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2020 (5) TMI 667 - AT - Income TaxAllowable expenditure u/s 37(1) - contribution paid to The Deputy Commissioner Bellary for Hampi Utsay - Hampi utsav is a cultural festival to boost the morale and cultural difference for national and international - HELD THAT - In the present case the payment is not only made by the assessee firm but similar payments have also been made by all the business / industrial houses situated in Bellary and nearby districts depending upon the scale of business. It is also noted by CIT(A) that the present payment has helped the firm in getting goodwill of local citizens bureaucrats politicians press and others. When this is admitted by learned CIT(A) that this payment in question will help the firm in getting goodwill of local citizens bureaucrats politicians press and others this will definitely benefit the assessee firm s business also may at a later date. Therefore in our considered opinion this expenditure is an allowable expenditure under section 37(1) - Decided in favour of assessee.
Issues:
1. Disallowance of expenditure for contribution to Hampi Utsav. 2. Claiming deduction under section 37 of the Income Tax Act, 1961. 3. Interpretation of business expenditure for the purpose of section 37(1). 4. Benefit of business from the expenditure made. Issue 1: Disallowance of Expenditure for Contribution to Hampi Utsav The appeal was filed against the order of the CIT(A) rejecting the claim for expenditure amounting to ?10,00,000 paid to The Deputy Commissioner, Bellary for Hampi Utsav for Assessment Year 2009-10. The AO held that the expenditure was not incurred for the purpose of business and disallowed it under section 37 of the Income Tax Act, 1961. The CIT(A) upheld the Assessment Order, leading to the further appeal. Issue 2: Claiming Deduction under Section 37 During the hearing, the assessee's representative relied on a judgment of the Hon’ble Karnataka High Court in a similar case involving the disallowance of expenditure for constructing houses. The judgment highlighted that contributions made to a district welfare fund were allowable under section 37(1) of the Income Tax Act, 1961. The representative argued that the present case was similar and should be allowed as a deduction under section 37. Issue 3: Interpretation of Business Expenditure The Revenue supported the CIT(A)'s order, emphasizing that the payment should result in a benefit to the assessee's business directly or indirectly, immediately or at a later stage. However, the Tribunal noted that the payment made by the assessee had helped in gaining goodwill from various stakeholders, which would benefit the business in the future. Citing the judgment of the Hon’ble Karnataka High Court, the Tribunal concluded that the expenditure was allowable under section 37(1) as it would ultimately benefit the assessee's business. Issue 4: Benefit of Business from Expenditure The Tribunal found that the payment made by the assessee for Hampi Utsav would result in goodwill from local citizens, bureaucrats, politicians, and the press, which would benefit the firm's business in the long run. Consequently, the Tribunal allowed the appeal, following the precedent set by the Hon’ble Karnataka High Court and deciding the issue in favor of the assessee. In conclusion, the Tribunal allowed the appeal, considering the benefit to the business from the expenditure made for Hampi Utsav and following the legal interpretation of allowable deductions under section 37(1) of the Income Tax Act, 1961 as established by relevant judicial precedents.
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