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Treatment of Energy conservation Contribution expenses under Income Tax Act, 1961

Energy conservation Contribution expenses is an Allowable Business Expenditure under Income Tax Act, 1961 as assessee incurred the same wholly and exclusively for Business Purpose – ITAT

CA Ankit Gulgulia (Jain) | | CA Ankit Gulgulia (Jain)

Rajasthan Renewable Energy Corporation Limited Versus Deputy Commissioner of Income Tax, Circle-6, Jaipur. No.- ITA No. 983/JP/2013 | Dated.- September 30, 2015 | ITAT Jaipur


The assessee company is engaged in the business of generation and transmission of renewal power/energy through wind mills. The assessee company filed its return on 29/09/2008 declaring total income of ₹ 39,73,280/-.

The case was scrutinized U/s 143(3) of the Income Tax Act, 1961 (in short the Act). The ld Assessing Officer observed that the assessee had debited ₹ 5 lacs in P&L account towards energy conservation contribution expenses.

The assessee submitted before the Assessing Officer that as per the directions of the State Government (Energy Department) vide its Order No. F20(6) Energy/98 dated 01/06/2007, it was directed to constitute a Rajasthan Energy Conservation Fund for the promotion of efficient use to energy and its conservation within the State. RREC was directed, with the concurrence of the Finance Department ID No. 241 dated 26/05/2007, to transfer amount to this fund and hence a sum of ₹ 5,00,000/- has been transferred by charging to Profit & Loss account.

Assessment Proceedings

After considering the assessee’s reply, it has been held that contribution made by the assessee cannot be said to be incidental to the business of the assessee.

First Appeal by Assessee – CIT(A) decided in Revenue’s Favour

“I have considered the facts of the case and the submission made. The submission filed by the A/R for the appellant is not tenable. The A/R could not controvert the findings of the A.O. The said contribution made by the assessee cannot be said to be incidental to the business of the assessee. These expenses can also not said to be incurred wholly and exclusively for the business purpose of the assessee. Hence, considering the entire facts and circumstances of the case the addition made by the A.O. is fair and reasonable and the same is sustained. The appellant fails on this ground.”

ITAT Proceedings

The ld AR of the assessee has submitted that the company is State Nodal Agency of Ministry of New & Renewable Energy (MNRE) for development and promotion of Renewable Sources of energy in the State of Rajasthan. The company is nominated as a State Designated Agency (SDA) of Bureau of Energy Efficiency (BEE) Ministry of Power, Government of India on March, 2003 for promote efficient use of energy and its conservation and also enforce the provision of energy conservation Act, 2001.

He placed reliance on the following case laws:-

(i) CIT Vs. Raj Shipping and Weaving Mills Ltd. (2005) 272 ITR 487 (Raj.).

(ii) CIT Vs. Upper Ganges Sugar Mills Ltd. (1994) 206 ITR 215 (Cal.)

(iii) Krishna Sahakari Karkhana Ltd. Vs. CIT (1998) 229 ITR 577 (Bom).

Therefore, he prayed to delete the addition.

ITAT Rules in Assessee’s Favour

This amount was paid towards energy conservation contribution fund, which is statutory liability as per provisions of Energy Conservation Act, 2001. The case law relied by the assessee of the judgment of the Hon’ble Jurisdictional High court in the case of CIT Vs. Raj Shipping and Weaving Mills Ltd. (supra) is squarely applicable in the case of the assessee wherein it has been held that contribution to the fund set up for products which was also the business of the assessee has direct nexus to the advancement of the assessee business.

The object of the fund was not confined to the assessee but was open to all who wanted to participate could not alter the character of expenses incurred by way of contribution to such fund by the assessee from his benefit to other benefits. By respectfully following the Hon’ble Rajasthan High Court decision, we are of the considered view that the assessee has incurred expenses wholly and exclusively for business purposes. Accordingly, we reverse the order of the ld CIT(A).

Decided in Assessee’s Favour


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