2015 (7) TMI 1386 - AT - Income Tax

Allowable business expenditure - contribution made to Sparsh Trust - disallowance of claim as assessee failed to prove direct business nexus and it is not an allowable expenditure u/s 37(1) - CIT (A) allowed the claim of the payments to Sparsh Trust relying on ITAT s order in assessee s own case 2012 (3) TMI 586 - ITAT JAIPUR . HELD THAT - Since the issue in question is squarely covered in favour of the assessee by the ITAT judgment in its own case, especially following the same, we uphold the order of ld. CIT (A). Thus Revenue s appeal is dismissed. Disallowance being contribution made to rehabilitation fund - HELD THAT - We fund merit in the alternative contention of ld. Counsel for the assessee. In view of the fact that assessee created a separate Rehabilitation Trust which is registered under section 12AA of the IT Act and in the case of RCDF on these facts the claim has been allowed in A.Y. 2010-11, we set aside the matter to decide the same afresh in accordance with law after giving assessee an opportunity of being heard.

Summary

Issues involved:
1. Disallowance of contribution made to 'Sparsh Trust' by the Assessing Officer.
2. Disallowance of contribution made to rehabilitation fund confirmed by the Commissioner of Income Tax (Appeals).

Analysis:

Issue 1: Disallowance of contribution made to 'Sparsh Trust'
The Revenue appealed against the deletion of the addition of Rs. 85,66,157 made by the Assessing Officer by disallowing the contribution made to 'Sparsh Trust'. The Revenue contended that the assessee failed to prove a direct business nexus, making it not an allowable expenditure under section 37(1). However, the CIT (A) allowed the claim, citing that the contribution was directly linked to the procurement of better quality milk, essential for the business. The ITAT upheld the CIT (A)'s decision, emphasizing that the contribution was wholly and exclusively for the purpose of business, as evidenced by the Trust's expenditure on improving milk quality and animal health. The ITAT noted that the Trust's deficit was covered by the assessee's contribution, which was previously borne solely by the assessee. Therefore, the contribution to 'Sparsh Trust' was deemed allowable as business expenditure under section 37(1).

Issue 2: Disallowance of contribution made to rehabilitation fund
In the assessee's appeal, the disallowance of Rs. 20,18,213 made to the rehabilitation fund was contested. The CIT (A) confirmed the disallowance, following a similar decision in the case of M/s. Rajasthan Cooperative Dairy Federation Ltd. The assessee argued that the facts were distinguishable, as a separate Rehabilitation Fund registered under section 12AA was created. The ITAT acknowledged the merit in the assessee's contention and set aside the matter for fresh consideration by the Assessing Officer. Given that a separate Rehabilitation Trust registered under section 12AA was established by the assessee, similar to the case of RCDF where the claim was allowed, the ITAT deemed it necessary to reevaluate the issue in accordance with the law and after providing the assessee with a fair hearing.

In conclusion, the ITAT dismissed the Revenue's appeal regarding the 'Sparsh Trust' contribution and allowed the assessee's appeal concerning the rehabilitation fund disallowance for statistical purposes. The judgment highlighted the importance of establishing a direct business nexus for expenditure claims and the significance of compliance with relevant legal provisions, such as section 37(1) and section 12AA, in determining the allowability of contributions to trusts and funds.