Commissioner Of Income Tax I Chennai v. M/S.armour Consultants P.ltd

DATED: 1 -03-2013CORAM:THE HONOURABLE MRS.JUSTICE R.BANUMATHIANDTHE HONOURABLE MR.JUSTICE K.RAVICHANDRABAABU Tax Case (Appeal) No.2 of 2010 Commissioner of Income Tax IChennai. .... AppellantVersusM/s.Armour Consultants P.Ltd.,No.2A PrakasamRoadT.NagarChennai 17. .... Respondent Prayer: Appeal filed against the order of the Income Tax Appellate Tribunal "D" Bench, dated26.6.2009, in I.T.A No.736/Mds/2008, under Section 260A of the Income Tax Act, 1961 for theassessment years 2004-05. For Appellant : Mr.T.RavikumarSr.Standing Counsel for I.T. For Respondent : Mr.R.Sivaraman JUDGMENT K.RAVICHANDRABAABU,J. The assessee is on appeal as against the order of the Income Tax Appellate Tribunal in respect of theassessment year 2004-2005, by raising the following substantial question of law:- 1. Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in holding that that the assessee was entitled for deduction of Rs. 87.5/- lakhs in respect ofdonations to the Chennai Mathematical Institute, paid by to other companies to whom the originalreceipts for donations were issued and when the assessee claim was based only on the basis of yearend journal entries crediting the accounts of those two companies ? 2. Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal wasright in holding that the excess provision under the heads consultancy charges and professional feeswas allowable even though the assessee had not proved with evidence any rational basis for makingthe provision ? 3. Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal wasright in holding that addition by way of disallowance of expenditure on setting up of a new officeMumbai of Rs. 57,25,036/- was allowable as revenue expenditure without appreciating that theexpenditure 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 ofincome for the assessment year 2004-2005 declaring a total income of Rs. 33,93,860/-. Theassessment was completed under Section 143(3) of the Income TAx Act thereby determining a totalincome of Rs.4,43,44,540/-. While completing the assessment, the Assessing Officer disallowed theclaim 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 disallowed a sum of Rs.51,90,315/- being the claim made by the assessee under the head'repairs and maintenance' relating to the office premises taken on lease at Mumbai, by treating thesame as capital in nature. Likewise, the Assessing Officer made a disallowance of the excessprovision of Rs.25,32,428/- towards the claim of the assessee for consultancy charges andprofessional fees. 3. The assessee went on appeal before the Commissioner of Income Tax (Appeals). The firstappellate authority accepted the contention of the assessee in respect of the above referred threeclaims and consequently allowed the appeal. Further appeal was preferred by the Revenue beforethe Tribunal. The assessee succeeded before the Tribunal also as all its contentions wereconcurrently accepted. Hence, the present appeal is filed before this court by the Revenue by raisingthe above substantial questions of law. 3. The assessee went on appeal before the Commissioner of Income Tax (Appeals). The firstappellate authority accepted the contention of the assessee in respect of the above referred threeclaims and consequently allowed the appeal. Further appeal was preferred by the Revenue beforethe Tribunal. The assessee succeeded before the Tribunal also as all its contentions wereconcurrently accepted. Hence, the present appeal is filed before this court by the Revenue by raisingthe above substantial questions of law. 4. Mr.T.Ravikumar, learned Senior Standing Counsel appearing for the Revenue submitted thatinsofar as the first issue viz., the claim of the assessee under Section 35(1)(ii) of the Income Tax Actseeking weighted deduction of Rs.87.50 lakhs is concerned, the Assessing Officer found that a sumof Rs. 70 lakhs was made as a contribution to M/s.Chennai Mathematical Institute, (hereinafterreferred to as CMI) initially not by the assessee but by other two companies viz., Shriram ChitsTamil Nadu Private Limited (hereinafter referred to as SCTPL) and Shriram Investment Ltd.,(hereinafter referred to as SIL) on 18.7.2003. The CMI also issued receipts on the said day only inthe name of those two companies and not in the name of the assessee. The Assessing Officer foundthat the funds had actually gone from the original donors and only by a subsequent event anotherreceipt was issued by CMI in the name of the assessee. The Assessing Officer also found that onlyjournal entries were made by the assessee at the end of the assessment year whereby the donationswere credited to the party's account. It is also found by the Assessing Officer that the accountssubmitted by the assessee to the Insurance Regulations and Development Authority (hereinafterreferred to as IRDA) did not figure in the said donation payment of Rs. 70/-lakhs. 5. The learned Senior Standing Counsel further submitted that the donation once paid is notrevocable and therefore when admittedly the donation was made initially by the other twocompanies viz., SCTPL and SIL only and not by the assessee and also when admittedly the doneeviz., CMI issued the receipts in favour of those two companies only, the said transaction cannot besubsequently cancelled or revoked by issuing another receipt in favour of the assessee after a periodof 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 on18.7.2003. Even at a later point of time only journal entries were made thereby crediting thedonation in the accounts of the assessee. He further pointed out that the assessee was maintainingthe books of accounts on tally package and therefore any entry could be inserted at their wish. It isalso contended by the learned counsel that no proof of any agreement is placed or shown betweenthe assessee and other two companies viz., SCTPL and SIL. He further submitted that any letterissued 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 anydate. He also invited our attention to the assessment order passed by the Assessing Officer, moreparticularly, with regard to the facts recorded by him based on the statement made by the Officer incharge of CMI to show that the donee was not aware of the assessee at the time of receipt of thedonations and also to prove that the said donation was made only by SCTPL and SIL and not by theassessee. 6. He further pointed out that there is no Board resolution passed by the assessee Company formaking such donation. Section 292 of the Companies Act specifically requires passing of suchresolution before making any such donation. Thus, according to the learned counsel, in the absenceof any such Board resolution , the Assessing Officer was right in concluding that the donation wasnot made by the assessee especially when giving such donation is not the business of the assessee .7. Per contra Mr.R.Sivaraman, learned counsel appearing for the assessee submitted that admittedlyCMI is an institution approved by Government of India as contemplated under Section 35(1)(ii) ofthe Income Tax Act. It is also an admitted fact that the donee viz., CMI was in urgent need of themoney for purchasing the land. It is also not in dispute that the assessee was not having sufficientfunds for making such donation at the relevant point of time. Therefore, the assessee requested theother two companies viz., SCTPL and SIL to make the payment. The said request was made to thosetwo companies only because of the reason that the Chairman of those two companies also happenedto be the Founder Director of the assessee company and also Founder Director of the CMI. Thelearned counsel for the assessee further submitted that Section 43(2) does not say that the assesseeshould pay directly. On the other hand, the word �incurred� used in Section 43(2) means the actualliability. Thus, according to the learned counsel even though the amount was not actually paid by theassessee as on 18.7.2003 , still as it is a liability �incurred � by the assessee as contemplated underSection 43(2) of the Income Tax Act coupled with the fact that the journal entries were madesubsequently crediting those donations at the assessee�s accounts could be sufficient to seekweighted deduction under Section 35(1)(ii) of the Income Tax Act. The learned counsel furthersubmitted that the said payment of Rs.70/- lakhs was in fact accounted before the IRDA in thesecond 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 settingup of the assessee�s office premises taken on lease at Mumbai is concerned, the learned counsel forthe 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 allowingthe claim of the assessee towards the head "repairs and maintenance". The learned counselsubmitted that a perusal of the agreement made between the parties viz., the assessee and owner ofthe 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 inthis case in respect of the repairs and maintenance is squarely covered by the decision of this courtreported in (2007) 292 ITR 266 (Mad) (Commissioner of Income Tax Vs.Ayesha Hospitals P.Ltd.,)which has been subsequently followed in another decision reported in (2013 ) 350 ITR 324 (Mad)(Thiru Arooran Sugars Ltd., Vs. Deputy Commissioner of Income Tax). He further submitted that thedecision of the Supreme Court in Mangayarkarasi case reported in 315 ITR 114 (SC) is notapplicable to the facts of this case, since that decision was in relation to current repairs and deduction under Section 37 has not been gone into therein. He further submitted that anotherdecision of this Court reported in (2006) 284 ITR 51 (Commissioner of Income Tax Vs. Sanco TransLtd.,) also supports the assessee's case. deduction under Section 37 has not been gone into therein. He further submitted that anotherdecision of this Court reported in (2006) 284 ITR 51 (Commissioner of Income Tax Vs. Sanco TransLtd.,) also supports the assessee's case. 10. Insofar as the issue with regard to the excess provision is concerned, the learned counselappearing for the Revenue submitted that the Tribunal had only dealt with the consultancy chargesand not with the professional fees. The assessee had not adopted any scientific method for makingprovision towards consultancy charges and professional fees. Certain circumstances should be goneinto before coming to a conclusion with regard to the claim made towards the excess provision. Thelearned Standing counsel relied on an unreported decision of this Court made in T.C.A.Nos. 148 to155 dated 9.7.2012 (The Commissioner of Income Tax Vs. Forbes Campbell Finance Ltd.) andT.C.(A) No.324 of 2010 dated 18.2.2013 (Renowned Auto Products Mfrs. Ltd., Vs. The Income TaxOfficer). He also relied on the decision of the Apex Court reported in (1979) 116 ITR 1 (Sutlej CottonMills Ltd. Vs. Commissioner of Income Tax). 11. Per contra, the learned counsel appearing for the assessee submitted that the assessee isengaged in the business of insurance broking and therefore negotiations with the professionalconsultancy were going on between the assessee and the consultants during the relevant point oftime and therefore, the excess provision was made by the assessee. However, such excess provisionwas reversed in the next assessment year thereby showing the same as income. Therefore, there isno revenue loss. It is further submitted by the learned counsel that the Revenue is not disputing thepayments made to the professionals or the consultants. The assessee had adopted the scientificmethod for arriving at the provision. The Assessing Officer had not found that the payment was notgenuine. 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 Commissionerof Income Tax (Appeal) in this aspect to prove that the scientific method was adopted by theassessee in arriving at the provision towards professional and consultancy charges. 12. Heard the learned counsel appearing for the respective parties and perused the materials placedbefore us. 12. Heard the learned counsel appearing for the respective parties and perused the materials placedbefore us. 13. Let us first consider the issue with regard to disallowance of expenditure on setting up of a newoffice at Mumbai. Admittedly, the assessee is only a lessee in respect of the premises in which it wassetting up its office at Mumbai. The lease period was 30 months. Though the Assessing Officer foundthat the expenditure made by the assessee was in the nature of capital expenditure, both the firstappellate authority viz., Commissioner of Income Tax (Appeals) as well as the final fact findingappellate authority viz., the Tribunal categorically and concurrently found that those expenditureswere made by the assessee mainly towards charges for design, layout and material construction,fabrication works. Both the appellate authorities had pointed out that the assessee Company wasrequired incur such expenditure for providing partitions, vinyl flooring and interior decoration inorder to provide business ambience and achieve functional utility. The Commissioner of Income Tax(Appeals) had specifically pointed out that the expenditure made by the assessee to make thepremises more useful and enhance its functional utility will not come under the purview of capitalexpenditure and by following the decision of this Court reported in (284 ITR 51 ( Commissioner ofIncome Tax Vs Sanco Trans Ltd.,) the Commissioner found that those expenditures are to be allowedonly as a revenue expenditure except in respect of a sum of Rs. 3,38,000/- paid for carrying outairconditioning work like providing ducts for split type air conditioner, etc., as those things are ofenduring nature. Therefore, the Commissioner of Income Tax (Appeals) allowed a sum of Rs.53,87,036/- as revenue expenditure. 14. The Tribunal after elaborately considering the finding of the Commissioner of Income Tax(Appeals) as well as by going through the nature of the work done by the asseessee at the MumbaiOffice, came to the conclusion that the expenditure incurred by the assessee for designing andlayout as well as other construction materials for making the office functional cannot be called ascapital expenditure. Thus, by following the decision of this Court reported in (284 ITR 51 ( Commissioner of Income Tax Vs Sanco Trans Ltd.,) the Tribunal concurred with the view of theCommissioner of Income Tax (Appeals) and allowed the expenditure as revenue expenditure.15. 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.,) to rejectthe claim of the assessee in this aspect. A perusal of the said judgment of the Apex Court only showsthat the same was rendered, while dealing in respect of the expenditure of replacement of parts of atextile machinery. The Apex Court found that replacement of such an old machine part with a newone would constitute the bringing into existence of an asset in the place of the old one and not repairof the old existing machine. Therefore, the Apex Court found that such textile machinery repair of amachine can at best said to be current repairs within the meaning of Section 31 of the Income TaxAct. The Apex Court also pointed out in the said judgment that Sections 31 and 37 of the Act operatein 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 howMangayarkarasi case can be applied to the case on hand when the facts are totally different anddistinguishable and the deduction sought to be made by the assessee is not the one under Section 31of the Act and on the other hand, as rightly contended by the learned counsel for the assessee, thededuction was sought in respect of the expenses made towards designing and lay out as well asother temporary partition and construction made for making the office functional . When that beingthe factual position, in our considered view, the decisions of this Court reported in (2007) 292 ITR266 (Mad) (Commissioner of Income Tax Vs.Ayesha Hospitals P.Ltd.,) ; (284 ITR 51 ( Commissionerof Income Tax Vs Sanco Trans Ltd.,) and (2013) 350 ITR 324 (Mad) (Thiru Arooran Sugars Ltd., Vs.Deputy Commissioner of Income Tax) wherein identical issues were considered, would cover thecase of the assessee also in its favour. In all the above decisions, this Court considered similarexpenses made by the respective assessees therein in the leased premises and found that suchexpenses made by the assessee was deductible as revenue expenditure. We find that those decisionsof this Court squarely apply to the facts and circumstances of this case. Accordingly, the saidquestion of law viz., the third question of law is answered in favour of the assessee.16. While coming to the next issue viz., the excess provision towards consultancy charges andprofessional fees is concerned, the Assessing Officer found that the assessee admitted that a sum ofRs.25,32,428/- was found to be made as excess provision and the same was debited for the nextfinancial year. Such admission of the assessee was found by the Assessing Officer as showing thatthe expenses debited in the books are without having any correlation with the actuals. Therefore, headded the said sum of Rs.25,32,428/. Similarly in respect of professional fees, the Assessing Officerfound that a sum of Rs.12,60,000/- was made as excess provision and consequently added the saidsum. When the said issue was considered by the first appellate authority, he found the provision forthe expenditure towards consultancy charges and professional fees were made as on 31.3.2004based on the claims received from the consultants/professionals while the same were undernegotiations. Later, on further discussions and negotiations with the concerned branch officials, theamount was settled for a lesser figure. As this discussion and negotiations were taking place for along time and in between as the accounts had to be finalised by June 2004 in the meantime theassessee had made provision based on the original claims received . Similarly in respect of professional fees, the Assessing Officerfound that a sum of Rs.12,60,000/- was made as excess provision and consequently added the saidsum. When the said issue was considered by the first appellate authority, he found the provision forthe expenditure towards consultancy charges and professional fees were made as on 31.3.2004based on the claims received from the consultants/professionals while the same were undernegotiations. Later, on further discussions and negotiations with the concerned branch officials, theamount was settled for a lesser figure. As this discussion and negotiations were taking place for along time and in between as the accounts had to be finalised by June 2004 in the meantime theassessee had made provision based on the original claims received. The first appellate authority alsopointed out that subsequently, when the amounts were settled for a lesser figure, the excessprovision created had been reversed and offered as income in the subsequent year. He further foundthat the assessee had also filed the details of payments made to the parties after the saidnegotiations. Based on such factual finding, the first appellate authority came to the conclusion thatthe provisions made were properly supported and reasonable as per the facts existing on that dateand accordingly he directed the Assessing Officer to allow the full expenditure claimed under thehead consultancy charges and professional charges subject to verifying the fact about offering ofsuch amount so reduced as income in the relevant assessment year. the submission of the assessee that they have many branches and had received bills from variousconsultants. 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 necessarilycreate a provision for those charges. By pointing out all those factual aspects and also byconsidering the details of administrative expenses furnished by assessee showing the professionaland consultancy charges, the Tribunal allowed the said expenditure, by observing that thenegotiations were still pending with various consultants at the time of finalisation of the accounts ofthe assessee and therefore the assessee had no other alternative but to show those expenses as aprovision. Subsequent reversal of such excess provision in the next year also was taken intoconsideration by the Tribunal for allowing the excess provision made by the assessee.18. We have considered the issue. Even though the learned Standing Counsel for the Revenuesubmitted that there was no scientific method adopted by the assessee in making the provisiontowards consultancy and professional charges, the factual findings rendered by the first appellateauthority as well as the Tribunal show that the assessee was left with no other option except to makethe provision of those expenses in view of the fact that negotiations were going on even at the timeof closing the accounts. Such factual findings of both the appellate authorities are not disputed orcontroverted by the Revenue. In fact even a perusal of the assessment order passed by the AssessingOfficer shows that he is not disputing the above said fact except to say that the provision was madewithout having any correlation with the actuals. When the expenses is in respect of consultancycharges and professional fees, certainly the assessee is entitled to have negotiations with the partiesfor reducing the same and when such finality on the quantum could not be reached even at the timeof closing the accounts, the assessee is certainly entitled to make a provision for the same based onthe original claims made by those parties. Therefore, we find every justification on the part of theassessee in making an excess provision based on the original claim made by the parties. We cannotlose sight of the fact that the assessee had subsequently shown the amount so reduced as income inthe next year in respect of the amount which has been in excess of the provision.19. No doubt the learned counsel for the Revenue relied on the Division Bench decision of this courtmade in T.C.(A) Nos. 148 to 155 of 2005, dated 9.7.2012 (The Commissioner of Income Tax Vs.Forbes Campbell Finance Ltd.) and T.C.(A) No.324 of 2010 dated 18.2.2013 (Renowned AutoProducts Mfrs. Ltd., Vs. The Income Tax Officer) to show that the assessee is not entitled to makethe provision in excess of what the assessee is really bound to incur such an expenditure. In so far asthe decision of this court made in T.C.(A) Nos. 148 to 155 of 2005, is concerned, it is respect ofwarranty provision. The assessee in that case was engaged in the business of trading in variousoffice equipment and appliances like typewriters, duplicator papers etc. The assessee therein offeredone year warranty and free service during the said period. The assessee therein created provision inrespect 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 tookthe stand that even though there might not have been a necessity to provide free service, yet, theycreated necessary provision in the accounts each year during the warranty period as and when anyclaim was made by the service dealers. Therefore, according to the assessee therein the obligationcould not be treated as contingent liability. The Assessing Officer therein found that the liability wasa contingent one in the absence of any claim made or even a belated claim made by the servicedealers therein . The assessee therein created provision inrespect 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 tookthe stand that even though there might not have been a necessity to provide free service, yet, theycreated necessary provision in the accounts each year during the warranty period as and when anyclaim was made by the service dealers. Therefore, according to the assessee therein the obligationcould not be treated as contingent liability. The Assessing Officer therein found that the liability wasa contingent one in the absence of any claim made or even a belated claim made by the servicedealers therein. The Commissioner of Income Tax (Appeals) confirmed the assessment order andfurther appeal by the assessee before the Tribunal decided the issue in favour of the assessee.Aggrieved against the same, the said appeals were preferred before this Court. The Hon'ble DivisionBench by applying the law laid down by the Apex Court reported in (2009) 314 ITR 62 (SC) (RotorControls India P. Ltd., Vs. Commissioner of Income Tax) allowed the case of the Revenue by holdingthat the warranty provision made therein was only on adhoc basis, a fact which was recorded by theTribunal and that even though the warranty period was for one year and the assessee had to makethe payment to the service provider as and when a demand is made, normally such payment claimhas to come during the period of warranty or within a reasonable time. It was also pointed out by the Hon'ble Division Bench that the assessee therein does not deny the fact that the service chargespayable to the dealers arises only as and when the claim is made by the service provider and in noneof those assessment years, the assessee had pleaded that the provision made in the accountstowards the service charges were reversed within a reasonable time, or for that matter any analysiswas made by the assessee at the end of those years to contend that the provision was made only on ascientific basis. 20. Thus, from the perusal of the above decision of the Hon'ble Division Bench it could be seen thatthe facts of that case are totally different and distinguishable one. First of all that is a case ofwarranty provision. Admittedly, the assessee therein made the warranty provision and the servicecharges were payable to the dealers only as and when a claim was made by the service provider.Therefore, considering the nature of the provision as a contingent liability, the Hon'ble DivisionBench disagreed with the assessee's contention. But, here in this case, it is a provision forprofessional fees and consultancy charges. The payment liability of such charges or fees by theassessee was certain. Though the liability was certain, only the quantum was not certain at the timeof filing the return, in view of the continuous negotiations with the parties. Therefore, the assesseewas 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 reported in T.C.A.No.148 of 2005 is not helpful tothe Revenue in this case. Equally, in the other T.C.A.No.324 of 2010 dated 18.2.2013 it is thespecific finding of this court that the Tribunal rendered factual finding of such liability as acontingent liability with uncertainty and therefore, this Court did not intervene with the factualfinding of the Tribunal in that aspect. Consequently, the said decision relied on by the Revenue inthis aspect is also not helpful to them. Thus, we answer the second question of law also in favour ofassessee. 21. This leads us to go into the last issue viz., the expenditure made by the assessee on scientificresearch under Section 35(1)(ii). The Assessing Officer pointed out that the donations were paid bythe two companies viz., SCTPL and SIL to the CMI and the donee also issued the receipts dated18.7.2003 under Receipt Nos.041 and 042 in favour of those two companies only. The AssessingOfficer further pointed out that the donation once paid cannot be revoked and therefore theconsequent 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 donationscarrying weighted deduction can be bartered according to the convenience of persons, dependingupon the degree of necessity to reduce one's tax liability. Since donations were originally flown onlyfrom the other two companies and the donations were also credited to the party's account by way ofjournal entry, the Assessing Officer disallowed the claim of Rs.87,50,000/- being the claim ofweighted deduction by the assessee under Section 35(1)(ii) of the I.T. Act. 22. The first appellate authority had elaborately discussed the issue by considering various 22. The first appellate authority had elaborately discussed the issue by considering various submissions made by the respective parties. Thereafter he came to the conclusion that the assesseeis entitled to deduction under Section 35(1)(ii). In support of his conclusion he pointed out that thebeneficiary viz., CMI is an approved institution under Section 35(1)(ii) and therefore the question tobe decided is whether the assessee had incurred expenditure or not. He also pointed out that thesaid two companies also did not make any claim of paying any donations to the CMI nor they madeany claim of deduction under Section 35(1)(ii). The Commissioner of Income Tax (Appeals) alsonoted the circumstances under which the payment was made to the CMI by the other two companiesand the issuance of receipts in their name and cancelling the same at a later point of time. TheCommissioner of Income Tax (Appeals) also pointed out that the assessee was not having liquidfunds at the relevant point of time and therefore it approached the other two companies viz., SCTPLand SIL, who obliged with payment of the said sum in favour of the CMI by issuing two cheques. TheCommissioner of Income Tax (Appeals) also found that non-reporting of the expenditure in thereturns sent to IRDA for the first half year cannot be faulted as admittedly the same has beenrectified in the second half year's return. After finding that the appellant had incurred theexpenditure and all the three companies are tax paying companies and it is not the assessee's case that the payments made by the loss making companies have been taken credit of by a tax payingcompany to reduce its tax liability and to avoid payment of tax by all the companies, theCommissioner of Income Tax (Appeals) allowed the deduction. 23. On further appeal to the Tribunal, it has been found that the CMI was an approved organisationand under normal practice sometimes the Chairman of the Group commits funds to such causes. It isfurther found by the Tribunal that the Shriram Group of Companies had been contributing to thecause of mathematics. Thus, by noting that the donations have been given not only by the assesseebut also by other group companies also, the Tribunal accepted the assessee's contention with regardto the necessity for making expenditure initially through the other two companies as it was nothaving sufficient funds at that time. The Tribunal had also taken into consideration of the letteraddressed by the Shriram Chits Tamilnadu Pvt. Limited to the assessee company indicating that theamount so paid on behalf of the assessee to CMI has to be reimbursed by them. The Tribunal alsopointed out that two other companies did not make any claim of deduction in respect of suchpayment made to the donee. It is also pointed out that the receipts have not been diverted to theassessee 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 deductionunder Section 35(1)(ii). 24. Going by the factual findings rendered by both the appellate authorities, it is seen that theassessee requested the other two companies to make the expenditure on their behalf by way ofscientific research as it was not having sufficient funds at that time. This fact is not disputed by theRevenue or disproved by them. Therefore, the payment was made by the other two companies to theCMI. Even though they made the payment and obtained receipts in their name, the fact remains thatthey have not claimed any deduction nor shown those expenditure in their books of accounts . Onthe other hand, it is only the assessee who had shown expenditure in the journal entry and claimeddeduction. It is also stated that the assessee had paid the money subsequently to those twocompanies in the subsequent year. Therefore, the fact remains that what was paid to the CMI by theother 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 theGovernment of India were not disputed, we fail to understand as to how the assessee can bedisallowed deduction under Section 35(1)(ii). May be it is an understanding between the asessee andother two companies, in view of the shortage of funds at the hands of the assessee at the relevantpoint of time. That itself cannot be taken to reject the claim of the assessee, when admittedly theassessee had shown the said amount as an expenditure by way of journal entry and also obtainedreceipt in their name. Even the said expenditure was shown in the accounts placed before the IRDAin the second half of the assessment year. Therefore, it cannot be stated that the assessee had notshown the said expenditure in the IRDA accounts. Both the first appellate authority as well as theTribunal had gone into the issue in detail on the factual aspect of the matter and given a finding onsuch factual aspects to hold that the assessee is the actual payer to the CMI for its scientificresearch and consequently entitled to deduction under Section 35(1)(ii). In the absence of any othercontra materials placed before us or before the authorities below by the Revenue, we are notinclined to interfere with such factual finding rendered by both the appellate authorities.Accordingly, this question of law is also answered against the Revenue. 25. In the result, the appeal filed by the Revenue is dismissed thereby answering all the questions oflaw in favour of the assessee and against the Revenue. No costs. krr To 1. The Income Tax Appellate Tribunal 'D' Bench,Chennai 2. The Commissioner of Income -Tax (Appeals)-III,Chennai 3. The Assistant Commissioner of Income TaxCompany Circle I (1)Chennai