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TMI Blog2014 (11) TMI 898X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 5 to section 80G which was inserted by Finance Act 1976 effective from 1.4.1976 that the deduction was admissible - the assessee could not claim deduction u/s 80G of the Act in respect of donations by way of clothes sent to Prime Minister Relief Fund for Gujarat Earthquake relief the same being in kind and not in cash, cheque or draft - The Tribunal rightly declined the benefit u/s 80G - Decided against assessee. Eligibility for deduction u/s 37 - goods sent to the Prime Ministers Relief Fund for Gujarat Earth quake relief – Held that:- The Tribunal rightly observed that the contribution which was made by the assessee in kind to the Prime Minister's Relief Fund for Gujarat Earthquake relief was not on account of any business compulsion which could be termed to be falling within the expression “wholly and exclusively” - the expenditure incurred in the form of relief for earthquake victims although was for public good but would not have any impact on the business of the assessee - there being no commercial expediency in incurring such expenditure, it was not deductible u/s 37 - the assessee had given the donations in the form of clothes and claimed deduction u/s 37(1) by quant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion? 2. A few facts relevant for the decision of the controversy involved as narrated in the appeal may be noticed. The assessee company is a manufacturer and exporter of cotton yarn, woollen and cotton hosiery goods and garments. Return of income declaring total income of ₹ 14,68,78,870/- was filed on 31.10.2001 which was processed under section 143(1) of the Act on 26.3.2002. Notice dated 29.5.2002 under section 143 (2) of the Act was served on the assessee on 30.5.2002. In the assessment finalized by the Assessing officer vide order dated 9.5.2003, Annexure P.3 under section 143(3) of the Act, the income determined was ₹ 18,95,14,560/-. Aggrieved by the order, the assessee filed appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. Vide order dated 22.2.2005, Annexure P.2, the CIT(A) partly allowed the appeal. The Revenue filed appeal whereas the assessee filed cross objections before the Tribunal. Vide order dated 14.9.2007, Annexure P.1, the Tribunal partly allowed both the appeal and the cross objections. Hence the instant appeal by the assessee. 3. Addressing arguments on Question No.(i), learned counsel for the assessee relying upon decisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sanctioned plan in view of the Explanation to Section 37(1) of the Act would not be admissible. The Karnataka High Court in Mamta Enterprises's case (supra) distinguished the judgment of the Delhi High Court in Loke Nath and Company (Construction)'s case (supra) in the following terms:- 8. In our view the above observation made by Delhi High Court cannot be of any assistance to the learned counsel for the respondent to support his case as the said decision was rendered prior to amendment to section 37 of the Act by incorporating the explanation referred to above by means of Finance Act 2/998 which is made retrospective effect with effect from 1-4-1962. When the section itself declares the expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure, it is not possible to take the view that the expenditure incurred for compounding of the offence should be allowed. When the section is clear and unambiguous, it is not permissible for the Courts to stretch the meaning attached ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business or a disbursement made for the purposes of earning the profits of such business. (p. 359) Further, a similar view is taken by the Honble Supreme Court in the case of Maddi Venkataraman Co. (P) Ltd. (supra). The Honble Supreme Court has observed thus : In the instant case, the assessee had indulged in transactions in violation of the provisions of the Foreign Exchange (Regulation) Act. The assessees plea is that unless it entered into such a transaction, it would have been unable to dispose of the unsold stock of inferior quality of tobacco. In other words, the assessee would have incurred a loss. Spur of loss cannot be a justification for contravention of law. The assessee was engaged in tobacco business. The assessee was expected to carry on the business in accordance with law. If the assessee contravenes the provisions of the FERA to cut down its losses or to make larger profits while carrying on the business, it was only to be expected that proceedings will be taken against the assessee for violation of the Act. The expenditure incurred for evading the provisions of the Act and also the. penalty levied for such evasion cannot be allowed as deduction. As was l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctor Co. vs. CIT, (1997) 223 ITR 101(SC), Sassoon J. David and Co. (P.) Ltd. vs. Commissioner of Income-Tax,(1979) 118 ITR 261(SC) and ACIT vs. Rajasthan Spinning and Weaving Mills Limited, (2005) 274 ITR 465 (Raj.) to submit that the donations being voluntary payments would qualify for deduction as the same fell within the scope of wholly and exclusively for the purpose of business which was in contra distinction to wholly and necessarily , so that even what is not necessary to be incurred may well be allowable on the ground of commercial expediency and in the larger interest of the business and State, though not having immediate nexus with current profits. 11. Learned counsel for the revenue supported the order passed by the Tribunal that there was no commercial expediency. 12. After hearing learned counsel for the parties, we do not find any merit in the submissions of learned counsel for the assessee. The Tribunal had observed that the contribution which was made by the assessee in kind to the Prime Minister's Relief Fund for Gujarat Earthquake relief was not on account of any business compulsion which could be termed to be falling within the expression wholly and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nahar Spinning Mills Limited (supra) and find that the expenditure was held allowable under section 37(1) only after noticing that it would have an impact on the export business of the assessee. The Tribunal was satisfied, on facts that the reasoning enunciated by the Hon ble Supreme Court in the case of Sri Venkataya Satyanarayana Mills (supra) was applicable. The assessee was found to have made donation towards an Earthquake Relief fund of USSR. The Tribunal found that the assessee was also a main exporter to USSR and thus there was a possibility of impacting the business interests of the assessee with the USSR Government. Hence the contribution made by the assessee towards the earthquake Relief Fund of USSR was held allowable as a deduction under section 37(1) of the Act. Factually speaking, in the instant case such inference cannot be drawn in the absence of any material or evidence on record. There is nothing to show as to how the impugned expenditure, although incurred for public good, would have an impact on the business of the assessee company. Therefore, the ratio of the decision of the Tribunal in the case of Nahar Spinning Mills (supra) for assessment year 1989-90 does ..... X X X X Extracts X X X X X X X X Extracts X X X X
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