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TMI Blog2017 (2) TMI 447X X X X Extracts X X X X X X X X Extracts X X X X ..... e Disallowance of deduction under section 37 - contribution to M/s. Institute of Life Sciences - Held that:- In the present case, the assessee has made the contribution but there is nothing on the record to show that the benefit has passed on to the assessee or to its employees by making such contribution. Since the assessee is not running any business and not brought on record to show that it has benefitted by making such contribution. Merely making contribution to other institute which has similar object does not mean any benefit to the assessee. In our considered view, to claim of deduction under section 37(1), there has to be an expenditure, which is incurred for the benefit of business in the same year or for the future benefit. In the given case, nothing was brought on record to highlight, how the assessee has got the benefit either in this year or in the future or any benefit to the overall benefit to the organisation as a whole. There has to be some benefit directly or indirectly to the organisation. In our considered view, the assessee has made the contribution to M/s. Institute of Life Sciences without any reciprocal benefit to its business or to its employees even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment was reopened to consider taxing the incomes that were reflected in the TDS certificates but were not offered to tax, apart from tackling other issues. In this case, the Assessing Officer indeed had examined the amounts of incomes, as per TDS certificates which were prima facie not offered for tax for the year under reference, for making the additions. Having made the additions on one of the issue, the Assessing Officer went to make additions on other issues as well. Hence, as it appears, there has been a valid basis for reopening the assessment which has also resulted in adjustment of total income. 6. As regards the addition on account of amount not offered to tax being rent/professional charges of ₹ 18,81,031, the Commissioner of Income- tax (Appeals) deleted this addition. 7. As regards the disallowance of deduction under section 37 of the Act of ₹ 6,00,00,000, it is observed that during the course of assessment proceedings the Assessing Officer observed that the assessee claimed an expenditure of ₹ 6,00,00,000 being the amount contributed to M/s. Institute of Life Sciences which shown to have applied for benefit under section 35(1)(ii) for we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of ₹ 603.37 lakhs on its objects and allied activities, out of the sources like surplus on sale of assets (Rs. 635.16 lakhs), interest (Rs. 8.13 lakhs), etc. It was further submitted that an amount of ₹ 600 lakhs was contributed to Institute of Life Sciences towards research activities, as per the objectives of the appellant- company and Institute of Life Sciences is a section 25 company established to carry on research activities similar to the company and spending on objectives partakes the character of carrying on business and any expenditure incurred for carrying on its activities should be allowed. It was also clarified further that deduction was claimed under section 35(1)(ii) of the Income-tax Act, but in view of the fact that Institute of Life Sciences did not get approval under section 35 at that time, the deduction was confined to 100 per cent. of the claim, as against weighted deduction and such claim is allowable under section 37 of the Income-tax Act. In this regard, it was argued that if the particular stream of expenditure is eligible for deduction that is more beneficial under any other provision, then the assessee cannot be denied such benefit, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest income and gains on sale of assets of the company. The assessee-company itself was on record to indicate that no business is carried on by it. (vide letter December 9, 2010, addressed to the Assessing Officer). It is also relevant to refer to the fact that an amount contributed as per the provisions of section35(1)(ii), for the purpose of weighted deduction, cannot be claimed as business expenses, where the activities of both the contributor as well as the receiver, for the year under reference are not established to be incurred for the purpose of business or research and development. For claiming the expenses under section 37, the essential ingredient is that the business is carried on by the assessee. In this regard, it is relevant to refer to the provisions of section 37, '37(1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head profits and gains of business or profession .' As c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the case in allowing the appeal only partly and dismissing the appeal on other grounds. 2. The learned Commissioner of Income-tax (Appeals) erred in law and as to the facts and circumstances of the case in dismissing the appeal by holding that the appellant-company's argument that the initiation and completion of the reassessment proceedings under section 147 is not tenable. 3. The learned Commissioner of Income-tax (Appeals) erred in law and as to the facts and circumstances of the case while disallowing the contribution made to the Institute of life Sciences (referred to as ILS) on narrow considerations ignoring the facts and circumstances of the appellant as well as Institute of Life Sciences. 4. The learned Commissioner of Income-tax (Appeals) erred in law and as to the facts and circumstances of the case in giving direction again to the Assessing Officer to examine and ascertain the set off of losses despite the fact such a direction emanating from the appeal against the original assessment order under section 143(3) is not yet given effect. He ought to have examined the claim based on the information made available to him during the course of appellate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by the assessee before the Assessing Officer on December 9, 2010 wherein the assessee has brought to the notice of Assessing Officer about the TDS reconciliation and contribution to the Institute of Life Sciences. From the letters submitted by the learned authorised representative, the letters which were claimed as submitted before the Assessing Officer, has no authentication that these were submitted before the Assessing Officer. The same cannot be considered for adjudication. We find from the record that while filing the return of income, the assessee has not claimed deduction under section 35(1)(ii) in the return of income. (Refer page 32 and schedule ESR), in which the columns were left blank. Only in the memo of computation (refer page 42), the assessee mentioned that it has claimed deduction under section 35 at 100 per cent. on weighted deduction. Only during the assessment proceedings, the assessee made submission before the Assessing Officer to treat the above contribution as deduction under section 37. Considering the above, the submission of the assessee is inconsistent. Mismatch of TDS certificates prompted the Assessing Officer to consider the reopening of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; TS-5776-ITAT-2009 (Delhi)-O. 2. Dr. Reddy's Laboratories Ltd. v. Addl. CIT (No. 1) [2014] 30 ITR (Trib) 393 (Hyd) I. T. A. No. 1605/Hyd/10, dated August 8, 2013. He further submitted that in the case of sister concern M/s. Dr. Reddy Laboratories, the Hon ble Income-tax Appellate Tribunal has remitted the issue back to the file of the Assessing Officer to allow the deduction under section 37. The same was allowed by the Assessing Officer in that case. He submitted that this being the similar case, deduction under section 37 should be allowed. He further submitted that the case of M/s. Ranbaxy is similar to the existing case and in that case deduction was allowed. The same should be considered here also. 15. The learned Departmental representative, on the other hand, submitted that in the original return of income, the assessee intended to claim weighted deduction under section 35 of the Act, and later on the assessee changed its stand to claim deduction under section 37 of the Act. The learned Departmental representative further submitted that the assessee has derived income only on interest and long-term capital gains and there is no business activity carried on duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he asses see. Similar expenditure was allowed by the Commissioner of Income-tax (Appeals)-III and further confirmed by the Income-tax Appellate Tribunal in our own case for the assessment year 2003-04. It further relied on the decision given in the case of Ranbaxy Laboratories Ltd. v. Addl. CIT [2009] 124 TTJ (Delhi) 771; [2009]- TIOL-32-ITAT-DEL) (Delhi ITAT). As seen from the record, the Assessing Officer and the Dispute Resolution Panel considered the claim only under section 35AC. Since the same was not admissible, to that extent the order of the Assessing Officer and the Dispute Resolution Panel is sustained. The alternate claim under section 37(1) was not made before the Revenue authorities. Therefore, in the interest of justice we restore the claim under section 37(1) to the file of the Assessing Officer to examine the same afresh, keeping in mind the order of the Income-tax Appellate Tribunal in the assessment year 2003-04 and other cases relied on by the assessee. The assessee should be given an opportunity to substantiate the claim. The ground is considered allowed for statistical purposes. From the above, it is clear that the sister concern is engaged in the bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of the assessee by observing as under (page 111 of 223 ITR) : 'From the aforesaid discussion it follows that any contribution made by an assessee to a public welfare fund which is directly connected or related with the carrying on of the assessee's business or which results in benefit to the assessee's business has to be regarded as an allowable deduction under section 37(1) of the Act. Such a donation, whether voluntary or at the instance of the authorities concerned, when made to a Chief Minister's Drought Relief Fund or a District Welfare Fund established by the District Collector or any other fund for the benefit of the public and with a view to secure benefit to the assessee's business, cannot be regarded as payment opposed to public policy. It is not as if the payment in the present case had been made as an illegal gratification. There is no law which prohibits the making of such a donation. The mere fact that making of a donation for a charitable or public cause or in public interest results in the Government giving patronage or benefit can be no ground to deny the assessee a deduction of that amount under section 37(1) of the Act when such payment ..... X X X X Extracts X X X X X X X X Extracts X X X X
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