TaxTMI 
TaxTMI 
2020 (10) TMI 922
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....med by the ld. CIT(A). 2. The assessee company is a Government of Rajasthan Enterprises and engaged in the business of mining, processing and trading of minerals. The assessee filed its return of income on 30th October, 2007 declaring total income of Rs. 98,38,14,112/- which was revised on 30th March, 2009 to total income of Rs. 98,34,77,175/-. During the course of scrutiny assessment, the AO noted that the assessee has claimed deduction for prior period expenses of Rs. 55,03,616/-. The AO asked the assessee to explain why the claim of deduction on prior period expenses should not be disallowed as the assessee has been following the mercantile system of accounting. In reply, the assessee explained that out of the total amount of Rs. 55.04 lacs, a sum of Rs. 18.87 lacs is on account of depreciation which the assessee itself has added back in the computation of total income. As regards the remaining expenses of Rs. 36.17 lacs, the assessee has submitted that it is a State Government Undertaking where the rules for passing the vouchers 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. Therefor....
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.... the expenditure should not be treated as prior period expense. Research and Development expenses 29,005/- The amount consists of 5 petty bills amounting to Rs. 1710/-, 1330/-, 4880/-, 18900/- and Rs. 2185/- being received for payment and approved during the year under consideration. As the bills were 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. Salary 22,674/- Amount was paid to Sh. Hajari Lal Jangid, Ex-XEN against pay revision arrear 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 ....
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....TR 267 (Raj.). 4. On the other hand, the ld. D/R has submitted that the assessee himself has admitted the fact that these are prior period expenses not pertaining to the year under consideration. The AO has already allowed the major part of the expenditures where the explanation of the assessee was reasonable as the bills of the contractors were approved by the concerned authorities in the year under consideration. The 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 Rs. 36.17 lacs, the AO himself has allowed a sum o....
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....he CIT(A)-II, Jaipur, has held as under- "From the submission of the appellant it is clear that Hon'ble ITAT, Jaipur Bench has been allowing Prior Period Expenses in the case of various Government Undertakings in the year in which such expenses are finally sanctioned and approved. Even in the appellant's own case the issue has been decided in favour of the appellant in AY 2000-01 by Hon'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 Rs. 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 recor....
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....has claimed deduction of Rs. 10,87,000/- under the head Business Promotion and Social Welfare Expenses towards the payments made to Federation of Mining Association of Rajasthan, District Police Welfare Fund, District Weight Lifting Association, West Zone Culture Centre, District Vikas Samiti for construction of Community Centre for Police Department, Rose Society, Sangeet Parishad, Mahila Samiti, Government Adarsh Higher Primary School. The AO has disallowed the said amount of Rs. 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 Rs. 5,00,000/-. The assessee is a member of the Federation which has to raise various issues at various forums ....
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....mitted that these expenditures are incurred towards contribution or donation to various organizations or associations, samitis, schools etc. Therefore, this is not the expenditure incurred wholly and exclusively for the business of the assessee. A donation given by the assessee is a pending of income and not an expenditure incurred for earning of income. He 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 Rs. 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 ben....
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.... the sponsorship of the National Convention of writers held from 16.12.2006 to 17.12.2006. Such Payment results in the publicity of the company and hence are allowable u/s. 37(1). (PB Pg. 50 & 52) 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  ....
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.... 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 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 Rs. 14,....
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....amount of Rs. 2,84,990/- was claimed by the assessee u/s. 37(1). In respect of the claim of deduction, 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 Rs. 2,84,990/-. 11. On appeal before ld. CIT(A), the ld. CIT(A) deleted the disallowance amounting to Rs. 2,34,990/- by holding that the same were contributions made for various activities whi....