Facts of the Case

M/s Mohan Meakin Ltd. operated manufacturing units at several locations including Solan, Ghaziabad, Lucknow, Gram and Kasauli. The company incurred expenditure on puja, hawan, kirtan and related activities, which was duly recorded in its books of account.

No disallowance of such expenditure had been made up to Assessment Year 1975-76. Although attempts were subsequently made by the Revenue to disallow the expenditure, the appellate authorities deleted those disallowances. For Assessment Years 1984-85 to 1989-90, the Income Tax Appellate Tribunal had also deleted similar disallowances, and those orders 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 business purposes. The Commissioner of Income Tax (Appeals) allowed the claim, and the Income Tax Appellate Tribunal upheld the appellate order. The Revenue thereafter filed appeals before the Delhi High Court.

Issues Involved

  1. Whether expenditure incurred on puja, hawan, kirtan and similar religious activities was allowable as business expenditure under Section 37(1) of the Income Tax Act, 1961.
  2. Whether such expenditure could be regarded as employee welfare expenditure connected with the business activities of the assessee.
  3. Whether the principle of consistency applied where similar expenditure had been allowed in earlier and subsequent assessment years.

Petitioner’s (Revenue’s) Arguments

The Revenue contended that:

  • Expenditure incurred on puja, hawan, kirtan and similar activities could not be said to have been incurred wholly and exclusively for the purposes of business.
  • There was no material on record establishing that such activities were conducted within the factory premises.
  • Reliance was placed on the decision of the Bombay High Court in Kolhapur Sugar Mills Ltd. v. CIT (119 ITR 387) to contend that the expenditure was not deductible.
  • Even if the expenditure was claimed as employee welfare expenditure, the assessee was required to substantiate the same with proper evidence.

Respondent’s (Assessee’s) Arguments

The assessee submitted that:

  • Similar expenditure had already been allowed by the Tribunal in earlier assessment years from 1984-85 to 1989-90.
  • The expenditure had consistently been treated as employee welfare expenditure and therefore qualified as business expenditure.
  • The Revenue itself had allowed identical expenditure from Assessment Year 2002-03 onwards.
  • Since the issue had been consistently decided in favour of the assessee in earlier and later years, the principle of consistency was fully applicable.
  • Orders of the Tribunal for previous years clearly recorded that the expenditure was incurred for employee welfare and therefore allowable as business expenditure.

Court Findings

The Delhi High Court examined the orders passed by the lower authorities and noted that there was no real dispute regarding the nature of the expenditure.

The Court observed that:

  • Similar expenditure had been consistently allowed in earlier years.
  • The expenditure had been accepted as employee welfare expenditure.
  • The Revenue itself had allowed the claim in subsequent assessment years.
  • The findings recorded by the appellate authorities were factual in nature and did not give rise to any substantial question of law.

The Court held that the principle of consistency supported the assessee's claim and there was no justification for interfering with the orders of the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal.

Court Order

The Delhi High Court held that no substantial question of law arose for consideration.

Accordingly, all the appeals filed by the Revenue were dismissed, and the orders allowing deduction of expenditure incurred on puja, hawan, kirtan and similar activities as business expenditure were upheld.

Important Clarification

A separate clarification was issued by the Court stating that certain appeal numbers had been mistakenly included in the batch due to a typographical error. The Court clarified that those appeals were not covered by the dismissal order passed in ITA No. 964/2009 and were listed separately for hearing on a later date.

Sections Involved

  • Section 37(1), Income Tax Act, 1961 – Deduction of business expenditure incurred wholly and exclusively for the purposes of business.

Link to download the order -

https://delhihighcourt.nic.in/app/case_number_pdf/2009:DHC:13431-DB/AKS15102009ITA10102009_123032.pdf 

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