2021 (2) TMI 736 - AT - Income Tax

Allowable revenue expenditure u/s 37(1) - Contribution made to Star Shiksha Samity which runs a school in the Mills compound of the appellant for education and welfare activities of the children of the employees - according to AO it is in the nature of donation and liable to be disallowed - HELD THAT - We note that explanation 2 to section 37(1) of the Act came into operation w.e.f 01.08.2015 and cannot be held as retrospective. We also find that this claim of the assessee is not as per the CSR - we note that the expenses have been claimed under the head staff/labour and other welfare expenses and the fact discernable is that the assessee maintains a school in the name of Star Paper Mill Higher Secondary School in its own mill compound and as well as expenses are meant for the maintenance of the school as well as play ground etc. which are for the welfare of the children of the mill workers as well as to the local residents have not been controverted by the authorities below. Since such similar claims made by the assessee for maintenance of school has not been disallowed in the earlier years, so by applying principle of consistency we direct the AO to allow the expenditure claimed by the assessee. Expenditure u/s 43B on the payment basis - payments in respect of entry tax on fuel kept under advance account in the balance sheet - HELD THAT - The entry tax levied by the Govt. of UP is an allowable deduction u/s 43B sub-clause (a) of the Act provided the amount is remitted by the assessee (entry tax) and will be allowed in the year in which the sum is actually paid by the assessee . Since the issue of tax which was paid to the UP Govt. was sub-judice, as discussed supra, the assessee did not claim the deduction but was shown in the balance sheet as advance, and did not claim in its return of income. And since this claim/ground is raised before us for the first time, in the interest of justice, this issue is remanded to the file of AO for verification. If the AO finds that the assessee has actually paid the entry tax to the Govt. of UP as entry tax and has not claimed deduction in its ROI, then the sum may be allowed in accordance to section 43B of the Act. Appeal of the assessee is allowed for statistical purposes.

Summary

Issues:
1. Disallowance of contribution made to Star Shiksha Samity for education and welfare activities.
2. Claiming entry tax on fuel under advance account in the balance sheet for the first time.

Issue 1: Disallowance of Contribution to Star Shiksha Samity:
The appellant contested the disallowance of ?1,00,000 made by the AO for the contribution to Star Shiksha Samity, arguing it was for the welfare of employees' children. The AO treated the amount as a donation, disallowing it. The CIT(A) upheld the AO's decision as the payment could not be proved as per Section 80G or Section 37 of the Act. However, the appellant maintained that the amount was utilized for school maintenance, salaries, and welfare activities. The ITAT noted the appellant's engagement in paper manufacturing, school management, and State Government funding for the school. The ITAT found no previous disallowance on similar claims and directed the AO to allow the expenditure based on consistency and welfare purposes.

Issue 2: Claiming Entry Tax on Fuel:
The appellant sought to claim ?46,44,362 under section 43B for entry tax on fuel, previously shown as an advance in the balance sheet. The tax was challenged in court, and after legal proceedings, the appellant intended to claim it as a deduction. The ITAT remanded the issue to the AO for verification, considering the tax was sub-judice, not claimed earlier, and raised for the first time during the appeal. If the AO confirms the payment and non-claim in the return of income, the deduction may be allowed in accordance with section 43B.

In conclusion, the ITAT allowed the appeal for statistical purposes, directing the AO to verify the entry tax payment issue. The judgment highlighted the importance of consistency in allowing expenses for welfare activities and the need for proper verification of tax payments before allowing deductions.