2008 (3) TMI 389 - AT - Income Tax

Tribunal upholds deductions for co-op society's business expenses under IT Act, dismissing Department's appeals.

The Tribunal dismissed all appeals filed by the Department for the relevant assessment years, upholding the decisions of the CIT(A) that the expenses ... Business Expenditure Issues Involved:1. Animal Husbandry Expenses2. Cattle Feed Unit Loss3. Advertisement Expenses4. Audit FeesDetailed Analysis:1. Animal Husbandry Expenses:The primary issue was whether the expenditure on animal husbandry made by the assessee, a federal co-operative society, was incidental to its business. The Department argued that these expenses benefited non-members and were not necessary for the business. The CIT(A) allowed the expenditure, noting it was in line with guidelines from the NDDB and aimed at improving milk quality and production. The Tribunal upheld CIT(A)'s decision, referencing cases like Sassoon J. David & Co. (P) Ltd. vs. CIT and Eastern Investments Ltd. vs. CIT, which established that expenses incurred voluntarily for promoting business and earning profits, even if not necessary, are deductible under s. 37(1) of the IT Act, 1961.2. Cattle Feed Unit Loss:The assessee claimed a loss of Rs. 28,61,328 from its cattle feed unit, which the AO disallowed, arguing that the unit was run on a no-profit-no-loss basis and the loss was due to selling feed at lower prices. The CIT(A) allowed the claim, supported by the decision in CIT vs. Panipat Co-operative Sugar Mills Ltd., where expenses on providing inputs to raw material suppliers were deemed connected to the business and deductible. The Tribunal agreed with CIT(A), noting that the loss was incurred as part of the assessee's business operations.3. Advertisement Expenses:The AO disallowed Rs. 1,08,842 of the claimed Rs. 8,10,251 under advertisement expenses, citing lack of details. The CIT(A) allowed the claim, referencing CIT vs. Shree Panchaganga Sahakari Sakhar Karkhana Ltd., where similar expenses were deemed necessary for maintaining good relations with members and thus deductible. The Tribunal upheld CIT(A)'s decision, emphasizing that the expenses were bona fide and paid through proper channels.4. Audit Fees:The AO disallowed Rs. 3,75,000 of audit fees payable for earlier years under s. 43B of the Act. The CIT(A) deleted this addition, referencing a decision in the assessee's own case for asst. yr. 1989-90, which held that s. 43B does not apply to audit fees. The Tribunal supported this view, citing CIT vs. Shree Warna Sahakari Sakhar Karkhana Ltd., where audit fees were not considered under the purview of s. 43B.Conclusion:The Tribunal dismissed all the appeals filed by the Department for the assessment years in question, agreeing with the CIT(A) that the expenses were incurred wholly and exclusively for the purposes of the assessee's business and were thus deductible under the relevant provisions of the IT Act. The cross-objection by the assessee for asst. yr. 1993-94 was not pressed and was therefore rejected.