ACIT, New Delhi V. M/s. Indian Farm Forestry Development Cooperative Ltd., New Delhi

ITA 112/DEL/2017

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 3818 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 9 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-10-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 06-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AGAINST DATED PASSED
• Keywords: Capital asset; Business expenditure; Charitable institution; Revenue expenditure; Capital expenditure; TDS; Set aside
• Section: 37(1); 80G; 143(2); 13; 37

Judgement Text

1 ITA NO. 112/DEL/2017 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: C NEW DELHI BEFORE MS SUCHITRA KAMBLE, JUDICIAL ME MBER AND SH. PRASHANT MAHARISHI, ACCOUN TANT MEMBER I.T.A. NO. 112/DEL/201 7 (A.Y 2012-13) (THROUGH VIDEO CON FERENCING) ACIT CIRCLE-30(1), ROOM NO. 1302, 13 TH FLOOR, E-2, BLOCK, SPM CIVIC CENTRE, J. L. NEHRU MARG, NEW DELHI (APPELLANT) VS INDIAN FARM FORESTRY DEVELOPMENT COOPERATIVE LTD. 401-402, LAXMI BHAWAN, 70, NEHRU PLACE, NEW DELHI AAAA10323F (RESPONDENT) ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED BY THE REVENUE AGAINST THE OR DER DATED 28/10/2016 PASSED BY CIT (A)-10, NEW DELHI FOR ASSESSMENT YEAR 2012-13. 2. THE GROUNDS OF APPEAL ARE AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 51,41,899/- MADE BY TH E AO ON ACCOUNT OF PROJECT EXPENSES IGNORING THE FACT THAT THE SAME HAS NOT BE EN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND WAS RAT HER IN THE NATURE OF DONATION, THUS PASSING AN ORDER OVERLOOKING THE FIN DING OF FACTS BY THE AO AS CONTAINED IN THE ASSESSMENT ORDER. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) HAS ERRED APPELLANT BY SH. VIVEK VARDHAN, SR. DR RESPONDENT BY NONE DATE OF HEARING 05.10.2021 DATE OF PRONOUNCEMENT 11.10.2021 2 ITA NO. 112/DEL/2017 IN DELETING THE ADDITION OF RS. B,5\,41,99/- MADE BY THE AO ON ACCOUNT OF PROJECT EXPENSES MERELY ON THE SUBMISSION OF THE AS SESSEE WITHOUT APPRECIATING THE FACT THAT FOR ANY BUSINESS EXPENDI TURE TO BE ALLOWABLE AS PER THE INCOME TAX ACT THE SAME IS REQUIRED TO BE INCUR RED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. IN THIS CASE, EXPENSES INCURRED FOR THE CHARITABLE PURPOSE CAN BE TERMED AT BEST NOBLE BUT THEY CANNOT BE ALLOWED TO BE DEDUCTED WHILE COMPUTING TAXABLE INCOME. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD CIT(A) HAS ERRED IN OVERLOOKING THE FACTS SUBMITTED BY THE ASSESSEE HIMSELF AND CERTIFIED BY THE AUDITORS IN THE AUDIT REPORT FORM-3 CD THAT THE ASSESSEE IS ENGAGED IN TRADING OF FERTILIZERS THROUGH VARIOUS SOCIETIES/AG ENCIES. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD CIT(A) HAS ERRED IN OVERLOOKING THE FACTS OF THE CASE THAT LOOKING I NTO THE NATURE OF PROJECTS UNDERTAKEN BY THE ASSESSSEE, IT IS APPARENT THAT TH ESE KINDS OF PROJECTS ARE MEANT FOR ENABLING THE ASSESSEE AS WELL AS ITS PROM OTER IFFCO IN ENHANCING THE SALE OF FERTILIZERS IN THE AREA, WHICH IS THE M AIN BUSINESS OF THE ASSESSEE AND ITS PROMOTER IFFCO. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD CIT(A) HAS ERRED IN IGNORING THE FACT THAT THE PROJECT EXPENSES INCU RRED BY THE ASSESSEE HAVE RESULTED INTO ENDURING BENEFIT BY CREATING DEMAND F OR FERTILIZERS OVER SEVERAL YEARS, AND THEREFORE, THESE EXPENSES CANNOT BE TREA TED AS REVENUE EXPENDITURE AND RATHER ARE CAPITAL IN NATURE. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD CIT(A) HAS ERRED IN OVERLOOKING THE ADMITTED FACT THAT THE ASSESSEE IS ENGAGED IN SOCIO ECONOMIC ACTIVITY AND THUS THE EXPENSE INCURRED ON SUCH PROJECT EXPENSES CANNOT BE TREATED AS BUSINESS EXPENSES IN VIEW OF E XPLANATION-2 TO SECTION37(L), WHICH READS AS UNDER: - FOR REMOVAL OF DOUBTS IT IS HEREBY DECLARED T HAT FOR THE PURPOSE OF SUB- SECTION (1) ANY EXPENDITURE INCURRED BY AN ASSESSEE IN THE ACTIVITIES RELATING TO CORPORATE SOCIAL RESPONSIBILITY REFERRED IN SECT ION 135 OF THE COMPANIES ACT, 2013(18 OF 2013) OF SHALL NOT BE DEEMED TO BE AN EX PENDITURE INCURRED BY THE 3 ITA NO. 112/DEL/2017 ASSESSEE FOR THE PURPOSE OF THE BUSINESS AND PROFES SION. 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) HAS ERRED IN IGNORING THE FACT THAT THE ASSESSEE RECEIVES CON TRIBUTION FROM ITS PROMOTER IFFCO WHOSE MAIN BUSINESS IS TRADING IN FERTILIZERS . 8. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE HONBLE ITAT AT LEAST SHOULD HAVE SET ASIDE THE ORDER TO FILE OF AO . 3. THE ASSESSEE COOPERATIVE SOCIETY IS ENGAGED IN T HE TRADING MARKETING OF THE VARIOUS TYPES OF FERTILITIES, MANUFACTURED BY I FFCO AT VARIOUS PLACED IN INDIA. RETURN SHOWING INCOME OF RS. 35,62,270/- WAS ELECTR ONICALLY FILED BY THE ASSESSEE ON 28/9/2012. ON SELECTION OF CASE FOR S CRUTINY NOTICE U/S 143(2) OF THE INCOME TAX ACT, 1961 WAS ISSUED ON 8/8/2013. S UBSEQUENTLY, NOTICE U/S 142 (1) OF THE INCOME TAX ACT, 1961 WAS ALSO ISSUED . THE ASSESSEE HAS REVISED ITS RETURN OF INCOME DECLARING INCOME ON 4/10/2011. THE ASSESSING OFFICER MADE ADDITION OF RS. 6,51,41,899/- THEREBY MAKING D ISALLOWANCE U/S 37(1) AS WELL AS RS. 8,880/- IN RESPECT OF DISALLOWANCE OF I NTEREST ON DELAYED PAYMENT OF TDS. 4. BEING AGGRIEVED BY THE PENALTY ORDER, THE ASSESS EE FILED APPEAL BEFORE THE CIT(A). THE CIT (A) PARTLY ALLOWED THE APPEAL OF T HE ASSESSEE. 5. AT THE TIME OF HEARING NONE APPEARED ON BEHALF O F THE ASSESSEE DESPITE GIVING NOTICES. THEREFORE, WE ARE PROCEEDING ON TH E BASIS OF THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE THE ASSESSING OFFICER A S WELL AS BEFORE THE CIT(A). 6. THE LD. DR RELIED UPON THE ASSESSMENT ORDER. THE LD. DR ALSO SUBMITTED THE ORDER OF THE TRIBUNAL DATED 8/8/2019 AND 6/9/20 17 (ITA NO. 573/DEL/2016 ASSESSMENT YEAR 2011-12 AND ITA NO. 68 31/DEL/2014 ASSESSMENT YEAR 2010-11) AND SUBMITTED THAT THE ISS UE HAS BEEN DECIDED AGAINST THE REVENUE BY THE TRIBUNAL. 4 ITA NO. 112/DEL/2017 7. WE HAVE HEARD LD. DR AND PERUSED THE MATERIAL AV AILABLE ON RECORD. THE CIT(A) HAS FOLLOWED THE EARLIER YEAR ORDERS IN ASSE SSEES CASE FOR ASSESSMENT YEARS 2008-09, 2010-11 & 2011-12 AND DISMISSED THE APPEAL OF THE REVENUE. THE ISSUE CONTESTED HEREIN REGARDING THE ADDITION O N ACCOUNT OF PROJECT EXPENSES WAS DECIDED IN FAVOUR OF THE ASSESSEE BY T HE TRIBUNAL IN ASSESSMENT YEAR 2010-11& 2011-12 (ITA NO. 6831/DEL/2014 ORDER DATED 06.09.2017 AND ITA NO. 573/DEL/2016 ORDER DATED 08.08.2019. THE T RIBUNAL IN ASSESSMENT YEAR 2011-12 HELD AS UNDER:- 6. WE FURTHER FIND THAT FOR AY 2008-09 AND 2009-10 , THE HON'BLE DELHI HIGH COURT HAS DISMISSED THE APPEALS FILED BY THE REVENU E VIDE ORDER DATED 31/10/2018. THE RELEVANT FINDINGS OF THE HON'BLE CO URT ARE REPRODUCED BELOW:- 13. IN THE FACTS OF THE PRESENT CASE, THE OBJECT AN D PURPOSE OF THE RESPONDENT-ASSESSEE IS TO ENGAGE AND WORK' FOR SOCI AL AND ECONOMIC UPLIFTMENT OF THE RURAL POOR, CONSTRUCT WATER RESER VOIRS 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 MARK ETED/SOLD BY THE RESPONDENT- ASSESSEE TO EARN PROFIT/INCOME, BECAUSE THE RESPONDENT- ASSESSEE WAS ENGAGED IN SOCIAL AND ECONOMIC DEVELOP MENT ACTIVITIES. ASSOCIATION AND BUSINESS RELATIONSHIP WITH M/S INDI AN FARMERS FERTILIZER COOPERATIVE LTD. WAS PREDICATED AND CONNECTED ON TH E RESPONDENT- ASSESSEE PERFORMING AND UNDERTAKING THE SOCIAL-WELF ARE ECONOMIC ACTIVITIES. GRANTS RECEIVED FROM GOVERNMENT AND FOR EIGN AGENCIES WERE TO BE UTILIZED FOR THE SPECIFIC PURPOSE I.E. THE OBJEC T 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 S ALE AND MARKETING OF FERTILIZERS. THE RESPONDENT-ASSESSEE WAS THEREFO RE REQUIRED TO INCUR THE SAID EXPENDITURE, IN ORDER TO RUN, OPERATE AND CONT INUE ITS BUSINESS. 5 ITA NO. 112/DEL/2017 14. WE PERCEIVE THAT THERE IS A DEGREE OF CONTRAD ICTION IN THE PLEA RAISED BY THE REVENUE, WHEN THEY CLAIM THAT THE RESPONDENT -ASSESSEE WAS NOT ENGAGED IN 'BUSINESS' OR THE EXPENDITURE INCURRED W AS NOT ON ACCOUNT OF BUSINESS EXPEDIENCY. INCOME EARNED BY THE RESPONDEN T-ASSESSEE HAS BEEN TREATED AND TAXED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS AND PROFESSION. IN THE GIVEN FACTS, IT WOULD BE INCONGR UOUS FOR THE REVENUE TO URGE THAT THE PURPOSE AND GOAL BEHIND THE ACTIVITIE S UNDERTAKEN BY THE RESPONDENT- ASSESSEE WAS NOT COMMERCIAL BUT CHARITY AS THE INTENT AND MOTIVE BEHIND THEM WAS NOT TO EARN PROFIT. THE EXPE NDITURE INCURRED TO CARRY OUT SOCIAL AND ECONOMIC DEVELOPMENT WOULD IN THIS BACKGROUND CONSTITUTE A 'BUSINESS' OR 'COMMERCIAL' ACTIVITY UN DERTAKEN BY THE RESPONDENT- ASSESSEE. IT WOULD BE A CONTRADICTION I N TERMS, IF WE HOLD THAT THE EXPENDITURE WOULD BE NON-DEDUCTIBLE EXPENDITURE OR EXPENDITURE WITHOUT BUSINESS EXPEDIENCY. UNDER SECTION 37 OF TH E ACT IT DOES NOT MATTER WHETHER OR NOT THE EXPENDITURE WAS IN THE NA TURE OF DONATION OR SECTION 80G OF THE ACT WAS NOT ATTRACTED. THE CO NDITIONS STATED IN SECTION 37 OF THE ACT MATTER AND CONSTITUTE THE TEST. EXPENDITURE INCURRED IN FURTHERANCE OF AND CONNECTED WITH THE B USINESS AND COMMERCIAL ACTIVITIES FOR WHICH THE RESPONDENT- ASS ESSEE WAS ESTABLISHED CANNOT BE DISALLOWED AS EXPENDITURE NOT RELATABLE A ND INCURRED FOR 'BUSINESS' PURPOSES. 15. ON THE QUESTION OF CAPITAL EXPENDITURE, THE A SSESSING OFFICER DID NOT REFER TO OR EXAMINE WHETHER THE CAPITAL ASSETS CREA TED WERE FOR THIRD PARTY VILLAGERS. THE RESPONDENT- ASSESSEE WAS NOT THE OWN ER OF THE ASSETS CREATED AND DEVELOPED. THE ASSETS CREATED WERE NOT CAPITAL ASSETS IN THE HANDS OF THE RESPONDENT-ASSESSEE. THE RESPONDENT-AS SESSEE HAD CONTRIBUTED, DEVELOPED, FINANCED AID CREATED ASSETS WHICH BELONGED TO THIRD PERSONS. THE EXPENDITURE INCURRED THEREFORE W OULD NOT BE 'CAPITAL' IN NATURE IN THE HANDS OF THE RESPONDENT ASSESSEE. 16. ACCORDINGLY, THE APPEAL FILED BY THE REVENUE HA S NO MERIT AND IS DISMISSED, WITHOUT ANY ORDER AS TO COSTS.' 6 ITA NO. 112/DEL/2017 7. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES AND IN VIEW OF THE JUDICIAL PRECEDENTS, THE APPEAL FILED BY THE REVENUE IS DISM ISSED. THERE ARE NO DISTINGUISHING FACTS POINTED OUT BY TH E LD. DR AT THE TIME OF HEARING. THUS, THE ORDER OF THE CIT(A) IN DELETING THE ADDITION ON ACCOUNT OF THE NET PROJECT EXPENSES DOES NOT REQUIRE INTERFERENCE. THE APPEAL OF THE REVENUE IS DISMISSED. 8. IN RESULT, THE APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 11TH D AY OF OCTOBER, 2021 SD/- SD/- (PRASHANT MAHARISHI) (SUCH ITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 11/10/2021 R. NAHEED * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI 7 ITA NO. 112/DEL/2017