2023 (3) TMI 1342 - AT - Income Tax

Claiming Project Expenses as Revenue Expenditure Upheld Under Income Tax Act

ACIT, Circle-30 (1), New Delhi. Versus M/s Indian Farm Forestry Development Cooperative Ltd.

The Assessee's claim of project expenses as revenue expenditure under the 'Social & Rural Development Programme' was disputed by the Assessing Officer ... Expenditure under the head expenses on “Social & Rural Development Programme”- Allowable revenue expenditure or not? - whether fulfill the condition of Section 37(1)? - HELD THAT:- As no distinguishable facts or features are neither available on record nor brought to our knowledge by the Revenue Department, to contradict the findings of the authorities who have passed the orders in favour of the Assessee by holding the said expenditure as revenue in nature. Hence we are inclined not to interfere in the order passed by the learned Commissioner, as the same does not suffer from any perversity or impropriety or illegality. Appeal filed by the revenue department stands dismissed. Issues Involved:1. Whether the project expenses claimed by the Assessee qualify as revenue expenditure u/s 37(1) of the Income Tax Act, 1961.2. Whether the expenditure incurred was exclusively for the purpose of business.Issue 1: Qualification of Project Expenses as Revenue Expenditure u/s 37(1)The Assessing Officer (AO) disallowed the Assessee's claim of Rs. 6,28,66,118/- as revenue expenditure under 'Social & Rural Development Programme,' stating it did not fulfill the conditions of Section 37(1) of the Income Tax Act, 1961. The AO argued that the expenditure was in the nature of donations not covered u/s 80G and should be considered below the line, not charged to the Profit & Loss Account.The learned Commissioner, however, allowed the Assessee's claim, considering the amount as 'revenue in nature.' The Commissioner relied on previous orders and the Hon'ble Tribunal's decisions in the Assessee's own cases for A.Y. 2008-09 and 2009-10. The Commissioner noted that the Assessee's activities were akin to business activities, and the expenses were necessary for the business operations, thus qualifying as revenue expenditure.Furthermore, the Hon'ble Tribunal in the Assessee's own case for A.Y. 2008-09 & 2009-10 had allowed the claim of the Assessee by treating the same expenditure as 'revenue in nature' instead of 'capital in nature' as held by the AO. The Hon'ble High Court of Delhi also upheld this view, stating that the expenditure incurred for social and economic development was directly connected to the business of the Assessee and should be allowed u/s 37 of the Act.Issue 2: Exclusivity of Expenditure for Business PurposeThe AO questioned whether the expenditure was laid out wholly and exclusively for the purpose of business. The AO concluded that the expenses were not incurred solely for business considerations but were in the nature of social donations, thus disallowing the claim.The learned Commissioner and the Hon'ble Tribunal, however, found that the Assessee's activities, including social development projects, were integral to its business operations. The expenditure was necessary for running, operating, and continuing its business. The Hon'ble High Court of Delhi also supported this view, highlighting that the expenditure was directly related to the Assessee's business activities and thus allowable under Section 37 of the Act.In conclusion, the Tribunal observed that no distinguishable facts were presented by the Revenue Department to contradict the findings of the authorities who had passed the orders in favor of the Assessee. Therefore, the Tribunal upheld the order of the learned Commissioner, dismissing the appeal filed by the Revenue Department.Order pronounced in open court on 16/03/2023.