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Income Tax Appellate Tribunal, RAIPUR BENCH: RAIPUR
Before: SHRI RAVISH SOOD & SHRI ARUN KHODPIA
आदेश / O R D E R
PER ARUN KHODPIA, ACCOUNTANT MEMBER:
The captioned appeal filed by the assessee is directed against the order of Learned Commissioner of Income Tax (Appeals), National Faceless Centre (NFAC), Delhi under Section 250 of the Income Tax Act, 1961 dated 20.02.2023 for the Assessment Year 2013-14, passed vide the appeal instituted against the order under 2 :: section 143(3) of the Income Tax Act 1961 issued by Deputy Commissioner of Income Tax – 2(1), Raipur dated 04.11.2015.
The assessee has raised the following grounds of appeal:
1. Learnd CIT(A) erred in confirming disallowance of Rs.19,10,513/- made by AO, invoking sec 14A. The disallowance made by AO and confirmed by Learned CIT (A) is arbitrary, illegal and not justified.
2. Ld. CIT(A) erred in confirming disallowance of Rs.2,00,000/- made by AO on account of social welfare and maintenance. The disallowance made by AO and confirmed by CIT(A) is arbitrary, baseless and not justified.
3. The appellant reserves the right to add, amend or modify any of the ground/s of appeal.”
Brief facts as culled out from records are that the assessee is a company engaged in the business of the production of sponge Iron, steel ingot and billets. Return declaring income at Rs. 2,56,12,170/- was filed on 29.22.2013, which was late. Subsequently, the case of the assessee was selected for scrutiny assessment under CASS. Statutory notices were issued along with questionnaires, in compliance, AR of the assessee attended the assessment proceedings from time to time and filed requisite documents/information. Documents and accounts were checked on test check basis, deliberations were made, finally assessment was culminated on 04/11/2015 with following additions:
3 :: i. Disallowance u/s 14A : 19,10,513/- ii. 5% Estimated Disallowance of Admn. Exp : 1,29,650/- iii. Disallowance Social Welfare Expenses : 2,00,000/-
With aforesaid additions, total assessed income of the assessee was determined by Learned AO, at Rs. 2,78,52,330/-.
Aggrieved with such additions, assessee preferred an appeal before the Learned CIT(A), wherein disallowance at No. 1 & 3 were sustained. However, disallowance at No.2 pertaining to disallowance of Admn. exp was deleted.
To challenge the decision of Learned CIT(A) qua the disallowances / additions made by AO and confirmed by the Learned CIT(A), the assessee is in present appeal before us.
7. We shall be taking up the issues ground wise incorporating facts on the issue, submissions/arguments of the assessee, rebuttal / argument by the department and our decision on the same, as follows:
Ground No 1: Disallowance u/s 14A : Rs. 19,10,513/-
8. Pertaining to disallowance u/s 14A of the Act, Learned AR of the assessee come-up with multi-fold contentions. First, that the assessee had sufficient interest free funds. Second, the interest bearing funds borrowed were utilized for the purposes specified in the respective loans taken, thus, AO’s observation that if above
4 :: investments are not made then those funds could have been utilized in the business and incurrence of interest expense thereon would not have been arise, was a bad interpretation of the facts assuming the authority beyond the scope of his jurisdiction, as the several courts have already held that department has no right to ask or tell the assessee that this should be done and this should not be done. It was also the contention that during the year under consideration assessee has no exempt income, thus, no disallowance u/s 14A can be made, this is a settled law covered by the ratio of law laid down by Hon’ble Apex Court. On Ground No.1, Learned AR drew our attention to assessee’s submissions before the Learned CIT(A), which reads as under:
As regards ground no. 1 The AO observed in para no. 3 that the appellant made investment of Rs. 4,79,76,286/-. It was explained by the appellant that no expenses were incurred for earning any exempt income and therefore, sec. 14A is not attracted. It was also explained that the investment was made on account of commercial expediency. The AO concluded that the investment was made in dividend generating source and the dividend is exempt. Section 14A applies even in the cases where the assessee claims that no expenditure was incurred. The AO, therefore, made disallowance of Rs. 19,10,513/- invoking sec. 14A on account of interest. In this regard, it is submitted that: - 1.1 No exempt income earned on impugned investment i) We are enclosing herewith a copy of the audited financial statements (page no. 01 to 16). A perusal of the profit & loss
5 :: a/c (page no. 02) and of the relevant schedule 20 & 21 (page no. 08) shows that the appellant did not earn any exempt income.
Apart from above, there was unsecured loan of Rs. 10.01 crore and 12.70 crore as at the end of last year and this year, from related parties. All such unsecured loans are interest free funds. We are enclosing herewith the summary of these amounts as also the copy of account of all the loan accounts (page no. 17 to 26). ii) We are also enclosing herewith a copy of the computation of income (page no. 27 to 30) from which also it is verifiable that no exempt income was disclosed for the year under consideration. ii) It is settled proposition of law that where assessee does not earn any exempt income in a particular year, disallowance u/s 14A cannot be made. For this proposition, we rely on the following decisions:-
CIT Vs. State Bank of Patiala - 393 ITR 476 (2017) (P & H) - SLP against the judgment has been dismissed vide CIT Vs. State Bank of Patiala - (2018) 259 Taxman 314 (SC).
CIT v. Oil Industries Development Board [2019] 103 taxmann.com 325 (Delhi) SLP against the judgment has been dismissed vide CIT Vs. Oil Industry Development Board [2019] 103 taxmann.com 326 (SC). SLP dismissed in Chettinad Logistics (P) Ltd - [2018] 95 taxmann.com 250 (SC), 257 Taxman 2 (SC) SLP dismissed against High Court ruling that section 14A cannot be invoked where no exempt income was earned by assessee in relevant assessment year. Cheminvest Ltd. vs CIT (2015) 378 ITR 33 (Del.). Nutan Ispat & Power P. Ltd vs DCIT in dt 17.08.2018
6 :: In this case, jurisdictional Raipur Bench of ITAT held vide para 7 that where the assessee has not received any exempt income, disallowance u/s 14A cannot be made. While so holding, Hon'ble Tribunal followed the decision in the case of Chettinad Logistics P. Ltd. & Cheminvest Ltd.
On this issue, there are several other judgments/orders wherein it has been held by Hon'ble High Courts and Hon'ble Tribunals that where there is no exempt income, disallowance u/s 14A cannot be made. Since the issue is settled in favor of appellant by the highest Court as also by Hon'ble jurisdictional Raipur Bench of ITAT, the impugned addition is liable to be deleted.
1.2 Sufficient interest free funds available with appellant As at the opening and closing of the year under consideration, there were sufficient interest free funds available in the hands of appellant, which is demonstrated by the following table-
Particulars As at 31.03.2012 As at 31.03.2013 Share capital 7,40,80,000/- 10,90,80,000/- Reserves and 20,17,82,453/- 29,20,62,238/- surplus Total interest 27,58,62,453/- 40,11,42,238/- free funds The above figures are verifiable from the audited balance sheet which is at page no. 01 of enclosures.
The appellant had enough interest free/own funds to cover the investment in question. In the following cases, it was held that if total investment (yielding exempt income) is less than assessee's capital and reserves and surplus, no disallowance can be made u/s 14A :-
In Pr. CIT vs Sintex Industries Ltd. SLP (C) no. 7997 of 2018 Hon'ble Supreme Court has dismissed SLP against judgment dt. 4.5.2017 in T.A. No. 268 of 2017 of Gujarat High Court where High Court held that ITAT was right in deleting disallowance when the assessee had surplus funds of its 7 :: own of Rs. 2,319.17 crore against which investment was made of Rs. 111.09 crore.
JCIT vs Beekay Engineering Corporation (2010) 325 ITR 384 (Chhattisgarh) DCIT vs Hero Moto Corp. Ltd. (2015) 43 CCH 0274 (Del Trib.), relying upon CIT vs HDFC Bank Ltd. (2014) 366 ITR 505 (Bom.). In CIT vs UTI Bank Ltd. (2013) 32 Taxmann.com 370 (Guj.), it was held that if an assessee has sufficient interest free funds, it should be presumed that such investments were made from interest free funds, thereby not justifying disallowance u/s 14A. Godawari Power & Ispat Ltd. In dt. 01.10.2018 of Raipur Bench of ITAT.
In the above case, vide para 54 to 58, it was held by Hon'ble jurisdictional Raipur Bench of ITAT that where there is sufficient interest free own capital, disallowance u/s 14A on account of interest is not justified.
On this issue, there are several other judgments/orders wherein it has been held by Hon'ble High Courts and Hon'ble Tribunals that where there is sufficient own fund, disallowance u/s 14A cannot be made. Since the issue is settled in favor of appellant by the highest Court as also by Hon'ble jurisdictional Raipur Bench of ITAT, the impugned addition is liable to be deleted.
1.3 Interest bearing funds had nexus with investments other than the impugned investments i) The interest bearing funds in the hands of appellant were short term borrowing of Rs. 31.59 (Rs. 29.40+ Rs. 2.19) crore from bank for stock & debtors and term loan of Rs. 7.15 lakh for machinery and other equipments. ii) Against the bank loan of Rs. 29.40 crore, there were debtors and stock of Rs. 69.34 crore which shows that the borrowed
8 :: funds were fully utilized for the purpose for which money was borrowed. ii) The term loan was utilized for purchase of machinery. iv) The utilization of bank loans cannot be for any purpose other than the purpose for which the loans are sanctioned. Since none of the bank loan was sanctioned for making impugned investment, there is no question of making the investment out of the money borrowed from banks.
1.1 No nexus established by AO The AO has not established nexus between interest bearing funds and investment yielding exempt income. Unless this nexus is established, disallowance u/s 14A could not be made. For this proposition, we rely on the following decisions:-
CIT vs Gujrat Power Corporation Ltd. (2013) 352 ITR 583 (Guj.). Director of 1. T. (Intl. Taxation)-II vs.BNP Paribas SA (2013) 214 Taxman 548 (Bom.). G.D. Metsteel (P) Ltd. vs. ACIT (2011) 64 DTR 161 In CIT vs. Suzlon Energy Ltd. (2013) 354 ITR 630 (Guj), Hon'ble Gujarat High Court observed when interest free own funds of assessee was many times more than investment made and no direct nexus was shown between interest bearing borrowed funds and investment in Indian subsidiaries, no disallowance u/s. 14A can be made out of interest expenditure.
1.5 Presumption that investment came out of interest free funds Even if the impugned investments of Rs. 4,79,76,286/- are considered, they are more than covered by the interest free funds and therefore, it has to be presumed that the investment came out of interest free funds. Therefore, the AO could not have made the disallowance. We place reliance on following decisions:-
9 :: CIT (Large Taxpayer Unit) vs Reliance Industries Ltd. (2019) 410 ITR 466 (SC) CIT vs Reliance Utilities & Power Ltd. (2009) 313 ITR 340 (Bom.) 1.6 No expenditure incurred by appellant The appellant did not incur any expenditure in relation to investments yielding exempt income. Therefore, the burden was on the AO to prove otherwise as held in the following cases: - Godrej Consumer Products Ltd. vs Addl. CIT (2014) 151 ITD 566 (Mum.). Pradeep Khanna vs ACIT order dt. 11.8.2016 of Delhi HC CIT vs U. P. Electronics Corporation Ltd. (2017) 397 ITR 113 (All) 1.7 In view of the above explanation, it is requested that the disallowance made by AO may kindly be deleted.”
9. With aforesaid submissions, it was the prayer of Learned AR that since assessee has no exempt income earned on impugned investments. Sufficient interest free funds were available with assessee. Interest bearing funds had nexus with investments other than the impugned investments. No nexus between interest free funds and investment yielding exempt income was established by the AO. Investment made from interest free funds was only presumption of AO, no expenditure incurred in relation to investment yielding exempt income, no disallowance in the present facts and circumstances is called for and sustained, thus requested to delete the disallowance made by AO.
Learned Sr. DR in response, vehemently supported the orders of revenue authorities.
We have heard the rival contentions, perused the material available on records and have analyzed the case laws referred to. At the outset, under settled position of law as laid down by the Hon’ble High Court’s in the case of CIT Vs. State Bank of Patiala 393 ITR 476(2017)(P&H), CIT Vs. Oil Industries Development Board (2019) 103 Taxmann.com 325 (Delhi), Chettinad Logistics (P.) Ltd. – (2018) 95 Taxmann.com 250 (SC) wherein Hon’ble Madras High Cout has held that “Section 14A cannot be invoked where no exempt income was earned by the assessee in the relevant assessment year”, in these three judgments, which were challenged by the department before the Hon’ble Apex Court, wherein the SLPs of the department were dismissed, thus findings given by Hon’ble High courts have reached at finality. The issue pertaining to disallowance u/s 14A raised in the instant case has dealt with by us in some other cases also, wherein by respectfully following the binding judgments of Hon’ble High Courts and Apex Court, held that No disallowance u/s 14A is permissible when there is no exempt income earned by the assessee in a particular assessment year, but in a situation, wherein
11 :: assessee had earned exempt income in the relevant assessment year then in that case the disallowance/addition should be restricted to the amount of such exempt income earned.
Our observations in a recent order in M/s. Avinash Developers Pvt. Ltd. vs. DCIT/ACIT (ITA No.156/RPR/2022) dated 16.08.2023, wherein the observations of the Tribunal are as under: “7. We have heard the rival contentions and perused the material available on record as well as judicial pronouncements in support of the contentions as relied upon by the Ld. AR placed before us. With respect to the amendment in Section 14A of the Act, since the issue has already been discussed and provision was interpreted by the Hon’ble High Court of Delhi and decided that effective change in provision could not be presumed to have retrospective effect, therefore, same will be applicable prospectively w.e.f. 01.04.2022 only. Thus, we in our considered view, in the present case before us which pertains to A.Y.2013-14, are of the opinion that change in provision of Section 14A will have no retrospective binding effect.
8. As regards the contention of the Ld. AR that now when the assessee company had not received any exempt income during the year under consideration, therefore, no disallowance u/s.14A of the Act was called for in its hand, we find substance in the same, since the aforesaid contention of the Ld. AR is duly supported by the judgment of the Hon’ble Supreme Court in the case of CIT Vs. Chettinad Logistics Pvt. Ltd. (2018) 257 Taxmann 2 (SC) and in the case of Pr. CIT Vs. Oil Industries Dev. Board, 104 CCH 156 (SC). However, on perusal of the computation of the total income of the assessee company (Page 14 of APB), it is apparent that the assessee company had earned exempt income on account of share of profit from partnership firm for an amount of Rs.3,82,401/-. We, thus, in terms of our aforesaid observations, are of the considered view that the addition should be restricted to the extent of exempt income i.e. Rs.3,82,401/-. The Hon’ble Delhi High Court in the judgment Cheminvest Ltd. vs. CIT (2015) 378 ITR 33 (Del) has held that if 12 :: there is no exempt income, there cannot be any disallowance u/s 14A. Similar view has been taken by the Hon’ble Delhi High Court in CIT vs. Holcim India P. Ltd. (2014) 90CCH 081-DelHC. The net effect of these decisions is that the disallowance u/s 14A gets restricted to the extent of exempt income, even if the provisions of the section are attracted. In view of the above precedents, which are squarely applicable to the facts of the instant case, we limit the disallowance to the extent of exempt income. Our view is further fortified by the order of Hon’ble Supreme Court of India, in the case of Principal Commissioner of Income Tax, Patiala vs. State Bank of Patiala reported in [2018] 99 taxmann.com 286 (SC), that:
Section 14A, read with section 263, of the Income-tax Act, 1961 – Expenditure incurred in relation to income not includible in total income (Computation of) – Assessment year 2010-11 – In course of assessment, Assessing Officer made addition on account of apportionment of expenses against exempted income under section 14A – Commissioner passed a revisional order directing Assessing Officer to enhance amount of addition under section 14A – Tribunal set aside revisional order as well as consequent assessment order passed by Assessing Officer enhancing addition made under section 14A – High Court upheld order of Tribunal holding that amount of disallowance under section 14A could be restricted to amount of exempt income only and not a higher figure – Whether on facts, SLP filed against decision of High Court was to be dismissed – Held, yes [Para 1][In favour of assessee]
Respectfully following the above judicial pronouncements, we hold that the addition u/s 14A should be restricted to the extent of exempt income i.e., Rs.3,82,401/-, accordingly we set aside the order of Ld CIT(A) and restore the issue back to file of direct the Ld AO for the limited purpose to verify the details of exempt income and restrict the addition as per our observations in this order. In the result, appeal of the assessee is partly allowed for statical purposes, in terms of our aforesaid observations.
In background of the aforesaid facts and circumstances, on the aspect as claimed by the Learned AR that there is no exempt income
13 :: earned by the assessee during the relevant assessment year, without dealing with the other contentions raised by the assessee, since prima facie the assessee succeeds under first contention pertains to no exempt income, we are of the considered opinion that the issue in the present appeal involving disallowance invoking provision of section 14A of the Act is covered by various judgments referred to supra, thus, we find it appropriate to set aside the order of Learned CIT(A) on this issue and restore the same back to the files of Learned AO for verification of the fact that whether there is any exempt income earned by the assessee during the relevant or not, as this fact was not apparent from the orders of both the revenue authorities as per their observations, and to decide the issue in terms of our observations herein above.
In the result, Ground No.1 filed by assessee is partly allowed for statistical purposed.
Before parting with on the issue, regarding applicability of new explanation inserted in 14A under the Finance Act, 2022, to clarify that bereft exempt income being earned in any year, disallowance under Section 14A will still be attracted. which reads as under:
14 :: “In section 14A of the Income-tax Act, – (a) in sub-section (1), for the words “For the purposes of”, the words “Notwithstanding anything to the contrary contained in this Act, for the purposes of” shall be substituted; (b) after the proviso, the following Explanation shall be inserted, namely :-
[Explanation.—For the removal of doubts, it is hereby clarified that notwithstanding anything to the contrary contained in this Act, the provisions of this section shall apply and shall be deemed to have always applied in a case where the income, not forming part of the total income under this Act, has not accrued or arisen or has not been received during the previous year relevant to an assessment year and the expenditure has been incurred during the said previous year in relation to such income not forming part of the total income.] Regarding applicability of the explanation brought in by the finance act 2022 Hon’ble Delhi highcourt in the case of PCIT Vs Era Infrastructure (India) Ltd. (Delhi High Court) in ITA ITA 204/2022 & CM APPL.31445/2022 for AY 2013-14 dated 20/07/2022, has held as under:
As was affirmed by this Court in Goslino Mario [(2000) 10 SCC 165 : (2000) 241 ITR 312] a cardinal principle of the tax law is that the law to be applied is that which is in force in the relevant assessment year unless otherwise provided expressly or by necessary implication. (See also Reliance Jute and Industries Ltd. v. CIT [(1980) 1 SCC 139 : 1980 SCC (Tax) 67] .) An Explanation to a statutory provision may fulfil the purpose of clearing up an ambiguity in the main provision or an Explanation can add to and widen the scope of the main section [See Sonia Bhatia v. State of U.P., (1981) 2 SCC 585, 598 : AIR 1981 SC 1274, 1282 para 24] . If it is in its nature clarificatory then the Explanation must be read into the main provision with effect from the time that the main provision came into force [See Shyam Sunder v. Ram Kumar, (2001) 8
15 :: SCC 24 (para 44); Brij Mohan Das Laxman Das v. CIT, (1997) 1 SCC 352, 354; CIT v. Podar Cement (P) Ltd., (1997) 5 SCC 482, 506] . But if it changes the law it is not presumed to be retrospective, irrespective of the fact that the phrases used are “it is declared” or “for the removal of doubts”.
The aforesaid proposition of law has been reiterated by the Supreme Court in M.M Aqua Technologies Ltd. V. Commissioner of Income Tax, Delhi-III, 2021 SCC OnLine SC 575. The relevant portion of the said judgment is reproduced hereinbelow:- “22. Second, a retrospective provision in a tax act which is “for the removal of doubts” cannot be presumed to be retrospective, even where such language is used, if it alters or changes the law as it earlier stood. This was stated in Sedco Forex International Drill. Inc. v. CIT, (2005) 12 SCC 717 as follows: 17. As was affirmed by this Court in Goslino Mario [(2000) 10 SCC 165] a cardinal principle of the tax law is that the law to be applied is that which is in force in the relevant assessment year unless otherwise provided expressly or by necessary implication. (See also Reliance Jute and Industries Ltd. v. CIT [(1980) 1 SCC 139].) An Explanation to a statutory provision may fulfil the purpose of clearing up an ambiguity in the main provision or an Explanation can add to and widen the scope of the main section [See Sonia Bhatia v. State of U.P., (1981) 2 SCC 585]. If it is in its nature clarificatory then the Explanation must be read into the main provision with effect from the time that the main provision came into force [See Shyam Sunder v. Ram Kumar, (2001) 8 SCC 24; Brij Mohan Das Laxman Das v. CIT, (1997) 1 SCC 352; CIT v. Podar Cement (P) Ltd., (1997) 5 SCC 482]. But if it changes the law it is not presumed to be retrospective, irrespective of the fact that the phrases used are “it is declared” or “for the removal of doubts”. 18. There was and is no ambiguity in the main provision of Section 9(1)(ii). It includes salaries in the total income of an assessee if the assessee has earned it in India. The word “earned” had been judicially defined in S.G. Pgnatale [(1980) 124 ITR 391 (Guj)] by the High Court of Gujarat, in our view, correctly, to mean as income “arising or accruing in India”. The amendment to the section by way of an Explanation in 1983 effected a change in the scope of that judicial definition so as to include with effect from 1979, “income payable for service rendered in India”. 19. When the Explanation seeks to give an artificial meaning to “earned in India” and brings about a change effectively in the existing law and in 16 :: addition is stated to come into force with effect from a future date, there is no principle of interpretation which would justify reading the Explanation as operating retrospectively.” (emphasis supplied) 8. Consequently, this Court is of the view that the amendment of Section 14A, which is “for removal of doubts” cannot be presumed to be retrospective even where such language is used, if it alters or changes the law as it earlier stood.
Consequently, this Court is of the view that the amendment of Section 14A, which is “for removal of doubts” cannot be presumed to be retrospective even where such language is used, if it alters or changes the law as it earlier stood.”
Under respectful cognizance of the aforesaid judgment of Hon’ble Delhi High Court, having no counter decision brought to our notice by the department, we hold that the new explanation in amendment to section 14A will be applicable prospectively. Under such circumstances our view concerning, no disallowance in case no exempt income earned during the relevant assessment for AY 2013- 14 will survive in terms of cited judgments of Hon’ble courts referred to supra which holds ground for the year under consideration.
Ground No.2 : Disallowance of social welfare and maintenance expense, Rs. 2,00,00/-
17. Learned AR at the outset, to show the facts of the issue and assessee’s response have taken us to the submission made before Learned CIT(A) on this ground, the same reads as under:
17 :: “The AO observed that appellant has debited Rs. 2 lakh under the head "social welfare & maintenance account" which was paid to Chhattisgarh Sponge Iron Manufacturers Association and that business connection of such expense could not be established. He, therefore, disallowed the same. In this regard, it is submitted that:-
3.1 The details of amount paid to Chhattisgarh Sponge Iron Manufacturers Association are as under:-
Rs. 25,000/- - Towards membership fee Rs 1,75,000/- - Contribution/donation Rs. 2,00,000/- 3.2 All the sponge iron manufacturers have formed an association called Chhattisgarh Sponge Iron Manufacturers Association and since the appellant is also a producer of sponge iron, it is also a member of the said association. The amount of Rs 25,000/- was paid towards membership of said association. The association was formed for looking after & securing interest of sponge iron manufacturers and therefore, the membership is related to the business of the appellant.
3.3 So far as the contribution of Rs. 1,25,000/- is concerned, it is submitted that the association is working for the benefit of all the sponge iron manufacturers of Chhattisgarh and therefore, for its existence and meeting out routine expenses as also for holding programs all over Chhattisgarh in the interest of business, such association needs funds and therefore, all the members of this association give contribution/ donation periodically to the association. The amount of Rs. 1,75,000/- was also similar donation/ contribution.
It may kindly be noted that various issues arise for resolution in the course of business like having discussion with Government, iron ore suppliers, cold fields etc. in the common interest of all sponge iron manufacturers. Sometimes, disputes also arise amongst the members of the association and various other issues in furtherance of business of sponge iron which are handled by this association. Thus, connection between the business and the payment is established. We are enclosing 18 :: herewith a copy of account of the expenditure of Rs. 2,00,000/- (page no. 31). 3.5 In view of above explanation, it is requested that the disallowance of Rs. 2,00,000/- may kindly be deleted. Power of attorney in favour of undersigned is enclosed (page no. 32).
Apart from aforesaid submissions to substantiate that the expenditure incurred Learned AR furnished before us, copy of bills issued by Chhattisgarh Sponge Iron Manufacturers Association, showing payments made to the association towards membership fee and also contribution towards work assigned by the Collector, Raipur for cleaning and beatification of Phundhar Pond. It was the submission of Learned AR that all such payments were incidental to the business necessary/justified by the commercial expediency, thus, the same may please be allowed to the assessee as expenditure.
Learned Sr. DR in response vehemently supported the orders of revenue authorities.
We have considered the rival submissions and perused the material on records. While deciding the issue pertains to allowability of donation as in the nature of Business exigency, we have come
19 :: across an order of ITAT, Ahmedabad in the case of The Surat Electricity Co. Ltd. Vs ACIT (ITAT Ahmedabad) /Ahd/2004 dated 30/06/2008, Assessment Year 2001- 02, wherein observations of the ITAT was as under:-
In view of the above facts of the case, the case laws of Hon’ble Apex Court as well as of Hon’ble High Courts relied on both the sides and after considering the arguments, it is seen that one should not take abstract or academic view of what is proper expenditure laid out or expanded wholly and exclusively for the purposes of one’s business. One has got to take into consideration the question of commercial expediency and the principle of ordinary commercial trading and the main consideration that has got to way with the authority is whether the expenditure was a part of the process of profit making. The expenditure must be incidental to the business and must be necessitated or justified by the commercial expediency. It must be directly and intimately connected with the business and there must be as directed and intimated connection between the business and the expenditure. An expenditure made by businessman by way of commercial expediency must be an expenditure which has been incurred in the expectation that such payment should directly or indirectly benefit the business of the assessee or facilitate the carrying on the assessee’s business. A man’s business may be benefited in a number of ways. One of them may be promoting of business relations with this whom he has to deal with in the course of his business. In the present case, before us the facts are very clear and taking into consideration the peculiarity of the assessee’s business the impugned expenditure which the assessee has admittedly incurred in response to an appeal of the GOG, imminently pass through the tests of commercial expediency and having been incurred for the purpose of business, it is to be allowed u/s.37(1) of the Act. Accordingly, we are of the view that this allowable expenditure and we allow the same. The orders of the lower authorities are reversed and the appeal of the assessee is allowed.
On verification of facts in the present case since nothing was found to be or brought on record by the revenue against the contention of the assessee that such expenses were not necessary for running the business of assessee, rather, it is established by furnishing the supporting evidence by the Learned AR that the expenditure was incidental to business of the assessee, justified as for commercial expediency and connected with the business of assessee, as well. Hence, we are of the considered opinion that such expenditure is allowable subject to payment of the same, thus the finding of Learned CIT(A) cannot be acceded to much less the finding of Learned CIT(A) to capitalize such expenditure was found to be out-of-place. Since, ledger account of the Chhattisgarh Sponge Iron Manufacturers Association in the books of assessee company is showing only payment of Rs. 1,75,000/- (25000+150000) but assessee has claimed an amount of Rs. 2,00,000/-, also showing opening balance of Rs.10,000/- and closing balance of Rs.15,000/-, further, certain documents like bills and receipt from Chhattisgarh Sponge Iron Manufacturers Association, copies of letter from Dist. Collector, Raipur were produced before us, which were not produced before the authorities below, we find it suitable, in the interest of natural justice, to have such evidences verified by the revenue
21 :: authorities. Accordingly, we are setting aside the order of Learned CIT(A) on this issue and restoring the issue back to the files of AO for verification facts and to decide the same afresh in terms of our aforesaid observations. Ground No.2 is thus stand partly allowed for statistical purposes.
In the result appeal of the assessee is partly allowed for statistical purposes. Order pronounced on the 20th day of September 2023, in Raipur.
Sd/- Sd/- (रवीश सूद) (अ�ण खोडिपया) (ARUN KHODPIA) (RAVISH SOOD) लेखा सद�य/ACCOUNTANT MEMBER �ाियक सद�/JUDICIAL MEMBER रायपुर/Raipur, �दनांक/Dated: 20th September, 2023. Priti Yadav, Sr.PS (on Tour) आदेश क� �ितिल�प अ�े�षत/Copy to: 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent 3. आयकर आयु� (अपील) / The CIT(A)-1, Raipur (C.G) 4. The Pr.CIT-1, Raipur (C.G) 5. �वभागीय �ितिनिध, आयकर अपीलीय अिधकरण, रायपुर ब�च, रायपुर / The DR, ITAT, Raipur Bench, Raipur. 6. गाड� फाईल/Guard File आदेशानुसार / By Order
व�र� िनजी सिचव / Sr. Private Secretary आयकर अपीलीय अिधकरण, रायपुर / ITAT, Raipur