B.K. KHARE & COMPANY, MUMBAI V. ASST CIT 11(HQ), MUMBAI

ITA 4500/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 2417 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-10-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 30-06-2014
• Court: TRIBUNAL
• Department Lawyers: RANDHIR GUPTA
• Assessee Lawyers: H P MALWANI
• Keywords: Business expenditure; Commercial expediency
• Section: 143(3); 37(1); 80G

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI SANDEEP GOSAIN , JM ./ ITA NO. 4500 / MUM/20 1 4 ( / ASSESSMENT YEAR : 2009 - 2010 ) M/S. B.K. KHARE AND COMPANY, 706 - 707, SHARDA CHAMBERS NE W MARINE LINES, MUMBAI 400 0201 VS. ACIT (11) (2) , MUMBAI ./ ./ PAN/GIR NO. : AAAFB0265E ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY SHRI H.P.MALWANI REVENUE BY SHRI RANDHIR GUPTA DATE OF HEARING 26/07/2016 DATE OF PRONOUNCEMENT 24/10 / 2016 / O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) FOR THE ASSESSMENT YEAR 2009 - 2010 IN THE MATTER OF ORDER PASSED UNDER SECTION 143(3) OF T HE I.T. ACT. 2. TH E ONLY GRIEVANCE OF ASSESSEE RELATE TO DECLINE OF DEDUCTION U/S. 37(1) IN RESPECT TO CONTRIBUTION BY IT TO THE PUNE BENCH OF THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA TOWARDS CONSTRUCTION OF A ADMINISTRATIVE BUILDING OF THE SAID BRA NCH. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. ITA NO. 4500/M/2014 B. KHARE AND COMPANY 2 4. FACTS IN BRIEF ARE THAT THE ASSESSEE IS A FIRM OF CHARTERED ACCOUNTANTS ESTABLISHED IN THE YEAR 1955 . DURING THE Y EAR, FIRM PAID A SUM OF RS.20,00 ,000 TO PUNE BRANCH OF WESTERN INDIA REGIONAL COUNCIL OF THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA AS CONTRIBUTION TOWARDS CONSTRUCTION OF A BUILDING FOR THE PUNE BRANCH OF THE COUNCIL. THE PAYMENT WAS MADE VIDE CHEQUE N O.991364 DATED MARCH 27, 2009. T HE FIRM HAD CLAIMED THE AFORE SAID P AYMENT A S AN E XP ENDITURE INCURRED WHO LL Y AND EXCLUSIVELY FOR THE PURPOSES OF THE PROFESSION AND NOT AS A DONATION DEDUCTIBLE U/S - 80G . 5. T HE LEARNED ASSESSING OFFICER HAS TAKEN A VIEW THAT IT IS IN THE NATURE OF A DONATION; PROVISIONS OF S 80G ARE SPECIFIC AND W ILL OVERRIDE THOSE OF S ECTION 37(1) WHICH ARE GENERAL IN NATURE. HE FURTHER HELD THAT THE ASSESSEE HAS NOT PROVED THAT DONATION WAS MADE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE FIRM . 6. BY THE IMPUGNED ORDER CIT(A) CONFIRMED THE ACTION OF THE AO AGAI NST WHICH ASSESSEE IS IN FURTHER APPEAL BEFORE US. 7. WE HAVE CONSIDERED RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW . WE HAVE DELIBERATED ON THE JUDICIAL PRONOUNCEMENTS REFERRED BY LOWER AUTHORITIES IN THEIR RESPECTIVE ORDERS AND CITED BY LD. A.R & D.R. DURING THE COURSE OF HEARING BEFORE US IN THE CONTEXT OF FACTUAL MATRIX OF THE INSTANT CASE. FROM THE RECORD WE FOUND THAT THE PUNE BRANCH OF THE WESTERN INDIA REGIONAL COUNCIL (THE BRANCH) OF THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (ICAI) HAD PROPOSED TO CONSTRUCT A BUILDING FOR LOCATING ITS ADMINISTRATION OFFICE INCLUDING AN ITA NO. 4500/M/2014 B. KHARE AND COMPANY 3 AUDITORIUM, INFORMATION TECHNOLOGY CENTRE, READING ROOM FACILITIES, PANTRY, CAFETERIA AND PARKING FACILITIES FOR THE MEMBERS AND STUDENTS O F THE INSTITUTE. FOR THAT PURPOSE THE BRANCH HAD RAISED FUNDS BY WAY OF DONATIONS/CONTRIBUTIONS FROM MEMBERS/STUDENTS OF THE ICAI TO THE EXTENT OF ABOUT RS. 3.65 CR. TO PARTLY FUND THE TOTAL COST OF ABOUT RS. 7 CR. TO BE INCURRED FOR THE PURCHASE OF THE BU ILDING AND THE AFORESAID FACILITIES AND AMENITIES PROPOSED TO BE PROVIDED IN THE SAID PREMISES. THE SAID BUILDING WAS PURCHASED TO MEET THE LONG STANDING DEMAND OF THE PROFESSIONAL FRATERNITY IN PUNE FOR A PROPER OFFICE SPACE WHEREIN ALL THE REQUISITE ADMI NISTRATIVE FUNCTIONS COULD BE DISCHARGED AT A CENTRALIZED LOCATION AND THE ACTIVITIES OF THE PROFESSIONAL BODY WOULD BE COORDINATED SMOOTHLY, EFFECTIVELY AND EFFICIENTLY BEFITTING THE STATURE OF THE BRANCH OF THE APEX ACCOUNTING BODY OF THE COUNTRY. THE SA ID ADMINISTRATIVE BUILDING THEREFORE COULD PROVIDE THE NECESSARY INFRASTRUCTURE FACILITIE S FOR THE MUTUAL CONVENIENCE, ADVANTAGE AND BENEFIT OF THE MEMBERS AND PARTICULARLY MEMBERS AND ASPIRING STUDENTS BASED IN PUNE. 8 . WE ALSO FOUND THAT FOR THE SAID PUR POSE THE PUNE BRANCH HAD SET UP PUNE BRANCH BUILDING FUND AND, THE INSTITUTE HAS RECEIVED APPROVAL UNDER SECTION 80 G OF THE INCOME TAX ACT, 1961 REF. O.D IT (E) 2005 - 06 T. 1041/1001 VALID UP TO 31ST MARCH, 2009 . A SSESSEE FIRM HAS MAJOR PRESENCE IN PUNE A RO UND HALF OF ITS COMPLIANCE CLIENTELE AND 30 - 4 0% OF THE REVENUES ARE GENERATED FROM PUNE. PUNE BRANCH OF THE FIRM PRESENTLY EMPLOYS MORE THAN 75 PERSONNEL INCLUDING CHARTERED ACCOUNTANTS, SEMI QUALIFIED AND ARTICLES . THE FIRM AND ITS PARTNERS HAVE SINCE BEE N EXPOSED ITA NO. 4500/M/2014 B. KHARE AND COMPANY 4 TO GREATER EXPOSURE AND PARTICIPATION IN SEMINARS, SYMPOSIUMS ETC., BY DONATING THE AMOUNT, T HE FIRM HAS ALSO BEEN ABLE TO ATTRACT GOOD ARTICLED CLERKS AND OTHER PROFESSIONAL PERSONS WHO ARE THE BACKBONE OF ANY PROFESSIONAL PRACTICE. THUS THERE W AS A GOOD PROFESSIONAL REASON FOR THE FIRM TO CONTRIBUTE TO THE BUILDING FUND OF THE PUNE BRANCH OF THE ICAI THAT THE SAID PAYMENT SATISFIES THE COMMERCIAL EXPEDIENCY TEST AS THE CONTRIBUTION HAD A DIRECT NEXUS WITH THE CARRYING ON OF THE PROFESSION BY THE FIRM THE HONBLE SUPREME COURT IN THE CASE OF S A BUILDERS (288 ITR 1) REITERATED THE PROPOSITION THAT TH E EXPRESSION 'COMMERCIAL EXPEDIE NCY' IS AN EXPRESSION OF WIDE IMPORT AND INCLUDES SUCH EXPENDITURE AS A PRUDENT BUSINESSMAN INCURS FOR THE PURPOSE OF BUSINESS. THE EXPENDITURE MAY NOT HAVE BEEN INCURRED UNDER ANY LEGAL OBLIGATION, BUT YET IT IS ALLOWABLE AS A BUSINESS EXPENDITURE IF IT WAS INCURRED ON GROUNDS OF COMMERCIAL EXPEDIENC Y. 9 . THE MADRAS HIGH COURT IN THE CASE OF CH EMICALS AND PLASTICS INDIA LTD (292 ITR 115) UPHELD CLAIM FOR DEDUCTION OF AN AMOUNT OF RS. 1.5 LAKHS PAID TOWARDS CONSTRUCTION OF A BUILDING OF THE MADRAS CHAMBER OF COMMERCE OF WHICH THE ASSESSEE WAS A MEMBER. THE HIGH COURT HELD THAT THE APPROACH NEEDS TO BE THAT OF A PRACTICAL A ND PRUDENT BUSINESSMAN RATHER THAN FROM THE REVENUE'S STRICT CLASSIFICATION OF A RIGHT. RELYING ON THE DECISION OF THE SUPREME COURT IN THE CASE OF SRI VENKATA SATYANARAYANA RICE MILL CONTRACTOR CO (223 ITR 101) IT HELD THAT THE CORRECT TEST IS THAT OF COM MERCIAL EXPEDIENCY. IN THAT CASE' THE SUPREME COURT HAD HELD THAT ANY CONTRIBUTION MADE BY THE ASSESSEE TO A FUND ITA NO. 4500/M/2014 B. KHARE AND COMPANY 5 WHICH IS DIREC TL Y CONNECTED OR RELATED TO THE CARRYING ON OF THE ASSESSEE'S BUSINESS OR WHICH RESULTS IN BENEFIT TO THE ASSESSEE'S BUSINESS, H AS TO BE REGARDED AS A DEDUCTION ALLOWABLE UNDER S ECTION 37. THE MADRAS HIGH COURT HELD THAT THE RATIO DECIDENDI OF THIS DECISION WOULD APPLY TO SIMILAR CONTRIBUTIONS MADE TO NON - PUBLIC WELFARE FUNDS. THE MADRAS HIGH COURT HELD THAT ACTIVITIES OF THE CHAMB ER OF COMMERCE ARE CLOSELY LINKED WITH THE WELFARE OF THE CORPORATE ENTITIES WHO ARE MEMBERS THEREIN AND WHOSE INTEREST ARE TAKEN C ARE BY THE CHAMBER OF COMMERCE. 10 . IN RUPSA RICE MILLS (104 ITR 249) THE ORISSA HIGH COURT UPHELD CLAIM FOR DEDUCTION OF A SUM DONATED FOR CONSTRUCTING A PRIMARY HEALTH CENTRE BUILDING LOCATED NEAR THE FACTORY PREMISES AS IT WOULD PROVIDE TREATMENT TO THE AILING WORKMEN . 1 1 . IN THE CASE OF SHREE RAJASTHAN SYNTEX LTD (221 CTR 410) THE RAJASTHAN HIGH COURT UPHELD CLAIM FOR DEDUC TION AS BUSINESS EXPE NDITURE OF CONTRIBUTION GIVEN TO A TRUST FOR CONSTRUCTION OF A SCHOOL BUILDING. THE HIGH COURT UPHELD THE DECISION OF THE TRIBUNAL THAT THE DONATION WAS ALLO WABLE AS BUSINESS EXPENDITURE. 1 2 . THE MUMBAI TRIBUNAL, IN THE CASE OF HINDUST AN PETROLEUM CORPORATION LTD (54 SOT 315), UPHELD CLAIM FOR DEDUCTION AS A BUSINESS EXPENDITURE OF CONTRIBUTION MADE TO GOVERNMENT OF INDIA'S 20 POINT PROGRAM. 1 3 . IN VIEW OF THE ABOVE DISCUSSION, WE CAN CONCLUDE THAT I F THE CLAIM IS ALLOWABLE U/S 37(1) I TSELF THERE IS NO CASE FOR PROCEEDING TO CHAPTER VIA WHICH APPLIES TO ALL ASSESSEES WHETHER OR NOT THEY ARE CARRYING ON BUSINESS OR PROFESSION. ITA NO. 4500/M/2014 B. KHARE AND COMPANY 6 1 4 . IN VIEW OF THE ABOVE DISCUSSION AND RESPECTFULLY FOLLOWING THE JUDICIAL PRONOUNCEMENTS REFERRED ABOVE, WE DI RECT THE AO TO ALLOW THE CONTRIBUTION MADE BY ASSESSEE UNDER SECTION 37(1) OF THE ACT. 1 5 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 24/10 /2016 S D/ - ( SANDEEP GOSAIN ) S D/ - ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 24/10 /201 6 . . /PKM , . / PS / COPY OF THE ORDER FORWARDED TO : / BY ORDER, / ( ASSTT. REGISTRAR) , / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A), MUMBAI. 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. //TRUE COPY//