2005 (12) TMI 262 - AT - Income Tax

Summary

Issues:
1. Allowability of pooja expenses incurred in business premises.
2. Deductibility of temple construction expenses for business purposes.

Issue 1: Allowability of Pooja Expenses
The Revenue challenged the allowance of pooja expenses incurred in the business premises by the assessee. The counsel for the assessee argued that these expenses, including monthly Dakshina and Prasad costs, were essential for business purposes and should not be disallowed. The counsel supported the decision of the CIT (Appeals) citing relevant case laws. The Tribunal noted that while the recurring expenditure for poojas was for specific purposes like maintaining harmony among labor-oriented factory workers, the Assessing Officer contended that these expenses were not directly related to the business of the assessee. The Tribunal found that the expenses incurred for regular pooja activities did not demonstrate a direct link to the business operations of the assessee. It was highlighted that a temple's ownership is personal and not strictly business-related. The Tribunal reversed the decision of the CIT (Appeals) and upheld the Assessing Officer's view that the pooja expenses were not incurred for business purposes.

Issue 2: Deductibility of Temple Construction Expenses
Regarding the construction of a temple in the factory premises, the counsel argued that the temple's construction was part of the business activities as it was situated within the factory premises. The CIT (Appeals) had allowed the proportionate interest on borrowed funds used for temple construction, considering it as a business expense. However, the Tribunal found that the assessee failed to establish a clear business purpose for the temple construction and the recurring pooja expenses. The Tribunal noted that the construction of a temple, even within the factory premises, did not inherently serve a business purpose. The Tribunal emphasized that the regular expenditure on temple activities did not directly contribute to the business operations of the assessee. Consequently, the Tribunal reversed the decision of the CIT (Appeals) and upheld the Assessing Officer's addition of the proportionate interest on temple construction expenses. The Tribunal ruled in favor of the Revenue, partially allowing the appeal by dismissing one ground and allowing the other two grounds raised by the Revenue.

In conclusion, the Appellate Tribunal ITAT Nagpur ruled on the allowability of pooja expenses and the deductibility of temple construction expenses for business purposes. The Tribunal held that the recurring pooja expenses and temple construction did not establish a direct nexus with the business activities of the assessee. Consequently, the Tribunal reversed the decision of the CIT (Appeals) and upheld the Assessing Officer's view that these expenses were not incurred for business purposes.