TAC RESOURCES (I) PVT LTD.,CHENNAI vs. ACIT, CHENNAI

आदेश / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER:

There is a delay of 20 days in filing these two appeals by 2. the assessee. At the time of hearing the ld.Counsel has filed an affidavit explaining the reasons for delay and the ld. DR has no serious objection for condonation of delay. After hearing the submissions, we are satisfied with reasonable cause for filing the appeal belatedly.

Therefore the delay is condoned and appeals are admitted.

The Brief facts of the case are that assessee company is in 3. the business of running a training center for construction and metal work and filing return of income regularly with Income Tax Department. The Accounts are Audited under Companies Act, 1956 and u/sec 44AB of Income Tax Act, 1961 for the assessment year 2006-2007 and 2007-2008. The return of income for assessment year 2006-2007 was filed on 03.11.2006 and processed u/s.143(1) of the Act on 09.07.2007. Subsequently the case was selected for scrutiny under CASS and assessment was completed u/sec 143(3) on 19.12.2008. The Assessing Officer on presumption of income has escaped the assessment has issued notice u/sec. 148 of the Act and called for information’s from time to time and assessee company filed the details of activities, objects, training works, conducted under the licence from Government of India and furnished Letter No. DGET 19/5/97-TC, dated 8th February, 2000 from Government of India, & 978/Mds/2014. :- 3 -:

Directorate General of Employment and Training, Ministry of labour, New Delhi for conducting training to the students. The ld. Authorised Representative explained that the company conducts training for unskilled construction work for the students for a period between 45 to 60 days. For imparting training, the assessee procure materials for different projects and upon successful completion of training programme students are issued certificates. But the condition prescribed by the Government was that no fees shall be charged from the trainees either directly or indirectly for imparting training. In assessment proceedings, ld. Assessing Officer raised objection regarding claim of expenditure while the ld. Authorized Representative submitted that the assessee collects fees only for food and accommodation reflected in the profit and loss account because of stipulated condition of the Government that the assessee should not collect fees for training. The ld. Assessing Officer considered the information and verified the books of accounts and rejected the expenditure claimed in profit and loss account. On the ground of matching concept of income and expenditure, the ld. Assessing Officer further emphasized that such expenditure incurred is not wholly and exclusively for the business and there is no nexus between business and expenditure claimed. The assessee company has substantiated its claim by furnishing Annual report alongwith Profit and Loss account, & 978/Mds/2014. :- 4 -:

Balance sheet, Audit Report and other annexures and following going concept Accounting policy from the earlier assessment years. The ld. Assessing Officer has verified the ledger copies, bills and vouchers.

Satisfied with the genuineness of expenditure but under assumption unilaterally concluded that the assessee has failed to prove the matching concept of income and expenditure also nexus between business and expenditure and disallowed the expenditure

(i) Consumables MF trade �18,15,647/- (ii) Consumables SRF Trade �11,69,650/- (iii) 50% of employees remuneration �.6,84,234/- And benefits. ------------------ �36,69,531/- ------------------ and completed assessment and passed order u/sec. 143(3) r.w.s. 147 of the Act dated 21.11.2011. Similarly, for the assessment year 2007- 2008, the assessee company filed return of income on 15.11.2007 and subsequently notice u/sec. 143(2) was issued. The ld. Authorised Representative furnished books of accounts, ledger copies and also explanations made as in earlier assessment year 2006-2007. But the Assessing Officer applying the same ratio of earlier assessment year has disallowed the expenditure

(i) Consumables MF Trade �30,18,287/- (ii) Consumables SRF Trade �29,78,011/- (iii) Salary �6,93,520/- (iv) Bonus �1,33,550/- ------------------ �68,23,368/- ------------------- & 978/Mds/2014. :- 5 -: and passed the order u/sec. 143(3) of the Act dated 11.12.2009.

Aggrieved by the orderS of the Assessing Officer assessee filed appeals before Commissioner of Income Tax (Appeals), Chennai for both assessment years and raised/ grounds on addition.

In the appellate proceedings, the ld. Authorised 4.

Representative of the assessee argued and filed written submissions with observations on each disallowance and relied on Apex Court decision Sree Meenakshi Mills Ltd vs. CIT 63 ITR 207 (SC) and also produced letter from Ministry of Labour, New Delhi which has stipulated the conditions for non-charging of fees. The assessee company explained the situation for collecting receipts from the students referred at para 8.5 of CIT(A) order:-

‘’Moreover, it is not that the appellant is running a boarding and lodging facilities and that fees are collected only for the same. The students who stay with the appellant have come for training purposes only and the payment of fees by them is all inclusive towards training, staying and lodging. The fact that the appellant is providing training in construction work is the only reason for the students to stay in the appellant’s premises and not for merely using it for lodging facilities’’ The Commissioner of Income Tax (Appeals) not considered the submissions, Audit report, Audited accounts and also Accounting standards applied by the assessee relied only on the letter of the Government and overlooked factors of business expediency and such expenditure has been incurred to provide employment opportunities to the students and upheld the action of the Assessing Officer by & 978/Mds/2014. :- 6 -: dismissing the Appeals. Aggrieved, by the common order of the Commissioner of Income Tax (Appeals), the assessee filed appeals before the Tribunal by raising grounds on such disallowance for both the assessment years.

Before the Tribunal, the ld. Counsel argued that the 5. company was incorporated for conducting business in India and the activities are as per the Objects of Memorandum of Association, which are legal and also comply with the Accounting principles and Accounting polices of the ICAI. The Assessing Officer erred in disallowing the expenditure after having satisfied with the genuiness of claim on verification of vouchers and ledger accounts and assessee company complied with the directions of Government of India for training students in construction works and such disallowance by Assessing Officer is on suspicion, surmises and non compliance of provisions of Sec. 37(1) of the Act. Further, the ld. CIT(A) has confirmed the order of the Assessing Officer by relying on the findings of the Assessing Officer.

On the other hand, the ld. Departmental Representative 6. relied on the orders of the lower authorities and vehemently argued for dismissal of the appeals. & 978/Mds/2014. :- 7 -:

‘’ ‘’business’’ includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture’’ . Any business income or expenditure has to be dealt under chapter IV- computation of business income. On interpretation of section 37 and section 2(13) of the Act, the expenditure shall be Revenue in nature and expended wholly and exclusively for the purposes of business. & 978/Mds/2014. :- 8 -:

The assessee company in business has been following the system of Accounting from its incorporation and is accepted by Revenue. The company is formed with profit earning motive and to provide employment and pay statutory taxes to the Government. The main object of the assessee company is to provide training for unskilled construction work for the students which is a social responsibility and at the same time the assessee is collecting nominal fees for food and accommodation charges. The commercial expediency test can be proved in situation were a sum of money expended, with a view to get direct or indirect benefit to the trade and to facilitate the carrying on the business. In the present case, the Assessing Officer is biased on matching concept principles and wrongly interpreted that expenditure is not incurred out of business income without considering the commercial expediency and indirect benefit to the company and society. The company is benefited with receipts from students and also by Ministry of Labour, Government of India. We rely on the principles for test of scope of business expenditure wholly and exclusively for the purpose of business as held in the Supreme Court case ‘’Eastern Investments Ltd vs. CIT (1951) 20 ITR 1 (SC)’’, where the following principles were laid down:-

(a) ‘’Though the question must be decided on the facts of each case, the final conclusion is one of law:

& 978/Mds/2014. :- 9 -:

(b) It is not necessary to show that the expenditure was a profitable one or that in fact any profit was earned; (c) It is enough to show that the money was expended ‘’not of necessity and with a view to a direct and immediate benefit to the trade, but voluntarily and on the ground of commercial expediency, and in order indirectly to facilitate the carrying on of the business’’.’ (d) Beyond that no hard and fast rule can be laid down to explain what is meant by the word ‘solely’, occurring in the pre-1939 law’’. The test was considered by the Supreme Court in State of Madras vs.

G.J. Coelho (1964) (53 ITR 186) were ‘’expenditure made under a transaction which is so closely related to the business that it could be viewed as an integral part of the conduct of the business, may be regarded as revenue expenditure laid out wholly and exclusively for the purposes of the business’’. The assessee has not violated any law and expenditure has been incurred for running business. The test of commercial expediency is a criteria for allowability and expenditure incurred wholly and exclusively laid out for the purpose of the business. The reasonableness of the expenditure has to be judged from the point of view of the business and not of Revenue and such point of view should be prudent and reasonable which is free from an apparent taint of excessiveness, collusiveness or colourable discretion and always the nature of expenditure has to be judged in the light of commercial practice and trading principles. The Apex Court has held in CIT vs. Malayalam Plantations Ltd (1964) 53 ITR 140(SC) that the & 978/Mds/2014. :- 10 -: expression ‘’ for the purpose of the business’’ is wider in scope than the expression ‘’ for the purpose of earning profits’’ as observed at page 150 as under:-

The aforesaid discussion leads to the following result: The expression "for the purpose of earning business" is wider in scope than the expression "for the purpose of earning profits". Its range is wide: it may take in not only the day to day running of a business but also the rationalization of its administration and modernization of its machinery; it may include measures for the preservation of the business and for the protection of its assets and property from expropriation, coercive process or assertion of hostile title; it may also comprehend payment of statutory dues and taxes imposed as a pre-condition to commence or for carrying on of a business; it may comprehend many other acts incidental to the carrying on of a business. However wide the meaning of the expression may be, its limits are implicit in it. The purpose shall be for the purpose of the business, that is to say, the expenditure incurred shall be for the carrying on of the business and the assessee shall incur it in his capacity as a person carrying on the business. It cannot include sums spent by the assessee as agent of a third party, whether the origin of the agency is voluntary or statutory; in that event, he pays the amount on behalf of another and for a purpose unconnected with the business’’. We find it is apparent from the facts of the case, and principles of law, the expenditure incurred by the assessee company is genuine and has indirect benefit to the company for future business and satisfying commercial expediency. The ld. Commissioner of Income Tax (Appeals) has ignored the test of Business expediency. Therefore, we set aside the order of the Commissioner of Income Tax (Appeals) and & 978/Mds/2014. :- 11 -: direct the Assessing Officer to delete the addition of �36,69,531/- for the assessment year 2006-07 and �68,23,368/- for the assessment year 2007-2008 and allow the appeals in favour of the assessee.

Order pronounced on Friday, the 11th day of December, 2015, at Chennai.