2017 (9) TMI 1954 - AT - Income Tax

Addition on account of project expenses - Nature of expenses - whether capital or revenue in nature? - AO treated the claimed expenditure as capital in nature keeping in mind that the purpose of business of the assessee society is trading of fertilizers, which is not correct rather the assets created namely forest on waste land, check dams ponds etc. became the property of the villages managed through village community and the assessee society only provided expertise and funding to them - HELD THAT - As decided in own case CIT(Appeals) has rightly hold that the Assessing Officer was not correct in holding that expenditure were not incurred wholly and exclusively for the purpose of the business and that alternatively it was capital in nature. We thus do not find infirmity in the first appellate order on the issue also because in earlier assessment years 2004-05 to 2007-08 when assessments were framed under sec. 143(3) of the Act similar expenditure have been accepted. Similar are the facts of the case in the assessment year 2009-10. The finding of the Ld. CIT( Appeals) is thus upheld. - Decided in favour of assessee.

Summary

Issues involved:
Admissibility of project expenses - capital or revenue in nature.

Analysis:
The appeal was filed by the Revenue against the order of ld. CIT(A)- XXIII, New Delhi for the assessment year 2010-11. The main issue revolved around the admissibility of project expenses as either capital or revenue in nature. The ld. Assessing Officer disallowed the expenditure, stating that the expenses were not incurred wholly and exclusively for the purpose of business. The Revenue argued that expenses for charitable purposes cannot be deducted while computing taxable income. However, the Tribunal noted that similar issues were decided in favor of the assessee in earlier years. The Tribunal referred to the objectives and projects undertaken by the society, emphasizing that the expenses were for social upliftment and rural development, not for profit-making. The Tribunal highlighted that the assets created through the projects became the property of the villages, managed by the communities, and the society only provided expertise and funding. Consequently, the Tribunal held that the project expenses were revenue in nature and were solely for the furtherance of the enterprise. The Tribunal upheld the decision of the CIT(A) that the expenses were indeed incurred wholly and exclusively for the purpose of the business, rejecting the Revenue's appeal.

In conclusion, the Tribunal found that the issue was squarely covered in favor of the assessee based on the earlier decision of the ITAT. Therefore, the Tribunal dismissed the appeal of the Revenue, affirming that the project expenses were revenue in nature and were admissible deductions for the purpose of business.