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Income Tax Appellate Tribunal, DELHI ‘D’ BENCH,
Before: SHRI BHAVNESH SAINI, & SHRI T.S. KAPOOR,
PER T. S. KAPOOR, ACCOUNTANT MEMBER,
This is an appeal filed by the Revenue against the order of Ld.
CIT(A)-10, dated 30/11/2015. The grounds of appeal taken by the Revenue are reproduced below:-
1. “On the facts and circumstances of the case the Ld. CIT(A) has erred in deleting the addition of Rs.6,66,30,684/- on account of project expenses merely on the submissions of the assessee and not appreciating that business expenses is only allowable as per Income Tax Act when it is incurred wholly and exclusively for the purpose of business. Expenses incurred for the charitable purposes can be termed as noble nut they cannot be allowed to be deducted while computing taxable income.”
At the outset, the Ld. AR invited out attention to the fact that the Hon’ble Tribunal in the case of assessee itself during AY 2008-09 and 2009-10 had allowed relief to the assessee and in this respect our attention was invited to copy of the Tribunal order dated 26/07/2016 placed at paper book page 17 to 32. It was further submitted that the appeal filed by the Revenue against the order of the Hon’ble Tribunal has been dismissed by Hon’ble Delhi High Court and our attention was invited to paper book page 5 to 16 where copy of order of the Hon’ble Delhi High Court was placed. The Ld. AR further invited our attention to paper book page 33 to 36 where the order of the Tribunal for AY 2010-11 in the case of assessee was placed and wherein, the Hon’ble Tribunal following the earlier orders in the case of assessee had dismissed the appeal of the Revenue.
3. The Ld. DR fairly agreed that the issue was covered in favour of the assessee but she placed reliance on the orders of the Assessing Officer.
4. We have heard rival parties and have gone through the material placed on record. We find that the ground of appeal taken by the Revenue in AY 2010-11 is similar to the ground of appeal taken in the present case. For the sake of completeness, grounds of appeal taken by the Revenue in AY 2010-11 as reproduced by the Hon’ble Tribunal in its order dated 06/09/2017 is reproduced below:-
1. On the facts and circumstances of the case the Ld. CIT(A) has erred in deleting the addition of Rs.4,28,22,481/- on account of project expenses merely on the submission of the assessee without appreciating that business expenses is only allowable as per Income Tax Act when it is incurred wholly and exclusively for the purpose of business. Expenses incurred for the charitable purposes can be termed as noble but they cannot be allowed to be deducted while computing taxable income.
The Hon’ble Tribunal has followed the earlier order of the Tribunal for AY 2008-09 and 2009-10 which had dismissed the appeals of the Revenue by holding as under:-
“2. We have heard the arguments advanced by the parties in view of the orders of the authorities below and materials available on record. In the captioned appeal, there is only one issue regarding admissibility of project expenses – whether capital or revenue in nature. The ld. Assessing Officer disallowed the expenditure observing as under : “The case of assessee can be examined on these lines. There is no business expediency in the expenditure. The assessee has incurred the project expenses in implementing various schemes for social upliftment of farmers and weaker section of society. The expenditure is intact in the nature of donation but not covered U/s 80G of the Incometax Act, 1961. Accordingly, it is an item to be considered below the line and is not an admissible deduction since not laid out wholly and exclusively for the purpose of business. In the earlier years i.e. A.Y. 2008-09 & 2009-10, this issue was examined in details and after detailed discussion in both A.Y.s, the claim of assessee in respect of project expenses was not treated as revenue expenditure and same was disallowed u/s 37( 1) of the Income Tax Act, 1961. The Ld. CIT Appeal has deleted the addition made on account of treating project expenses as capital expenses in A. Y.2008-09 & 2009-10. The department has already filed appeal before the Hon'ble ITAT in both the A. Ys., and decision on the appeals filed are still pending.
In view of the above facts and circumstances, I hold that the project expenses of Rs. 4,28,22,481/- does not fulfill the condition of section 37(1) and cannot be treated as Revenue Expenditure. The expenses should be claimed by assessee below the line and should not be charged to P&L A/c. Accordingly, the expenses of Rs. 4,28,22,481/- is disallowed and will be added in the income of assessee U/s 37(1) of the Income-tax Act, 1961.”
It is, however, seen that in the appeals of the Revenue filed before the ITAT for A. Yrs. 2008-09 and 2009-10, the Tribunal in & 4796/Del./2012 has decided the issue in the identical facts and circumstances, as under : 7. Having gone through the orders of the authorities below, we find that following note (assessment year 2008-09) was filed before the authorities below on the objectives and project of the society to establish its contention by the assessee that the purpose was not to earn profit but to help the ruler poor: "Nature of' Project Expenses Debited in Profit & Loss account: IFFDC has debited Project Expenses of Rs.3 ,18,74,470.70 (Rupees Three Crore Eighteen Lakhs Seventy Four Thousands Four Hundred Seventy and Seventy Paise only) which are purely of Revenue nature. During 2007-08 IFFDS has implemented several projects in different states with the Financial support from IFFCO, State Govts. ICAR, RUDA, etc. The major activities includes Farming System Development - distribution of seed, agriculture implements, Vegetable Cultivation seed distribution, sapling distribution, green shed net etc., Training on different crafts like Handicraft Bamboo craft stitching, meenakari, pottery etc., watershed Development - soil and water conservation activities pond deepening, construction of Stop-dam etc., Liver stock Development distribution of improved breed of goat and poultry, vaccination camps etc. Training and capacity building of community, self help group development, Micro- enterprises development etc. All these activities were conducted to improve the livelihoods of the rural community, upliftment of backward/poor people in tribal/rural areas at different locations in various States. These activities were implemented in consultation with community and community is using these for further use and up- scaling. The IFFDC has been receiving grants/reimbursement of expenses from various institutions including Government Organizations to implement their programs. The assessee society (IFFDC) is also finished. The beneficiaries in large numbers enjoy the fruits of projects/programmes of the funding agency. The assessee society (IFFDC) is neither the project funding agency nor the beneficiary of project's benefits 'executed by them. To Project Expenses represents the amount spent by the assessee society against the grant received from various institutions or reimbursement of expenses made on behalf of the funding agencies. The grant received by IFFDC against the project expenses is also credited as income. Thus, the assessee society (IFFDC) has no basis to capitalize the project expenses of Revenue nature in their hooks.”
7.1 Considering the above submissions, the Learned CIT(Appeals) has given following findings in the assessment year 2008-09:
"5. I have carefully considered the above submissions and have gone through the annual report and details of various projects undertaken by IFFDC Ltd. To state a few examples, the Society has carried out afforestation of waste lands in Uttar Pradesh, Rajasthan and Madhya Pradesh, constructed anicuts, check dams and irrigation ponds for recharging ground water and enabling agriculture in seven states, provided technology intervention for agriculture and capital husbandry, established primary livelihood cooperatives, and rehabilitated marginalized and ostracized communities such as the Kanjar tribe. The Society received the Times of India Social Impact Awards for the reasons that, ''through watershed development, crop improvement methods, afforestation etc, IFFDC has had a substantial impact on livelihoods in Rajasthan, UP and MP. Its equitable and general focus participated approaches are estimated to have benefited 3.8 lac people ”. lt is evident that the appellant, which represents fertilizer company IFFCO's Corporate Social Responsibility Wing, has its primary purpose of working with rural communities and enabling them to manage their land and resources through self help groups. The Assessing Officer has mistakenly considered the purpose of the business to be the trading of fertilizers, to which all expenditure must be directed. Moreover, I am in agreement with the appellant's contention that the assets created, namely forests on waste land, check dams, ponds, etc. become the property of the villages, managed through village communities, and the appellant society only provides expertise and funding. Hence, I am unable to uphold the findings of the Assessing Officer that the expenditure had not been incurred wholly and exclusively for the purpose of the business, and that alternatively it was capital in nature. The net project expenditure of Rs.3,18,74,074 is held to have been incurred solely for the furtherance of the enterprise. The appellant, therefore, succeeds at ground of appeal No.2. 7.2 On above consideration, we find that the Assessing Officer has treated the claimed expenditure as capital in nature keeping in mind that the purpose of business of the assessee society is trading of fertilizers, which is not correct rather the assets created namely forest on waste land, check dams ponds etc. became the property of the villages managed through village community and the assessee society only provided expertise and funding to them. Considering material aspects of the case, we are of the view that the Ld. CIT(Appeals) has rightly hold that the Assessing Officer was not correct in holding that expenditure were not incurred wholly and exclusively for the purpose of the business and that alternatively it was capital in nature. We thus do not find infirmity in the first appellate order on the issue also because in earlier assessment years 2004-05 to 2007-08 when assessments were framed under sec.
143(3) of the Act similar expenditure have been accepted. Similar are the facts of the case in the assessment year 2009-10. The finding of the Ld. CIT( Appeals) is thus upheld. The ground No. 1 of the appeals is accordingly rejected.”
In view of the above, we find that the issue under consideration is squarely covered in favour of the assessee by the aforesaid decision of ITAT as reproduced above. Therefore, respectfully following the decision of coordinate bench, we find no merits in the appeal of the Revenue and accordingly, the same is liable to be dismissed.
In the result, the appeal of the Revenue is dismissed.”
We further find that for AY 2008-09 and 2009-10, the Hon’ble Delhi High Court has dismissed the appeals filed by the Revenue vide order dated 31/10/2018. The relevant findings of the Hon’ble Court are reproduced below:-
13 In the facts of the present case, the object and purpose of the respondent-assessee is to engage and work' for social and economic upliftment of the rural poor, construct water reservoirs etc. It is established for this purpose and receives grants and donations from third parties with the said objective and purpose. M/s Indian Farmers Fertilizer Cooperative Ltd. had sold and supplied fertilizer that was marketed/sold by the respondent- assessee to earn profit/income, because the respondent-assessee was engaged in social and economic development activities. Association and business relationship with M/s Indian Farmers Fertilizer Cooperative Ltd. was predicated and connected on the respondent-assessee performing and undertaking the social-welfare economic activities. Grants received from government and foreign agencies were to be utilized for the specific purpose i.e. the object and purpose of social and economic upliftment etc. If the respondent assessee was not engaged in and had not undertaken the aforesaid activities, it would not have received the grants and would not have undertaken sale and marketing of fertilizers. The respondent-assessee was therefore required to incur the said expenditure, in order to run, operate and continue its business.
We perceive that there is a degree of contradiction in the plea raised by the Revenue, when they claim that the respondent-assessee was not engaged in ‘business’ or the expenditure incurred was not on Account of business expediency. Income earned by the respondent-assessee has been treated and taxed under the head profits and gains of business and profession. In the given facts, it would be incongruous for the Revenue to urge that the purpose and goal behind the activities undertaken by the respondent- assessee was not commercial but charity as the intent and motive behind them was not to earn profit. The expenditure incurred to carry out social and economic development would in this background constitute a 'business' or 'commercial' activity undertaken by the respondent- assessee. It would be a contradiction in terms, if we hold that the expenditure would be non-deductible expenditure or expenditure without business expediency. Under section 37 of the Act it does not matter whether or not the expenditure was in the nature of donation or Section 80G of the Act was not attracted. The conditions stated in Section 37 of the Act matter and constitute the test. Expenditure incurred in furtherance of and connected with the business and commercial activities for which the respondent- assessee was established cannot be disallowed as expenditure not relatable and incurred for 'business' purposes.
On the question of capital expenditure, the assessing officer did not refer to or examine whether the capital assets created were for third party villagers. The respondent- assessee was not the owner of the assets created and developed. The assets created were not capital assets in the hands of the respondent-assessee. The respondent-assessee had contributed, developed, financed aid created assets which belonged to third persons. The expenditure incurred therefore would not be ‘capital’ in nature in the hands of the respondent assessee.
Accordingly, the appeal filed by the Revenue has no merit and is dismissed, without any order as to costs.”
In view of the above facts and circumstances and in view of the judicial precedents, the appeal filed by the Revenue is dismissed.
The order is pronounced in the open court on 08/08/2019.