2015 (11) TMI 589 - AT - Income Tax

Disallowance of payment towards Energy conservation Contribution expenses - whether expenditure not incidental to the business of the assessee? - Held that - The assessee company has nominated as a State Designated Agency of Bureau of Energy Efficiency, Ministry of Power, Government of India on March, 2003 for promote efficient use of energy and its conservation and also enforce the provisions of energy conservation Act, 2001. The company was incorporated to plan, promote and organize integrated and efficient development of thermal/hydro electric power, gas HSD and other petroleum fuel based power, solar, wind, Biomass and other non conventional and renewal energy used power (including those based on bio-mass s, bio-gas) and power transmission systems in all its aspects including planning investigation research design engineering and preparation of preliminary feasibility and define project reports, construction, generation operation and maintenance of power stations and projects and sale of power generated in accordance with the state policy and broad economic consideration. To promote, support assist, sponsor the use of non-conventional energy sources in the country or abroad and disseminate useful knowledge and understanding in the various fields of non-conventional energy among mass. The assessee paid ₹ 5 lacs to perform the object of the company. This amount was paid towards energy conservation contribution fund, which is statutory liability as per provisions of Energy Conservation Act, 2001. The case law relied by the assessee in the case of CIT Vs. Raj Shipping and Weaving Mills Ltd. (2003 (11) TMI 6 - RAJASTHAN High Court) is squarely applicable in the case of the assessee wherein it has been held that contribution to the fund set up for products which was also the business of the assessee has direct nexus to the advancement of the assessee business. The object of the fund was not confined to the assessee but was open to all who wanted to participate could not alter the character of expenses incurred by way of contribution to such fund by the assessee from his benefit to other benefits. Thus we are of the considered view that the assessee has incurred expenses wholly and exclusively for business purposes - Decided in favour of assessee.

Summary

Issues:
Disallowance of energy conservation contribution expenses as not incidental to the business.

Analysis:
The appeal was filed against the order confirming the disallowance of Rs. 5,00,000 by treating the payment towards Energy Conservation Contribution expenses as not incidental to the business. The Assessing Officer observed the debit in P&L account towards these expenses and made the addition to the income of the assessee. The CIT(A) sustained this order, stating that the expenses were not incidental to the business and not incurred wholly and exclusively for business purposes.

The assessee argued that it was a State Nodal Agency for the development of renewable energy and was nominated as a State Designated Agency for energy conservation. The company was incorporated with specific objects related to promoting energy conservation. The assessee paid Rs. 5,00,000 towards the Rajasthan State Energy Conservation Fund as a statutory liability. Citing relevant case laws, the assessee contended that the contribution to such funds had a direct nexus to the advancement of the business.

The Tribunal noted that the company was designated to promote energy efficiency and conservation as per the Energy Conservation Act, 2001. The contribution to the fund was for statutory purposes and aligned with the company's objectives. Relying on a judgment of the Jurisdictional High Court, the Tribunal held that the expenses were incurred wholly and exclusively for business purposes. Therefore, the order of the CIT(A) was reversed, and the appeal of the assessee was allowed.

In conclusion, the Tribunal found that the expenses towards energy conservation contribution were directly related to the business objectives of the assessee, as it was a State Designated Agency for energy efficiency and conservation. The contribution to the fund was deemed to be for statutory purposes and in line with the company's core activities. Based on the legal principles cited and the specific nature of the company's operations, the Tribunal allowed the appeal, overturning the earlier decision disallowing the expenses.