TMI Blog2020 (10) TMI 922X X X X Extracts X X X X X X X X Extracts X X X X ..... nt Adarsh Higher Primary School - AO has disallowed the said amount on the ground that these expenses are in the nature of donation and not incurred for the purpose of business of the assessee - HELD THAT:- Maintaining a cordial relations with the Police Department and District Administration is in the interest of business of the assessee and hence the said payment of the assessee for the welfare of the Police Department, particularly Community Centre as well as Welfare Fund of the Police Department is an allowable expenditure having regard to the nature of business activity in the mining field which requires police help for maintaining law and order situation and uninterrupted functions of the assessee. Similarly the other contributions to the various Societies, Samitis and Sangeet Parishad including the Government Adarsh Higher Primary School for sponsorship of the sports tournaments are certainly for the publicity and business promotion of the assessee. Even otherwise, such type of contributions are participations of the assessee and monetary help in conducting the social welfare activity in the area would bring a good reputation and image of the assessee's business which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs are very stringent. The process of clearing the bills and vouchers takes time because it is checked whether the claim is as per rules or not. Therefore, the approval of the appropriate authority is granted after some time. The assessee claimed that some of the expenditures, approval of which have been granted in the current year and therefore, the same are claimed during the year under consideration. The assessee has explained the reasons for claiming these expenses one by one under each head which has been reproduced by the AO in the assessment order. The AO after considering the explanation of the assessee allowed the claim regarding payment to the contractors of ₹ 30,34,372/- and bonus of ₹ 3,655/- total amounting to ₹ 30,38,072/- out of ₹ 36,14,367/-. Thus the AO has made a disallowance of ₹ 5,76,340/- on account of prior period expenses. On appeal, the ld. CIT(A) has confirmed the disallowance made by the AO. 3. Before us, the ld. A/R of the assessee has reiterated his contention and explanations as raised before the AO as well as ld. CIT(A). The submissions of the assessee has been reproduced by the ld. CIT(A) in para 7.1 as under:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rear for the period 14.01.1992 to 13.10.1992. Since the payment was approved by the authority on 25.01.2007 therefore it is crystallized in the year under consideration and cannot be regarded as prior period expenses (Copy of note sheet and other relevant papers is enclosed PB Pg. 25-27) Freight 11,000/- As the bill was received during the year under consideration and the same was approved for payment during the year under consideration therefore the liability for expense is crystallized during the year under consideration only and hence the expenditure should not be treated as prior period expense. Repairs maintenance of Plant and Machinery 6,498/- As the bill was received during the year under consideration and the same was approved for payment during the year under consideration therefore the liability for expense is crystallized during the year under consideration only and hence the expenditure should not be treated as prior period expense. Legal and Professional feews 5,000/- As the bill was received during the year un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remaining expenditure which clearly pertains to the earlier year cannot be allowed otherwise it will be violation of rules of mercantile system of accounting and each accounting year is a separate unit. He has relied upon orders of the authorities below. 5. We have considered the rival submissions as well as the relevant material on record. The AO himself has accepted this fact that the bills and vouchers require approval of the concerned authorities before the payment is made by the assessee company being a State Government Enterprise. To check the misuse, misappropriation of funds, there are rules for releasing of payments and hence the approvals of the expenditures take some time. Thus out of the total amount of ₹ 36.17 lacs, the AO himself has allowed a sum of ₹ 30,38,072/- towards payment to contractors and bonus. The AO has given the reasons for allowing the expenditures that the claim of escalation and higher rates were approved by the authorities during the year under consideration, therefore, the expenditures can be treated as allowable. We find that as regards the other items of expenditure which the AO has disallowed, the assessee has explained the reasons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;ble Jaipur Bench ITAT vide order dated 22-12-2006. My predecessors have allowed prior period expenses in orders dated 10.08.2011 in AY 2008-09 and 18.10.2012 in AY 2009-10. Respectfully following Hon'ble ITAT's order in the case of appellant in AY 2000-01 dated 22-12-2006 in ITA No. 600/JP/2003, the AO is directed to delete the addition of ₹ 4,40,113 because the table in the appellant's submission shows that the liability for the expenses got crystallized in the year under consideration. 6.2 following the above order of CIT(A)-II, Jaipur and the orders of the ITAT, Jaipur, in the case of the assessee, the above disallowance is directed to be deleted. This ground is allowed. 81.3 This finding is not controverted by the Revenue by placing any contrary material on record and also no change into facts and circumstances is pointed out. Therefore, this ground of the Revenue's appeal is dismissed. Therefore, this issue has been consistently decided by this Tribunal in favour of the assessee. Even for the assessment year 1995-96 the Tribunal set aside this issue to the AO and in the set aside proceedings, the AO has allowed the claim vide order dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... geet Parishad, Mahila Samiti, Government Adarsh Higher Primary School. The AO has disallowed the said amount of ₹ 10,87,000/- on the ground that these expenses are in the nature of donation and not incurred for the purpose of business of the assessee. The assessee has not established that the business of the assessee has derived the benefit out of these expenses. Thus the AO held that the amount has not been incurred wholly and exclusively for the purpose of business. The assessee challenged the action of the AO before the ld. CIT(A) but could not succeed. 7. Before us, the ld. A/R of the assessee has submitted that the assessee incurred expenses towards contribution to Federation of Mining Association of ₹ 5,00,000/-. The assessee is a member of the Federation which has to raise various issues at various forums for the benefit of mining companies. Therefore, the said contribution is for the purpose of business of the assessee as the Federation of Mining Association is looking after the interest of mining business community. Similarly, the payment made to District Police Welfare Fund is also brings the benefit of maintaining cordial relations with the Police Departme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has relied upon the orders of the authorities below. 9. We have considered the rival submissions and material on record. The assessee has explained the reasons for allowability of these expenses which have been reproduced by the AO as under:- S. No. Name of Party Amount in Rs. Explanation 1. Federation of mining association of Rajasthan 500000 Assessee company is a member of the Federation of Mining Association of Rajasthan. The office bearers of the RSMM forms part of the executive committee of the Federation. Assessee has contributed ₹ 5.00 lacs towards the purchase of officer premises of the federation. Since the federation helps to raise various issues at different forums for the benefit of mining companies therefore the expenditure is not Donation and needs to be allowed. Relevant papers are enclosed at PB Pg. 33-41 2. District Police welfare fund 25000 Payment is made towards police welfare fund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. Rose Society 50000 Amount was paid to Rose Society for sponsorship of Rose Show 2007 at Jaipur on 21.01.2007. Hence the payment is towards the publicity and business promotion of the company and therefore same is allowable u/s. 37(1) of the Income Tax Act, 1961. (Copy of relevant pages along with note sheet are enclosed at PBP Pg. 53-65). 9. Maharana Kumbhas Sangit Parishad 50000 Amount was paid to Parishad for sponsorship of 45th Maharana Kumbha Sangeet Samaroh on 9 to 11th March' 2007 at Udaipur. Hence the payment is towards the publicity and business promotion of the company and therefore same is allowable u/s. 37(1) of the Income Tax Act, 1961. (Copy of relevant pages along with note sheet are enclosed at PB Pg 66-68). 10. Madhuban Mahila Samiti 22000 Amount was paid to Madhuban Mahila Samiti for purchase of 2 Cycle trolleys for the collection of garbage from various places in the city. The expenditure i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and order situation and uninterrupted functions of the assessee. Similarly the other contributions to the various Societies, Samitis and Sangeet Parishad including the Government Adarsh Higher Primary School for sponsorship of the sports tournaments are certainly for the publicity and business promotion of the assessee. Even otherwise, such type of contributions are participations of the assessee and monetary help in conducting the social welfare activity in the area would bring a good reputation and image of the assessee's business which is nothing but a business promotion activity of the assessee. Once the expenditure incurred by the assessee has a nexus with the interest of the business of the assessee and functioning of the business of the assessee, then the same is an allowable business expenditure under section 37(1) of the IT Act. This Tribunal in assessee's own case for the assessment year 2006-07 has considered this issue vide order dated 31.03.2010 in para 9 as under:- 9. After hearing both the parties, we noted that amount of ₹ 14,650/- was paid to the Inspector General of Police, Udaipur Range for assistance in organizing two days work shop on Human ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion, the assessee has submitted that though the payments were debited in the donation expenses account but these are in the nature of publicity and sales promotion expenses. Hence the same is allowable u/s. 37(1). In the assessment year 2006-07 Hon'ble ITAT has allowed the payment made by the assessee to wild life development samiti and to the Inspector General of Police for organizing the road safety week by holding that the amount was paid by the assessee in discharge of its social obligation in the area and therefore allowable u/s. 37(1). 10.1. The AO considered the submission but could not find it acceptable. The AO observed that assessee has not been able to prove the business expediency of the expenditure incurred towards social welfare expenses neither he explained that what benefit it had derived from incurring these expenses. The AO, therefore, disallowed the claim of expenses of ₹ 2,84,990/-. 11. On appeal before ld. CIT(A), the ld. CIT(A) deleted the disallowance amounting to ₹ 2,34,990/- by holding that the same were contributions made for various activities which also involved display of appellant's banner and therefore these expenses had ..... X X X X Extracts X X X X X X X X Extracts X X X X
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