Facts of the Case

M/s Mohan Meakin Ltd. had manufacturing units located at Solan, Ghaziabad, Lucknow, Gram and Kasauli, along with various sub-units. The company incurred expenditure on Puja, Hawan, Kirtan and related religious functions, which were duly recorded in its books of accounts.

Such expenditure had consistently been allowed in earlier assessment years. Although attempts were made by the Revenue to disallow these expenses after Assessment Year 1975-76, the appellate authorities deleted such disallowances. Further, for Assessment Years 1984-85 to 1989-90, the Income Tax Appellate Tribunal had upheld the allowability of these expenses, and those decisions attained finality.

However, for Assessment Years 1990-91 to 2001-02, the Assessing Officer disallowed the expenditure on the ground that it was not incurred wholly and exclusively for the purposes of business and that there was no material to establish that such activities were conducted within the factory premises.

The Commissioner of Income Tax (Appeals) allowed the expenditure, and the Income Tax Appellate Tribunal affirmed that view.

Issues Involved

  1. Whether expenditure incurred on Puja, Hawan, Kirtan and similar religious activities qualifies as deductible business expenditure under Section 37(1) of the Income-tax Act, 1961.
  2. Whether such expenditure could be regarded as expenditure incurred for employee welfare and business purposes.
  3. Whether the Revenue was justified in disallowing the expenditure despite consistent acceptance of the claim in earlier and subsequent assessment years.

Petitioner’s Arguments (Revenue)

  • The Revenue contended that expenditure on Puja, Hawan, Kirtan and similar activities could not be regarded as expenditure incurred wholly and exclusively for business purposes.
  • It was argued that there was no evidence demonstrating that these activities were conducted within the factory premises.
  • Reliance was placed upon the decision of the Bombay High Court in Kolhapur Sugar Mills Ltd. v. CIT (119 ITR 387) to contend that such expenditure was not allowable as business expenditure.
  • The Revenue further argued that even if the expenditure was claimed as employee welfare expenditure, the assessee had failed to establish the necessary factual basis for such claim.

Respondent’s Arguments (Assessee)

  • The assessee submitted that identical expenditure had been allowed in earlier assessment years and that the Tribunal had consistently treated the same as business expenditure incurred for employee welfare.
  • It was argued that the Revenue itself had accepted similar claims in subsequent assessment years beginning from Assessment Year 2002-03.
  • The assessee relied upon the principle of consistency and produced copies of earlier Tribunal orders recognizing such expenditure as allowable business expenditure.
  • The assessee maintained that the expenditure was incurred for the welfare and morale of employees and had a direct nexus with business operations.

Court Findings

  • The High Court noted that the expenditure had been consistently allowed in earlier years and that the Tribunal had repeatedly held such expenditure to be incurred for employee welfare purposes.
  • The Court observed that the Revenue itself had accepted the claim in subsequent assessment years.
  • It found that there was no real dispute regarding the factual nature of the expenditure and its treatment by the appellate authorities.
  • The Court held that the findings recorded by the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal were factual findings based on material on record.
  • The Court concluded that no substantial question of law arose for consideration.

Court Order

The Delhi High Court dismissed all the appeals filed by the Revenue and upheld the orders of the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal allowing deduction of expenditure incurred on Puja, Hawan, Kirtan and similar activities as business expenditure under Section 37(1) of the Income-tax Act, 1961.

Important Clarification

The Court emphasized that where expenditure has consistently been treated as business expenditure in earlier years and accepted by the Revenue in subsequent years, the principle of consistency assumes significance. In the absence of any substantial dispute regarding the factual findings, no question of law arises warranting interference by the High Court.

Sections Involved

  • Section 37(1) of the Income-tax Act, 1961

Link to download the order -

https://delhihighcourt.nic.in/app/case_number_pdf/2009:DHC:13428-DB/AKS15102009ITA10052009_122758.pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared.