Statutory energy conservation fund contribution held to be deductible business expenditure, with application of income principle inapplicable.

A contribution to the statutory Energy Conservation Fund was treated as deductible business expenditure because it had a direct nexus with the assessee's business and was made towards the statutory objects of energy efficiency and conservation. The payment, made to a fund constituted under the Energy Conservation Act for those purposes, was not hit by the principle of application of income. Following the consistent view taken in the assessee's earlier years and in the absence of any contrary binding precedent, the disallowance was held unsustainable and deleted.

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Issues: Whether the contribution made to the Energy Conservation Fund was allowable as a business deduction or was hit by the principle of application of income.

Analysis: The contribution was made to the Rajasthan State Energy Conservation Fund constituted under the Energy Conservation Act, 2001 for energy conservation purposes. The assessee had been nominated as a State Designated Agency and the fund was linked to the statutory objects of energy efficiency and conservation. The issue had already been decided in the assessee's own case for earlier assessment years, where the contribution was treated as having a direct nexus with the business and as a statutory payment. Following the consistent earlier view and in the absence of any contrary binding precedent, the disallowance was not sustainable.

Conclusion: The contribution was deductible and the disallowance under section 37(1) was rightly deleted.

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