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TMI Blog2013 (3) TMI 269X X X X Extracts X X X X X X X X Extracts X X X X ..... to the CMI by the other two companies was not actually paid by them and it was paid only on behalf of the assessee. When the payment, receipt and the status of the CMI as notified under Section 35(1)(ii) by the Government of India were not disputed, failure to understand as to how the assessee can be disallowed deduction under Section 35(1)(ii). Even the said expenditure was shown in the accounts placed before the IRDA in the second half of the assessment year. Thus the assessee is the actual payer to the CMI for its scientific research and consequently entitled to deduction under Section 35(1)(ii) - in favour of assessee. Excess provision claim under the heads consultancy charges and professional fees - Held that:- It is a provision for professional fees and consultancy charges. The payment liability of such charges or fees by the assessee was certain. Though the liability was certain, only the quantum was not certain at the time of filing the return, in view of the continuous negotiations with the parties. Therefore, the assessee was left with no other option to make provision based on the original claim made by the parties. When such being the factual position, the decision r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision under the heads consultancy charges and professional fees was allowable even though the assessee had not proved with evidence any rational basis for making the provision ? 3. Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in holding that addition by way of disallowance of expenditure on setting up of a new office Mumbai of Rs. 57,25,036/- was allowable as revenue expenditure without appreciating that the expenditure was mainly on construction materials, charges for design and fabrication works, etc., which were of capital nature ? 2. The assessee is a company engaged in Insurance Broking business. They filed their return of income for the assessment year 2004-2005 declaring a total income of Rs. 33,93,860/-. The assessment was completed under Section 143(3) of the Income TAx Act thereby determining a total income of Rs.4,43,44,540/-. While completing the assessment, the Assessing Officer disallowed the claim of Rs.87,50,000/- being the weighted deduction claimed by the assessee under Section 35(1)(ii) of the said Act on a sum of Rs.70,00,000/- made as donation to M/s.Chennai Mathematical Institute. He also disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de initially by the other two companies viz., SCTPL and SIL only and not by the assessee and also when admittedly the donee viz., CMI issued the receipts in favour of those two companies only, the said transaction cannot be subsequently cancelled or revoked by issuing another receipt in favour of the assessee after a period of eight months by treating the transaction as if made between the assessee and the donee. He further submitted that admittedly the assessee did not have sufficient funds to give donation as on 18.7.2003. Even at a later point of time only journal entries were made thereby crediting the donation in the accounts of the assessee. He further pointed out that the assessee was maintaining the books of accounts on tally package and therefore any entry could be inserted at their wish. It is also contended by the learned counsel that no proof of any agreement is placed or shown between the assessee and other two companies viz., SCTPL and SIL. He further submitted that any letter issued by the said Company subsequently, cannot alter the nature of the transaction made earlier, especially when the letter issued by the SCTPL and relied on by the assessee does not contain an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lakhs was in fact accounted before the IRDA in the second half year and therefore the contention of the Revenue in this aspect is totally incorrect. 8. Insofar as the second issue viz., the disallowance of expenditure made by the assessee in setting up of the assessees office premises taken on lease at Mumbai is concerned, the learned counsel for the Revenue submitted that the Tribunal followed the decision of the Madras High Court reported in (2007) 292 ITR 266 (Mad) (Commissioner of Income Tax Vs.Ayesha Hospitals P.Ltd.,) for allowing the claim of the assessee towards the head "repairs and maintenance". The learned counsel submitted that a perusal of the agreement made between the parties viz., the assessee and owner of the premises would indicate that the expenses are capital in nature. In the support of his contention, the learned counsel for the Revenue relied on the decision of the Supreme Court reported in (2009) 315 ITR 114 SC (Commissioner of Income Tax Vs Sri Mangayarkarasi Mills P. Ltd.,) 9. Per contra, the learned counsel appearing for the assessee submitted that the issue involved in this case in respect of the repairs and maintenance is squarely covered by the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the payment was not genuine. The decision of the Supreme Court relied on by the Revenue reported in (1979) 116 ITR 1 ( Sutlej Cotton Mills Ltd., Vs. Commissioner of Income Tax) is not applicable to the facts of this case. Learned counsel for the assessee would strongly rely on the finding rendered by the Commissioner of Income Tax (Appeal) in this aspect to prove that the scientific method was adopted by the assessee in arriving at the provision towards professional and consultancy charges. 12. Heard the learned counsel appearing for the respective parties and perused the materials placed before us. 13. Let us first consider the issue with regard to disallowance of expenditure on setting up of a new office at Mumbai. Admittedly, the assessee is only a lessee in respect of the premises in which it was setting up its office at Mumbai. The lease period was 30 months. Though the Assessing Officer found that the expenditure made by the assessee was in the nature of capital expenditure, both the first appellate authority viz., Commissioner of Income Tax (Appeals) as well as the final fact finding appellate authority viz., the Tribunal categorically and concurrently found that those e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ine. Therefore, the Apex Court found that such textile machinery repair of a machine can at best said to be current repairs within the meaning of Section 31 of the Income Tax Act. The Apex Court also pointed out in the said judgment that Sections 31 and 37 of the Act operate in different spheres and the tests applicable to Section 31 cannot be read into section 37 of the Act. When that being the position, we are unable to appreciate the contention of the Revenue as to how Mangayarkarasi case can be applied to the case on hand when the facts are totally different and distinguishable and the deduction sought to be made by the assessee is not the one under Section 31 of the Act and on the other hand, as rightly contended by the learned counsel for the assessee, the deduction was sought in respect of the expenses made towards designing and lay out as well as other temporary partition and construction made for making the office functional . When that being the factual position, in our considered view, the decisions of this Court reported in (2007) 292 ITR 266 (Mad) (Commissioner of Income Tax Vs.Ayesha Hospitals P.Ltd.,) ; (284 ITR 51 ( Commissioner of Income Tax Vs Sanco Trans Ltd.,) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e were properly supported and reasonable as per the facts existing on that date and accordingly he directed the Assessing Officer to allow the full expenditure claimed under the head consultancy charges and professional charges subject to verifying the fact about offering of such amount so reduced as income in the relevant assessment year. 17. The Tribunal found that the paper book submitted by the assesee contained details of administrative expenses showing the professional and consultancy expenses. The Tribunal also noted the submission of the assessee that they have many branches and had received bills from various consultants. It also noted the submission of the assessee that at the time of closing the accounts, negotiations with some consultants were still going on and therefore the assessee had to necessarily create a provision for those charges. By pointing out all those factual aspects and also by considering the details of administrative expenses furnished by assessee showing the professional and consultancy charges, the Tribunal allowed the said expenditure, by observing that the negotiations were still pending with various consultants at the time of finalisation of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 155 of 2005, is concerned, it is respect of warranty provision. The assessee in that case was engaged in the business of trading in various office equipment and appliances like typewriters, duplicator papers etc. The assessee therein offered one year warranty and free service during the said period. The assessee therein created provision in respect of service charges for four quarters in the warranty period on the sales effected. However, the assessee therein offered excess provision as income in the subsequent year. The assessee took the stand that even though there might not have been a necessity to provide free service, yet, they created necessary provision in the accounts each year during the warranty period as and when any claim was made by the service dealers. Therefore, according to the assessee therein the obligation could not be treated as contingent liability. The Assessing Officer therein found that the liability was a contingent one in the absence of any claim made or even a belated claim made by the service dealers therein. The Commissioner of Income Tax (Appeals) confirmed the assessment order and further appeal by the assessee before the Tribunal decided the issue i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he specific finding of this court that the Tribunal rendered factual finding of such liability as a contingent liability with uncertainty and therefore, this Court did not intervene with the factual finding of the Tribunal in that aspect. Consequently, the said decision relied on by the Revenue in this aspect is also not helpful to them. Thus, we answer the second question of law also in favour of assessee. 21. This leads us to go into the last issue viz., the expenditure made by the assessee on scientific research under Section 35(1)(ii). The Assessing Officer pointed out that the donations were paid by the two companies viz., SCTPL and SIL to the CMI and the donee also issued the receipts dated 18.7.2003 under Receipt Nos.041 and 042 in favour of those two companies only. The Assessing Officer further pointed out that the donation once paid cannot be revoked and therefore the consequent receipt issued in favour of the assessee in the month of March 2004 cannot be accepted. The Assessing Officer further pointed out that if this sort of transaction is permitted the donations carrying weighted deduction can be bartered according to the convenience of persons, depending upon the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iram Group of Companies had been contributing to the cause of mathematics. Thus, by noting that the donations have been given not only by the assessee but also by other group companies also, the Tribunal accepted the assessee's contention with regard to the necessity for making expenditure initially through the other two companies as it was not having sufficient funds at that time. The Tribunal had also taken into consideration of the letter addressed by the Shriram Chits Tamilnadu Pvt. Limited to the assessee company indicating that the amount so paid on behalf of the assessee to CMI has to be reimbursed by them. The Tribunal also pointed out that two other companies did not make any claim of deduction in respect of such payment made to the donee. It is also pointed out that the receipts have not been diverted to the assessee company to avail of any advantage which was not available to other companies. Therefore, by pointing out all those factual aspects of the matter, the Tribunal allowed the claim of deduction under Section 35(1)(ii). 24. Going by the factual findings rendered by both the appellate authorities, it is seen that the assessee requested the other two companies to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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