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TMI Blog2024 (3) TMI 1205X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 10,00,00,000/- made under section 37(1) of the Act in respect of expenses being contribution /donation to a trust, though the same is devoid of any business expediency? (C) Whether the Appellate Tribunal is justified in law and on facts in holding that the expenditure written off by the assessee has to be considered as business revenue expenditure without appreciating the fact that expenses incurred for establishing a new project will remain capital expenditure in nature even if these projects did not materialize and hence, cannot be allowed as business expenditure under section 37 of the Act?" 3. In context of Question (A), the facts are as under: 3.1 The brief facts of the case are that the assessee company is engaged in the business of manufacturing and selling of Fertilizers & Chemicals. The assessee filed its e-return of income on 28.09.2011 declaring total income of Rs. 8,90,01,99,410/-, which was revised declaring total income at Rs. 8,90,11,51,658/-. The scrutiny assessment u/s 143(3) of the Act was finalized after making various addition/disallowances. 3.2 Disallowance of Rs. 1,06,25,294/- on account of repairs and maintenance expenses considered as Capital expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... replacement but replacement of part of machinery/plant which in totality cannot be treated at par with the repairs and maintenance of entire Plant & Machinery. The pipelines and duel fuel burner system are forming some part of entire plant and machinery and both these parts do not function independently or used independently for the projects of the assessee company. Thus, the Appellate Tribunal held that the CIT(A) was not right in confirming the addition and held that these expenditures are revenue in nature. 4. In the context of question (B), the facts are as under: 4.1 Disallowance of donation of Rs. 10 Crores made to Sardar Vallabhbhai Rastriya Ekta Trust i) During the year under consideration, the assessee debited an amount of Rs. 15.95 crores as donations & contributions out of which a contribution of Rs. 10 crores has been made to Sardar Vallabhbhai Rastriya Ekta trust for the contribution to "Statue of Unity" a status of Hon'ble Shri Sardar Vallabhbhai Patel. The assessee submitted that the expenditure has been incurred out of commercial expediency and is wholly and exclusively for the purpose of business and being revenue in nature is allowable as deduction u/s 37(1) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has noted that the contention of the Ld. AR that the expenditure was incurred wholly and exclusively for the purpose of business on account of commercial expediency and accordingly is allowable u/s 37 of the Act, appears to be genuine and that the funding was for State Government. The Appellate Tribunal also noted that the decision of the Hon'ble Gujarat High Court in the case of Gujarat Narmada Valley Fertilizers Co Ltd. (a PSU) under identical facts held that the said expenditures were allowed related to deduction u/s 37 of the Act. Thus, the Appellate Tribunal has held these expenditures as allowable and accordingly, allowed the assessee's appeal. 5. In the own case of the assessee, the Division Bench of this Court in Tax Appeal No.147 of 2019 vide an order dated 26.08.2019 dismissed the appeal of the Revenue relying on an order of the Division Bench in the case of Principal Commissioner of Income Tax v. Gujarat Narmada Valley Fertilizers and Chemicals Ltd., Tax Appeal No.1360 of 2018 dated 29.04.2019. The relevant observations of the ITAT in context of these questions read as under: "13. We have heard both the parties and perused all the relevant material available on reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement but replacement of part of machinery/plant which in totality cannot be treated at par with the repairs and maintenance that of entire Plant & Machinery. The pipelines and duel fuel burner system are forming some part of entire plant and machinery and both these parts do not function independently or used independently for the projects of the assessee company. Thus, the CIT(A) was not right in confirming the addition. In fact, these expenditures are revenue in nature. Ground no.3 of assessee's appeal is allowed. 14. As regards grounds no.4, related to disallowance of contribution of Rs. 10 Crores to Sardar Vallabhbhai Patel Rashtriya Ekta Trust, the Ld. AR submitted that for an expenditure to be eligible as business expenditure, merely the Trust is registered under Section 80G would not debar the expenditure, provided it satisfies the test of business expenditure. In the given facts, the Ld. AR relied upon the decision of Hon'ble Gujarat High Court in the case of Gujarat Narmada Valley Fertilisers Co. Ltd. (Tax Appeal No. 770 of 1999 with Tax Appeal No. 77 of 2008 with Tax Appeal No. 78 of 2008 judgment dated 06.05.2011), wherein on identical facts the claim was allowed by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Patel will enhance the value of the 'Sardar Brand' under which the company's products are sold, is farfetched. It is nowhere shown that the appellant has been allowed by the trust, which is constructing the statue of unity, to utilise the images of such statue for advertisement of its products. Until and unless the appellant can show that by making this donation, it has acquired right to utilise the images and other details of Statue of Unity for selling its products, only because its produce are sold under the name 'Sardar Brand' and this word occurs in the name of Sardar Patel, it cannot be said that the donation made is wholly and exclusively for the business purposes of the appellant. The AO has also pointed out there are large number of social and educational and other project and scheme in the name of Hon'ble Sardar Vallabhbhai Patel which are running and are established. Therefore, contributing to each schemes does not in any way, is fruitful for the business of the appellant. Hence, the AO's action of not allowing entire expenditure as a deduction is upheld. The AO has rightly allowed the deduction u/s 80G of the Act of this payment. Hence, this ground of appeal is dismisse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or A.Y. 2011-12 which are similar as there was similar contribution was made for Rs. 7 Crore along with other donations in A.Y. 2011-12. The Ld. AR pointed out the relevant paras of the assessment order and the Tribunal's order for A.Y. 2011-12 and also the para of the High court's order for A.Y. 2010-11 and 2011-12. Thus, the Ld. AR submitted that the nature of expenses in the case of Gujarat Narmada Valley Fertilizers Co. Ltd. is same as compared with the facts of the current case. Therefore, amount of contribution of Rs. 10 crores should be allowed as deduction under Section 37 of the Act. The Ld. AR submitted that the Ld. DR has not brought any contrary decision of the jurisdictional High Court or Supreme Court and therefore, the decision in case of Gujarat Narmada Valley Fertilizers Co. Ltd. has to be followed and the deduction be allowed under Section 37 of the Act. 17. We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that the Agro Products of the assessee company are sold under the brand name 'Sardar' which is very popular amongst the farming community since more than four decades. It was an apprehension of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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