TMI Blog2024 (3) TMI 1205X X X X Extracts X X X X X X X X Extracts X X X X ..... fact, these expenditures are revenue in nature. Disallowance u/s 37(1) - expenses being contribution /donation to a trust, though the same is devoid of any business expediency? - HELD THAT:- The Division Bench of this Court in [ 2019 (8) TMI 1347 - GUJARAT HIGH COURT ] held that 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 the assessee that the construction of a statue of Sardar Vallabhbhai Paltel would significantly enhance the value of the brand name under which the assessee carries on its business. This would help enhance sales as well as exports of the company s agro products and would as a corollary enhance the brand value of other products of the company. Thus, 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. Further, it appears that the funding was for State Government. The decision of Gujarat Narmada Valley Fertilisers Co Ltd. (supra) under identical facts held that, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 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 expenditure: (i) For the year under consideration, the assessee had debited Rs. 6436.47 lacs in the P L account under the head repairs and maintenance to plant machinery and buildings. During the course of assessment proceedings, on perusal of the details of invoices and annexure revealed that the nature of the expenditure incurred by the assessee was capital expenses and accordingly it was proposed to be disallowed as revenue expense. The A.O. held that the deduction on account of repairs to machinery, Building, plant and furniture is governed by section 31 of the I.T. Act. In explanation to section 31 it is clearly mentioned that the amount paid on account of current repairs shall not include any expenditure in the nature of capital expenditure. Accordingly, an addition of Rs. 1,21,48,089/- was made after considering depreciation @15% of Rs. 1,20,06,253/- and included to the total incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) of the Act during the year under consideration. The A.O. held the donation to Sardar Vallabhbhai Rastriya Ekta trust is eligible for deduction u/s 80G of the I.T. Act @50% in respect of the said payment from gross total income of the assessee, which resulted into effective disallowance of Rs. 5,00,00,000/-. ii) Being aggrieved, the assessee preferred an appeal before the CIT(A). The Ld. CIT(A) has upheld the addition made by the A.O. holding that the donation made to Sardar Patel Rashtriya Ekta Trust was eligible for tax exemption @ 50% u/s 80G. The assessee's claim that the statue of unity of Sardar Patel will enhance the value of the 'Sardar Brand' under which the company's products are sold, is far-fetched. It is nowhere shown that the assessee has been allowed by the trust, which is constructing the Statue of Unity, to utilize the images of such statue for advertisement of its product ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jarat 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 record. The assessee submitted that the expenditure on Avlani Enterprise has been incurred for replacement of the corroded water pipeline which was used for supply of water to the DAP Plant in Sikka. The said expenditure is for maintenance and does not give rise to any enduring advantage. The expenditure neither bring into existence any new asset nor increases capacity of DAOP Plant. The Plant Machinery for which the repairs and maintenance expenditure is incurred was established at a cost of Rs. 100 Crores (approximately) in December 1986. So expenditure incurred is very negligible considering the present value of total Plant Machinery. The expenditure related to Thermax Limited is for replacement of a small part of the DAP Plant. The burner system being replaced is not capable of functioning on a standalone basis. Accordingly the expenditure does not give rise to any enduring advantage. The expenditure neither brings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 the Tribunal and affirmed by the Hon ble Gujarat High Court. 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. The said brand has been derived from the iconic character of Vallabhbhai Patel who was referred to as Sardar . The construction of a statue of Sardar Vallabhbhai Patel would significantly enhance the value of the brand name under which the assessee carries on its business. This would help enhance sales as well as exports of the company s agro products and would as a corollary enhance the brand value of other products of the company. As a part of its obligation to contribute towards the society, the assessee has incurred such expenditure as a part of CSR (Corporate Social Responsibility). Accordingly, the expenditure was incurred wholly and exclusively for the purpose of business on account of commercial expediency ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uitful 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 dismissed. The Ld. DR further submitted that during the course of hearing the Ld. AR of the assessee relied on various decision including the decision of Hon ble Gujarat High Court in the case of Gujarat Narmada Valley Fertilizers Co. Ltd. wherein identical facts, the claim was allowed by the ITAT and affirmed by Hon ble Gujarat High Court. The nature of expenses in that case was quite different and same were incurred per various projects including (i) purchasing Charkhas for tribal women, (ii) construction of hostel for boys and girls in Bhekhadia Village, (iii) contribution for providing potable drinking water in the villages of Bharuch District, (iv) providing computers to entrepreneurs, (v) contribution to conferences on socio-economic issues, (vii) sponsorships of various programmers / events, (viii) contributions to various health projects of various organizations, (ix) contribution to independence Day celebrations by GOG, Rajpipla and (x) contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilable 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 the assessee that the construction of a statue of Sardar Vallabhbhai Paltel would significantly enhance the value of the brand name under which the assessee carries on its business. This would help enhance sales as well as exports of the company s agro products and would as a corollary enhance the brand value of other products of the company. Thus, 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 under Section 37 of the Act, appears to be genuine. Further, it appears that the funding was for State Government. The decision of the Hon ble Gujarat High Court in the case of Gujarat Narmada Valley Fertilisers Co Ltd. (supra) under identical facts held that, the said expenditures were allowed related to deduction under Section 37 of the Act. Noting contrary was placed on record by the Ld. DR in respect of the decision of the Hon b ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
