The Principal Commissioner Of Income Tax, Vadodara 3 v. M/S Gujarat Narmada Valley Fertilizer And Chemicals Ltd

IN THE HIGH COURT OF GUJARAT AT AHMEDABADR/TAX APPEAL NO. 146 of 2019 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE J.B.PARDIWALA and HONOURABLE MR.JUSTICE A.C. RAO ============================================= 1 Whether Reporters of Local Papers may be YESallowed to see the judgment ?allowed to see the judgment ?2 To be referred to the Reporter or not ?YES3 Whether their Lordships wish to see the fair copy of the judgment ?NO3 Whether their Lordships wish to see the fair copy of the judgment ?NO 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution NOof India or any order made thereunder ?of law as to the interpretation of the Constitution NOof India or any order made thereunder ? ============================================= THE PRINCIPAL COMMISSIONER OF INCOME TAX, VADODARA 3 VersusM/S GUJARAT NARMADA VALLEY FERTILIZER AND CHEMICALS LTD =============================================Appearance: MR.VARUN K.PATEL(3802) for the Appellant(s) No. 1MR MANISH J SHAH(1320) for the Opponent(s) No. 1 ============================================= CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALAand HONOURABLE MR.JUSTICE A.C. RAO Date : 16/07/2019 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE J.B.PARDIWALA) 1.This Tax Appeal under Section 260-A of the Income Tax Act, 1961 (for short “the Act, 1961”) is at the instance of the Revenue and is directed against the order passed by the Income Tax Appellate Tribunal, Surat Bench, Surat, dated 27.09.2018 in the ITA No.2505/Ahd/2014 for the Assessment Year 2010-11. 2.The Revenue has proposed the following substantial question of law for the consideration of this Court : “(a)Whether in the facts and in circumstances of the case, the learned ITAT has erred in law and on facts in deleting disallowance u/s 37(1) of the Act in respect of expenses being contribution / donation to educational institutions, trust, local bodies ?” 3.The facts giving rise to this tax appeal be summarized as under : 3.1The assessee-company filed its Return of Income for the A.Y. 2010-11 electronically with digital signature on 29/09/2010 declaring its total income at Rs.293,22,38,330/-. Later, on 24/11/2011, the company filed its revised return declaring its total income to the tune of Rs.292,11,96,415/-. The return of income filed was processed under Section 143(1) of the Act, 1961 accepting the total income as returned by the assessee-company. 3.2The case was selected for scrutiny under the CASS and in such circumstances, a statutory notice under Section 143(2) of the Act was issued by the DCIT, Bharuch Circle, Bharuch dated 26/08/2011. Later, a notice under Section 142(1) of the Act was issued by the DCIT, Bharuch Circle, Bharuch on 11/07/2012. The case thereafter, was assigned to the Additional CIT, Bharuch Range, Bharuch by the CIT-III, Baroda vide order passed under Section 120 of the Act. Accordingly, a notice under Section 142(1) read with Section 129 of the Act, 1961 alongwith the questionnaire was issued to the assessee by the Additional CIT, Bharuch Range, Bahruch on 19/11/2012. 3.3The assessee-company is engaged in the business of manufacturing, sale and trading of chemical fertilizers and chemical industrial products. The company is also engaged in the business of information and technology. 3.4Thecompanyclaimedexpenditureof Rs.175,036,756/- under Section 37(1) of the Act. Such claim was put forward in fulfillment of its Corporate Social Obligation and Responsibility. The assessee-company was called upon to justify its claim. In response, the assessee-company vide its letter dated 06/02/2013 submitted copies of the receipts issued by the various institutions towards the contribution made and also highlighted the following : 3.3The assessee-company is engaged in the business of manufacturing, sale and trading of chemical fertilizers and chemical industrial products. The company is also engaged in the business of information and technology. 3.4Thecompanyclaimedexpenditureof Rs.175,036,756/- under Section 37(1) of the Act. Such claim was put forward in fulfillment of its Corporate Social Obligation and Responsibility. The assessee-company was called upon to justify its claim. In response, the assessee-company vide its letter dated 06/02/2013 submitted copies of the receipts issued by the various institutions towards the contribution made and also highlighted the following : “GNFC is promoted and virtually managed by the Government of Gujarat (GOG) which appoints the Managing Director & majority of other directors on the Board of the Company, who are IAS officers holding senior positions in the Government. The company being conscious of its Corporate Social Responsibility, as a Joint Sector large scale industry in the State of Gujarat, makes contribution in the ordinary course of its business towards socially useful activities which help in the development particularly of the Bharuch District in which the company has its manufacturing facilities as also to earn goodwill from people at large and which help company in running its business smoothly. It is declared by the company to undertake various activities as a part of its Social Commitment in and around Bharuch District in particular as also in the State of Gujarat. It is also decided that the thrust areas under CSR Policy of the Company will be Education – providing quality education as also establishing centers for training and skill development, Agriculture Extension Services – providing easy access to farm-inputs, market access to produce, upgrading of farm skills; and Socio-Economic Development of Bharuch town in particular and District in general. Increasingly, Government expect that companies should be more environmentally and socially responsible in conducting their business. CSR is a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis. The emphasis is that businesses have to endeavour to become responsible actors in society, so that their every action leads to sustainable growth and economic development. The then Minister of Corporate Affairs while addressing conference of Company Secretary at Kolkata had said that “CSR is no longer charity or philanthropy; instead it should be imbibed in the corporate culture that leads to responsible business.” Company has incurred the following expenses in fulfillment of its corporate social responsibility and has been claimed as deduction u/s 37 of the Income tax C/TAXAP/146/2019 JUDGMENT It would be seen from above that contributions were made towards, social & economical uplifment, education as also for providing medical relief to the needy persons. Such contributions, in view of its very nature are, allowable deduction in computation of its business income as held by various judicial authorities. Company has incurred the following expenses in fulfillment of its corporate social responsibility and has been claimed as deduction u/s 37 of the Income tax C/TAXAP/146/2019 JUDGMENT It would be seen from above that contributions were made towards, social & economical uplifment, education as also for providing medical relief to the needy persons. Such contributions, in view of its very nature are, allowable deduction in computation of its business income as held by various judicial authorities. 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 had been made for the purpose of the assessee’s business. Contribution to the Public Welfare Fund at the instance of the Government authorities was allowed as a deduction on the ground that it was motivated by commercial consideration.” 3.5The Assessing Officer disallowed the claim towards the expenditure under Section 37(1) of the Act holding as under : “i)Expenditure would be allowable under section 37(1) of the Act if it is incurred wholly and exclusively for the purpose of business. The assessee could not explain how these payments were wholly and exclusively for the purpose of business. Apparently no business objective has been served by the above expenditure and the assessee company was not able to prove how exactly these contributions were helpful either in promotion of its future business activities or directly connected with business activities of the assessee in the year under consideration. Therefore, these are not allowable expenditure. ii)Government being majority shareholder of the company, may direct it to make such payment, but it does not automatically become an allowable deduction under the I.T. Act. The assessee has to prove that it was incurred for business / commercial expediency, apart from being orders from the Government, since onus lies on the person who makes a claim. In this case the assessee has not been able to prove exactly the same. Thus, the assessee failed to prove the above expenditure falls under the provisions of section 37(1) of the Act. iii)Income Tax Act also recognizes the need for making payment for discharging corporate social responsibility, or individual social responsibility. Provisions of section 80G of the Act encourage such payments & payments made to specified organizations are eligible for deduction as per the said provision. If there is specific section for allowability of certain payment, then it overrules any general section. For making payment of donation there is a specific section 80G, therefore any donation paid otherwise than in conformity with section 80G would not be an allowable deduction, but would only be application of income. iii)Income Tax Act also recognizes the need for making payment for discharging corporate social responsibility, or individual social responsibility. Provisions of section 80G of the Act encourage such payments & payments made to specified organizations are eligible for deduction as per the said provision. If there is specific section for allowability of certain payment, then it overrules any general section. For making payment of donation there is a specific section 80G, therefore any donation paid otherwise than in conformity with section 80G would not be an allowable deduction, but would only be application of income. iv)The assessee has mainly relied upon the decision of Hon’ble Gujarat High Court for the A.Y. 1996-97 wherein Hon’ble High Court has allowed contribution made to NIRDES u/s 37(1) of the I.T. Act. Hon’ble High Court has also relied upon decision of Supreme Court in the case of Sri Venkata Satyanarayana Rice Mill Contractors Co. V/s CIT. Wherein the Hon’ble High Court has also considered submission of the assessee. Relevant portion of the said submission is as under : “....... actually the donation had been given to NIRDES as per order of Gujarat State Government who was a major share holder in the assessee company. Moreover, it was in the interest of the company also because the assessee company being a fertilizer producing company, the future prospects for the assessee were better because of expansion of irrigated area of land and the prospective demand of fertilizer for agricultural activities therein …...” The assessee failed to bring any material on the record which can connect these payments with the provisions of sec. 37(1) of the I.T. Act, 1961. However, from the list of above payments, it appears that contribution of 4,50,000/- made to Gujarat Coop. Onion Grovers Federation Ltd. for storage facility of onion to Small and Marginal farmers at Bhavnagar may be in the business interest of the company because the assessee company is a fertilizer producing and its contribution for storage facility of onion to farmers may encourage the farmer to increase the production of onion using fertilizer by virtue of storage facility being made available to them. Remaining payments are not connected with the business activities of the assessee and also the assessee failed to bring any fact in this regard. In view of the above in the present case the assessee failed to prove that the above payments were made wholly and exclusively for the purpose of business activities.” 3.6Being dissatisfied with the disallowance of the claim towards the expenditure under Section 37(1) of the Act, the assessee-company preferred an appeal before the CIT(A). The CIT(A) dismissed the appeal taking the view that the assessee had failed to establish any direct nexus of the expenditure with the disallowance. The CIT(A) observed as under while dismissing the appeal : and also the assessee failed to bring any fact in this regard. In view of the above in the present case the assessee failed to prove that the above payments were made wholly and exclusively for the purpose of business activities.” 3.6Being dissatisfied with the disallowance of the claim towards the expenditure under Section 37(1) of the Act, the assessee-company preferred an appeal before the CIT(A). The CIT(A) dismissed the appeal taking the view that the assessee had failed to establish any direct nexus of the expenditure with the disallowance. The CIT(A) observed as under while dismissing the appeal : “I have carefully considered the facts and the circumstances of the case, the observations of the Assessing Officer, submissions of the assessee, material available on record and the judicial pronouncements on the subject. During the relevant year, the assessee had made payments to various entities under its CSR head for various projects including, (i) purchasing Charkhas for tribal women, (ii) construction of hostel for boys and girls in Bhekhadia village, (iii) contribution for providing potable drinking water in the villages of Bharuch district, (iv) providing computers to entrepreneurs, (v) contribution towards primary / higher education of children, (vi) contribution to conferencesonsocio-economicissues,(vii) sponsorships of various programmes / events, (viii) contributions to various health projects of various organizations, (ix) contribution to independence Day celebrations by GOG, Rajpipla and (x) contribution to DST, Govt. of Gujarat for two satellites. The assessee has incurred total expenditure of Rs.17,45,86,756/- and has claimed the same as deduction u/s 37(1) of the Act. Therefore, deduction u/s 37(1) can be allowed for any expenditure, for which deduction has not been allowed in section 30 to 36, which is not personal or capital in nature and which has been incurred “wholly and exclusively for the purpose of the business of the assessee”. The Assessing Officer has disputed that the expenditure to the tune of Rs.17,45,86,756/- was not incurred wholly and exclusively for the purpose of the business of the assessee. The word “wholly” refers to the quantum of the expenditure and the word “exclusively” refers to the motive, objective and the purpose of the expenditure. It is clear that if the expenditure has been incurred for promoting the business and earn profit, even if in the long run, the expenditure will be allowable as deduction. In order to claim deduction u/s 37(1), the money must be expended to directly or indirectly facilitate the business of the assessee. In this case, the efforts of the assessee in contributing to various agencies efforts to provide education, health-care, vocational employment etc. are laudable and for its efforts, it is eligible for deduction u/s 80G, where ever applicable, and the Assessing Officer has also allowed it at the rate of 50%. However, what has been frowned upon by the Assessing Officer, is the efforts of the assessee to get 100% deduction by claiming all these expenses u/s 37(1) of the Act, without fulfilling the pre conditions of section 37(1). Perusal of the submissions and the records reveals that the assessee has failed to establish that the claimed expenditure was incurred wholly and exclusively for the purpose of the business of the assessee. The assessee has failed to explain how the incurring of these expenses has directly or indirectly helped the purpose of its business. The assessee is a manufacturer of fertilizers and chemicals and any expenditure u/s 37(1) will be allowable to it only if it establishes that the same helped assessee’s business in any way, directly or indirectly. The assessee has failed to establish that the direct concern and the direct purpose of the expenditure was furtherance of assessee’s business.” direct concern and the direct purpose of the expenditure was furtherance of assessee’s business.” 3.7The assessee-company being dissatisfied with the order passed by the CIT(A) preferred appeal before the Income Tax Appellate Tribunal, Surat Bench, Surat. The Appellate Tribunal allowed the claim of expenditure incurred towards the corporate social responsibility holding as under : “19.We have heard the rival submissions and perused the relevant material on record. We find that identical issue has come up before the tribunal in assessment year 2009-10, wherein in para 35 & 36, of the Tribunal has observed as under : “35.We have heard the rival submissions and perused the available material on record. We find that the expenditure has been incurred on account of various relief materials like food items, kerosene, blankets etc. to the flood affected people of Bihar. Therefore, this expenditure has been incurred on behest of the State Government of Gujarat as the assessee is a public undertaking of Gujarat Government. The assessee is conscious of its corporate social responsibility and makes contributions in the ordinary course of its business towards socially useful activities and in view of very nature the expenditure incurred for corporate social responsibility is allowable as business expenditure as it was incurred for making the image of the company and towards its social responsibility reliance placed on the decision of Apex Court in the case of Shri Venkata Satyanarayana Rice Mills Contractors Co. vs. CIT 223 ITR 101 (SC) wherein contribution to the public welfare fund at the instance of the Government Authorities was allowed as the deduction on the ground that it was motivated by commercial contribution. Similarly, the Hon’ble Jurisdictional High Court in the case of assessee in Tax Appeal No.770/1999 with Tax Appeal No.77 & 78/2008 dated 06.05.2011 has upheld the order of Tribunal wherein the Tribunal has upheld the contribution made to the Chief Minister Earth Quake Relief Fund and contribution to the State Government as business expenditure for A.Y. 1994-95 and 1995-96 by treating the case where in the nature of commercial expediency as allowable as a revenue expenditure. 36.In the light of the above, we find no infirmity in the order of CIT(A), accordingly same is uphold, therefore, this ground of appeal is dismissed.” 20.In the light of above facts we find that the issue is covered in favour of the assessee, therefore, respectfully following the same this ground of appeal of the Assessee is allowed. 21.In the result, appeal of the Assessee is partly allowed.” 3.8Thus, the Appellate Tribunal relied on its earlier order passed for the Assessment Year 2009-10 and took the view that the assessee-company was entitled to claim deduction towards the expenditure incurred for discharging its corporate social responsibility under Section 37(1) of the Act. 3.9The Revenue being dissatisfied with the order passed by the Appellate Tribunal has come up with the present appeal. 3.10The challenge to the order passed by the Appellate Tribunal is on the following grounds : “(a)It is submitted that the learned ITAT has erred in law and on facts in deleting disallowance u/s 37(1) of the Act in respect of expenses on contribution/donation to educational institutions, trust, local bodies by relying on its own decision in ITA No.1363/Ahd/2013 for A.Y. 2009-10, without appreciating that the facts of the assessee’s case for A.Y. 2010-11 were altogether different from the facts of assessee’s case for A.Y. 200-10. (b)it is submitted that the learned ITAT has erred in law and on facts in deleting disallowance u/s. 37(1) of 3.9The Revenue being dissatisfied with the order passed by the Appellate Tribunal has come up with the present appeal. 3.10The challenge to the order passed by the Appellate Tribunal is on the following grounds : “(a)It is submitted that the learned ITAT has erred in law and on facts in deleting disallowance u/s 37(1) of the Act in respect of expenses on contribution/donation to educational institutions, trust, local bodies by relying on its own decision in ITA No.1363/Ahd/2013 for A.Y. 2009-10, without appreciating that the facts of the assessee’s case for A.Y. 2010-11 were altogether different from the facts of assessee’s case for A.Y. 200-10. (b)it is submitted that the learned ITAT has erred in law and on facts in deleting disallowance u/s. 37(1) of the Act, without appreciating that the A.O. had correctly made disallowance of expenses u/s. 37(1) of the Act since the assessee failed to establish that the direct concern and the direct purpose of the expenditure was furtherance of assessee’s business and failed to prove that the payments under consideration were made for commercial expediency and for the purpose of assessee’s business.” 4.Mr.Varun Patel, the learned counsel appearing for the Revenue has placed reliance on the decision of the Supreme Court in the case of Commissioner of Income-Tax vs. Amalgamations Pvt. Ltd. reported in (1997) 226 ITR Page.188 and on the decision of the Karnataka High Court in the case of Commissioner of Income-Tax and Another vs. Wipro Ltd. (No.2) reported in (2014) 360 ITR 658 (Karn). Submissions on behalf of the assessee :- 5.Mr.Manish J. Shah, the learned counsel has appeared on behalf of the assessee-company. Mr.Shah submitted that no error not to speak of any error of law could be said to have been committed by the Appellate Tribunal in passing the impugned order. According to Mr.Shah, the Tribunal thought fit to rely upon its own decision in the case of the very same assessee for the Assessment Year 2009-10. Mr.Shah submitted that there was no good reason for the Assessing Officer and the CIT(A) to take a different view, more particularly, when the Appellate Tribunal had already allowed such claim for the Assessment Year 2009-10. Mr.Shah submitted that the principle of rule of consistency should have been adhered to by the Assessing Officer and the CIT(A). The Appellate Tribunal has correctly applied the principle of rule of consistency. In this regard, Mr.Shah has placed reliance on two decisions : (1) S.A. Builders Ltd. vs. CIT(A) & Anr. reported in (2007) 288 ITR 1 (SC) and (2) CIT vs. Nainital Bank Ltd. reported in (1966) 62 ITR 638 (SC). 5.1On the main issue as regards Section 37(1) of the Act, Mr.Shah has placed reliance on the following decisions : (1)CIT vs. Dhanrajgirji Raja Narasingirji, (1973) 91 ITR 544 (SC); (2)Sassoon J. David and Co. (P) Ltd. vs. CIT, (1979) 118 ITR 261 (SC); (3)Mysore Kirloskar Ltd. vs. CIT, (1987) 166 ITR 836 (Kar); (4)Sri Venkata Satyanarayana Rice Mill Contractors Co. vs. CIT, (1997) 223 ITR 101 (SC); (5)CIT vs. Madras Refineries Ltd., (2004) 266 ITR 170 (Mad); (6)CIT vs. Cheran Transport Corporation Ltd., (1996) 219 ITR 203 (Mad); (7)CIT vs. Chemicals and Plastics India Ltd., (2007) 292 ITR 115 (Mad); (8)CIT vs. Vatika Township P. Ltd., (2014) 367 ITR 466 (SC); (9)ACIT vs. Jindal Power Ltd. (2016) 70 taxmann.com 389 (Raipur-Trib) ANALYSIS :- 5.1On the main issue as regards Section 37(1) of the Act, Mr.Shah has placed reliance on the following decisions : (1)CIT vs. Dhanrajgirji Raja Narasingirji, (1973) 91 ITR 544 (SC); (2)Sassoon J. David and Co. (P) Ltd. vs. CIT, (1979) 118 ITR 261 (SC); (3)Mysore Kirloskar Ltd. vs. CIT, (1987) 166 ITR 836 (Kar); (4)Sri Venkata Satyanarayana Rice Mill Contractors Co. vs. CIT, (1997) 223 ITR 101 (SC); (5)CIT vs. Madras Refineries Ltd., (2004) 266 ITR 170 (Mad); (6)CIT vs. Cheran Transport Corporation Ltd., (1996) 219 ITR 203 (Mad); (7)CIT vs. Chemicals and Plastics India Ltd., (2007) 292 ITR 115 (Mad); (8)CIT vs. Vatika Township P. Ltd., (2014) 367 ITR 466 (SC); (9)ACIT vs. Jindal Power Ltd. (2016) 70 taxmann.com 389 (Raipur-Trib) ANALYSIS :- 6.We take notice of the fact that the Appellate Tribunal relied on its earlier order passed on the very same issue for the Assessment Year 2009-10. The order passed by the Appellate Tribunal for the Assessment Year 2009-10 on the question of the applicability of Section 37(1) of the Act is self-explanatory. In fact, the Assessing Officer and the CIT(A) should have followed the said order passed by the Appellate Tribunal. However, we have noticed that in a very casual manner, the CIT(A) declined to look into the order which was passed by the Appellate Tribunal for the Assessment Year 2009-10, observing as under : “The nature of the expenses claimed u/s 37(1) in assessee’s own case in A.Y. 1994-95, 1995-96, 1996-97, 1997-98, 2001-02, 2009-10 was different, as compared to the ones in the present case. Therefore, the ratio of the decisions of Hon’ble Gujarat High Court and Ahmedabad ITAT in assessee’s own case, are not applicable to the facts of the present case. In view of the above discussion, it is clear that the assessee has failed to establish that the impugned expenses of Rs.17,45,86,756/- were incurred wholly and exclusively for the purpose of the business of the assessee. Consequently, the same cannot be allowed as deduction u/s 37(1) of the Act. The order of the Assessing Officer in this regard is upheld. The assessee fails on the ground of appeal.” 6.1This is where the principle of rule of consistency comes into play. What is the rule of consistency? It has been explained by the Supreme Court in the judgement in Radhasoami Satsang Soami Bagh, Agra v. CIT 193 ITR 321 and the following passage should be noticed : “13.One of the contentions which the learned senior counsel, for the assessee-appellant raised at the hearing was that in the absence of any change in the circumstances, the Revenue should have felt bound by the previous decisions and no attempt should have been made to reopen the question. He relied upon some authorities in support of his stand. A full Bench of the Madras High Court considered this question in T.M.M Sankaralinga Nadar & Bros. & Ors, v. Commissioner of Income-Tax, Madras, 4 ITC 226. After dealing with the con- cession the Full Bench expressed the following opinion: “The principle to be deducted from these two cases is that where the question relating to assessment does not vary with the income every year but depends on the nature of the property or any other question on which the rights of the parties to be taxed are based, e.g., whether a certain property is trust property or not, it has nothing to do with the fluctuations in the income; such questions if decided by a Court on a reference made to it would be res judicata in that the same question cannot be subsequently agitated.” 14.One of the decisions referred to by the Full Bench was the case of Hoystead & Ors. v. Commissioner of Taxation, 1926 AC 155. Speaking for the Judicial Committee Lord Shaw stated: “The principle to be deducted from these two cases is that where the question relating to assessment does not vary with the income every year but depends on the nature of the property or any other question on which the rights of the parties to be taxed are based, e.g., whether a certain property is trust property or not, it has nothing to do with the fluctuations in the income; such questions if decided by a Court on a reference made to it would be res judicata in that the same question cannot be subsequently agitated.” 14.One of the decisions referred to by the Full Bench was the case of Hoystead & Ors. v. Commissioner of Taxation, 1926 AC 155. Speaking for the Judicial Committee Lord Shaw stated: “Parties are not permitted to begin fresh litigations because of new views they may entertain of the law of the case, or new versions which they present as to what should be proper apprehension by the Court of the legal result either of the construction of the document or the weight of certain circumstances. If this were permitted litigation would have no end, except when legal ingenuity is exhausted. It is a principal of law that this cannot be permitted, and there is abundant authority reiterating that principle. Thirdly, the same principle – namely, that of setting to rest rights of litigants, applies to the case where a point, fundamental to the decision, taken or assumed by the plaintiff and traversable by the defendant, has not been traversed. In that case also a defendant is bound by the judgment, although it may be true enough that subsequent light or ingenuity might suggest some traverse which had not been taken.” These observation were made in a case where taxation was in issue. (15)This Court in Parashuram Pottery Works Co. Ltd. v. Income-Tax Officer, Circle 1, Ward A, Rajkot, (106 ITR 1 at p. 10 : 1977 SC 429 at p. 435) stated : “At the same time, we have to bear in mind that the policy of law is that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity.” Assessments are certainly quasi-judicial and these observations equally apply. (16)We are aware of the fact that strictly speaking res judicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. (17)On these reasonings in the absence of any material change justifying the Revenue to take a different view of the matter- and if there was not change it was in support of the assessee- we do not think the question should have been reopened and contrary to what had been decided by the Com- missioner of Income-Tax in the earlier proceedings, a different and contradictory stand should have been taken. We are, therefore, of the view that these appeals should be allowed and the question should be answered in the affirmative, namely, that the Tribunal was justified in holding that the income derived by the Radhasoami Satsang was entitled to exemption under Ss. 11 and 12 of the Income Tax Act of 1961.” 6.2The aforesaid principle has been applied by the Delhi High Court in the following judgements : (1)Director of Income-tax (Exemption) v. Apparel Export Promotion Council 244 ITR 734; (2)CIT v. Neo Polypack 245 ITR 492;(3)CIT v. Allied Finance (P) Ltd. 195 CTR 528. 6.3 In the first of the above judgements, it was held 6.2The aforesaid principle has been applied by the Delhi High Court in the following judgements : (1)Director of Income-tax (Exemption) v. Apparel Export Promotion Council 244 ITR 734; (2)CIT v. Neo Polypack 245 ITR 492;(3)CIT v. Allied Finance (P) Ltd. 195 CTR 528. 6.3 In the first of the above judgements, it was held that although the doctrine of res judicata did not strictly apply to the income-tax proceedings, yet in order to maintain consistency, the revenue cannot be permitted to rake up stale issues all over again merely because the scope of appeal is wider than the scope of reference. In this case, the assessee had been granted exemption under Section 11 for a long period of years and without there being any change in the objects or activities of the assessee, the income-tax authorities sought to deny the exemption in a later year. In the case of Neo Polypack (supra) it was held that although the doctrine of res judicata is not applicable to the income-tax proceedings since each assessment year is independent of the other, yet where an issue has been considered and decided consistently in a number of earlier years in a particular manner the same view should continue to prevail in the subsequent years unless there is some material change in the facts. In the case of Allied Finance (P) Ltd. (supra), the Tribunal had decided an issue in favour of the assessee by two orders and those two orders were followed by the Tribunal in the subsequent appeals. The department had accepted the correctness of the basic two orders and did not file any appeal against them. It, however, challenged the subsequent orders of the Tribunal and while refusing to entertain the appeal, the Delhi High Court held that there was no reason to discard the principle of consistency which requires that when the revenue has accepted a particular view by not filing an appeal that view should be adhered to, unless there is a just cause for departure. The High Court deprecated the practice of pick and choose. 6.4The basis of the rule of consistency seems to us, with respect, to be the classic observations of His Lordship Justice H.R. Khanna speaking for the Supreme Court in Parshuram Pottery Works Co. Ltd. v. ITO 106 ITR 01 (SC). It was held that : “We have to bear in mind that the policy of law is that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi judicial controversies as it must in other spheres of human activity.” 6.5It is significant to note that the aforesaid observations were noticed by the Supreme Court in the judgement in the case of Radha Soami Satsang (supra) and it was held that they equally apply to the assessments which are certainly quasi judicial. 6.6In the case of Berger Paints (India) Ltd. v. CIT 266 ITR 99, it was again held by the Supreme Court that if the revenue has not challenged the correctness of the law laid down by the High Court and has accepted it in the case of one assessee, then it is not open to the revenue to challenge its correctness in the case of other assessee without just cause. Similar observations have been made by the Supreme Court in the following cases : (1)Kaumudini Narayan Dalai (2)CIT v. Narendra Doshi (3)CIT v. Shiv Sagar Estate 6.7The above judgements of the Supreme Court show the anxiety to prevent the income-tax authorities from taking different stands in the case of different assessee in respect of the same issue or taking different stands in the case of the same assessee for different assessment years in respect of the same issue. 6.8The Supreme Court in the case of Commissioner of Income-tax v. Excel Industries Ltd. [2013] 358 ITR 295 (SC) observed as under : correctness in the case of other assessee without just cause. Similar observations have been made by the Supreme Court in the following cases : (1)Kaumudini Narayan Dalai (2)CIT v. Narendra Doshi (3)CIT v. Shiv Sagar Estate 6.7The above judgements of the Supreme Court show the anxiety to prevent the income-tax authorities from taking different stands in the case of different assessee in respect of the same issue or taking different stands in the case of the same assessee for different assessment years in respect of the same issue. 6.8The Supreme Court in the case of Commissioner of Income-tax v. Excel Industries Ltd. [2013] 358 ITR 295 (SC) observed as under : “28.Secondly, as noted by the Tribunal, a consistent view has been taken in favour of the assessee on the question raised, starting with the assessment year 1992-93, that the benefits under the advance licences or under the duty entitlement pass book do not represent the real income of the assessee. Consequently, there is no reason for us to take a different view unless there are very convincing reasons, none of which have been pointed out by the learned counsel for the Revenue. 29.In Radhasoami Satsang v. CIT [1992] 193 ITR 321 (SC) this court did not think it appropriate to allow the reconsideration of an issue for a subsequent assessment year if the same “fundamental aspect” permeates in different assessment years. In arriving at this conclusion, this court referred to an interesting passage from Hoystead v. Commissioner of Taxation [1926] AC 155 (PC) wherein it was said (page 328 of 193 ITR) : “Parties are not permitted to begin fresh litigations because of new views they may entertain of the law of the case, or new versions which they present as to what should be proper apprehension by the Court of the legal result either of the construction of the document or the weight of certain circumstances. If this were permitted litigation would have no end, except when legal ingenuity is exhausted. It is a principal of law that this cannot be permitted, and there is abundant authority reiterating that principle. Thirdly, the same principle – namely, that of setting to rest rights of litigants, applies to the case where a point, fundamental to the decision, taken or assumed by the plaintiff and traversable by the defendant, has not been traversed. In that case also a defendant is bound by the judgment, although it may be true enough that subsequent light or ingenuity might suggest some traverse which had not been taken.” 30.Reference was also made to Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1 (SC) and then it was held (page 329 of 193 ITR) : “We are aware of the fact that strictly speaking res judicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. On these reasonings in the absence of any material change justifying the Revenue to take a different view of the matter- and if there was not change it was in support of the assessee- we do not think the question should have been reopened and contrary to what had been decided by the Com- missioner of Income-Tax in the earlier proceedings, a different and contradictory stand should have been taken.” On these reasonings in the absence of any material change justifying the Revenue to take a different view of the matter- and if there was not change it was in support of the assessee- we do not think the question should have been reopened and contrary to what had been decided by the Com- missioner of Income-Tax in the earlier proceedings, a different and contradictory stand should have been taken.” 31.It appears from the record that in several assessment years, the Revenue accepted the order of the Tribunal in favour of the assessee and did not pursue the matter any further but in respect of some assessment years the matter was taken up in appeal before the Bombay High Court but without any success. That being so, the Revenue cannot be allowed to flip- flop on the issue and it ought let the matter rest rather than spend the taxpayers' money in pursuing litigation for the sale of it. 32.Thirdly, the real question concerning us is the year in which the assessee is required to pay tax. There is no dispute that in the subsequent accounting year, the assessee did make imports and did derive benefits under the advance licence and the duty entitlement pass book and paid tax thereon. Therefore, it is not as if the Revenue has been deprived of any tax. We are told that the rate of tax remained the sane in the present assessment year as well as in the subsequent assessment year. Therefore, the dispute raised by the Revenue is entirely academic or at best may have a minor tax effect. There was, therefore, no need for the assessment year as well as in the subsequent assessment year. Therefore, the dispute raised by the Revenue is entirely academic or at best may have a minor tax effect. There was, therefore, no need for the Revenue to continue with this litigation when it was quite clear that not only was it fruitless (on merits) but also that it may not have added anything much to the public coffers.” 6.9Section 37 of the Act reads as under : “Section 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”. [Explanation 1. - For the removal of doubts, it is hereby declared that any 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.] [Explanation 2. - For the removal of doubts, it is hereby declared that for the purposes of sub-section (1), any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 (18 of 2013) shall not be deemed to be an expenditure incurred by the assessee for the purpose if the business or shall not be deemed to be an expenditure incurred by the assessee for the purpose if the business or profession.] (2) [***] [(2B) Notwithstanding anything contained in sub-section (1), no allowance shall be made in respect of expenditure incurred by an assessee on advertisement in any souvenir, brochure, tract, pamphlet or the like published by a political party]” 6.10The necessary conditions for allowance under Section 37 are as follows : (1)The expenditure should not be covered under the specific section i.e. Section 30 to 36.specific section i.e. Section 30 to 36. (2)The expenditure should not be of capital nature. (3)The expenditure should be incurred during the previous year.year. (4)The expenditure should not be of personal nature. shall not be deemed to be an expenditure incurred by the assessee for the purpose if the business or profession.] (2) [***] [(2B) Notwithstanding anything contained in sub-section (1), no allowance shall be made in respect of expenditure incurred by an assessee on advertisement in any souvenir, brochure,