 1.—For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure.

Explanation 2.—For the removal of doubts, it is hereby declared that for the purposes of sub-section (1), any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 (18 of 2013) shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession.

86[Explanation 3.—For the removal of doubts, it is hereby clarified that the expression “expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law” under Explanation 1, shall include and shall be deemed to have always included the expenditure incurred by an assessee,—

(i) for any purpose which is an offence under, or which is prohibited by, any law for the time being in force, in India or outside India; or

(ii) to provide any benefit or perquisite, in whatever form, to a person, whether or not carrying on a business or exercising a profession, and acceptance of such benefit or perquisite by such person is in violation of any law or rule or regulation or guideline, as the case may be, for the time being in force, governing the conduct of such person; or

(iii) to compound an offence under any law for the time being in force, in India or outside India.]

(2) [***]

(2B) Notwithstanding anything contained in sub-section (1), no allowance shall be made in respect of expenditure incurred by an assessee on advertisement in any souvenir, brochure, tract, pamphlet or the like published by a political party.

(3) [***]

(3A) [***]

(3B) [***]

(3C) [***]

(3D) [***]

(4) [***]

(5) [***]

In this article, you can get guidance from high courts on the meaning of any expenditure under section 37(1) of the Income Tax Act.

Updated up to Finance Act 2021