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2024 (1) TMI 496 - HC - Income TaxAllowable business expenses - disallowing the expenditure claimed u/s 37 being the sum paid to the Bellary Agenda Task Force [BATF] as not incurred wholly and exclusively for the purpose of business - HELD THAT:- In the present case, it is clear from the material referred that the Deputy Commissioner having constituted the BATF which included development of infrastructure had convened a meeting of all stakeholders, including the assessee. As is evident from the Minutes of the meeting recorded on 28.02.2009, the contribution of the assessee as is recorded in the Minutes would be preserved and used for development works in Sandur Taluk. It is required in terms of Section 37 of the I.T. Act that the expenditure is “expended wholly and exclusively for the purpose of the business.” It is a settled position of law that the expenditure that could be relatable to ‘Commercial Expediency’ would fall within the ambit of ‘expenditure’ under Section 37(1) I.T. Act It is clear that the expenditure made to the BATF was to be expended for the purpose of road infrastructure. Such expenditure has a nexus with the business of the assessee insofar as road infrastructure is required for the purpose of transportation of iron ore. It could be stated that the expenditure was wholly and exclusively for the purpose of business. It is also to be noticed that though there was no legal obligation to make such contribution, however, as noticed by the ITAT, the contribution made at the behest of the Deputy Commissioner would go a long way towards generating “goodwill and benefit of it would yield in the long run in earning profit.” It could also be stated that the expenditure could be related to ‘Commercial Expediency’, as any amount contributed to the BATF would generate goodwill of the local community as well as the Government Authorities. It must also be emphasised that the concept of ‘Commercial Expediency’ is from the perspective of an assessee and cannot be judged from the perspective of what the Revenue construes it to be ‘Commercial expediency.’ Insofar as the contention of the Revenue that by virtue of amendment made to Section 37 of the I.T. Act by insertion of explanation to the effect that expenditure incurred relating to Corporate Social Responsibility as referred to under the Companies Act, 2013 shall not be deemed to be an expenditure for the purposes of Section 37 of the I.T. Act, however it must be noticed that the said explanation has been inserted vide Finance Act, 2014 and it is made out from the said Amendment Act that the amendment would take effect from 01.04.2015. The same interpretation regarding prospective application of the amendment has been considered by the High Court of Delhi in the case of Principal Commissioner of Income Tax Vs. P.E.C. Limited [2022 (12) TMI 759 - DELHI HIGH COURT] As the subject matter of dispute relates to assessment year 2010-11, it can be stated that the said explanation to Section 37 of the I.T. Act would not apply as regards the present subject matter of dispute. Thus the substantial question of law is held in the affirmative.
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