TMI Blog2021 (10) TMI 454X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the assessee and which is debited to provision for medical reimbursement account during the year under consideration. Disallowance of Provision for leave travelling allowance - AO noticed that the assessee has claimed a sum as provision for leave travelling allowance. - A.O. took the view that the same is a future liability and accordingly, disallowed the same. The Ld. CIT(A) also confirmed the same - HELD THAT:- As in the case of provision for medical reimbursements, in this claim also, the liability to pay would arise in the hands of the assessee only when an employee makes a claim. We notice that the coordinate bench has decided an identical issue against the assessee in the assessee s own case in AY 2008-09. Hence, we do not find any infirmity in the decision of Ld. CIT(A) in confirming the disallowance. However, as held in the case of Provision for medical reimbursements , the actual expenditure towards leave travel expenses, if any, incurred by the assessee and debited to provision for leave travelling allowance during the year under consideration may be allowed as deduction. Disallowance of incidental expenses - A.O. disallowed the same on the reasoning tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue and restore this issue to the file of AO for examining it afresh. - ITA Nos.1515 to 1517/Bang/2015 - - - Dated:- 6-10-2021 - Shri B. R. Baskaran, Accountant Member And Smt. Beena Pillai, Judicial Member For the Appellant : Shri S. Parthasarathi, A.R. For the Respondent : Shri Muzaffar Hussain, D.R. ORDER PER B.R. BASKARAN, ACCOUNTANT MEMBER: The assessee has filed these three appeals challenging the orders passed by Ld. CIT(A), Gulbarga and they relate to the assessment years 2009-10 to 2011-12. Since common issues are urged in these appeals, they were heard together and are being disposed of by this common order, for the sake of convenience. 2. The assessee is carrying on business of extraction of Manganese and Iron Ore. ASSESSMENT YEAR : 2009-10 3.0 We shall first take up the appeal filed by the assessee for assessment year 2009-10. The ground no.1 is general in nature. The ground no.2 and 3 relates to disallowance of claim made under the head Provision for medical allowance . 3.1 The facts relating to the above said issue are stated in brief. The A.O. noticed that the assessee has claimed expenditure of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed by the assessee has been disallowed, it is prayed that the actual medical reimbursement expenses incurred during the year should be allowed as deduction. We find merit in this prayer of the Ld. A.R. The claim of provision for medical reimbursement has been disallowed only for the reason that the same is contingent in nature. In that case, the actual expenses incurred during the year merits allowance. Accordingly, while confirming the order passed by the Ld. CIT(A) on this issue, in the interest of natural justice, we direct the A.O. to allow actual medical reimbursement expenses incurred by the assessee and which is debited to provision for medical reimbursement account during the year under consideration. We order accordingly. 4.0 The next issue urged in ground nos. 4 to 7 relates to disallowance of Provision for leave travelling allowance . The A.O. noticed that the assessee has claimed a sum of ₹ 43.14 lakhs as provision for leave travelling allowance. The A.O. took the view that the same is a future liability and accordingly, disallowed the same. The Ld. CIT(A) also confirmed the same. 4.1 The Ld. A.R. submitted that the provision made for leave travel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and other development works in the district cannot be treated as business expenditure, which is not at all related to the assessee company s nature of business and at the most it can be treated as donation. The assessee company s contention that it is a Corporate Social Responsibility is not acceptable. Since the above expenditure is not incurred for the purpose of business and cannot be allowed as expenditure u/s 37. Reliance is also placed on the recent pronouncement of Hon ble High Court of Karnataka in the case of Infosys which held that the any expenditure incurred which is not a business compulsion or commercial expenditure cannot be allowed as business expenditure u/s 37. Hence, the same is disallowed and added to the income returned. 7.1 The Ld. CIT(A) noticed that the Finance (No.2) Act, 2014 which inserted explanation 2 under 37(1) declaring that the expenditure on the activities relating to Corporate Social responsibility shall not be deemed to be an expenditure incurred by the assessee for the purpose of business or profession. The Ld CIT(A) took the view that the above said amendment applicable to expenditure incurred in respect of Corporate Social Respons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Karnataka High Court:- 16. It is in this backdrop, we have perused the orders passed by the AOs in this appeal and in ITA Nos.67/07 and 68/07. Though in the present appeal (ITA No.133/07) there is no whisper regarding the exact nature of the expenditure incurred for community development by the assessee, the AO in ITA No.68/08 has made reference to the nature of expenditure incurred under this head by the respondent-assessee. From the order of AO in ITA 68/07, it appears that the contributions were made to various religious functions, charitable institutions, social clubs and certain acts of charity such as donating a borewell to the Municipality, etc. The respondent-assessee has not placed any other materials on record in support of their claim of expenditure over community development, in other two appeals, so to apply the test of commercial expediency. 17. From plain reading of the order of the AO and so also the order of the appellate authority in ITA No.68/07, it appears to us that the expenses contributed for religious functions, charitable institutions, social clubs and charity such as donating a borewell to the municipality, etc. would not fall within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llages. .. 4. The Dy. Commissioner said in his speech that every work taken by the BATF will be transparent as per Karnataka Transference Act. Amount of ₹ 10.00 crores which is given by the MML will used for the development of roads. Out of ₹ 2.00 crores contributed by obalapuram mines, ₹ 1.00 crore by BMM and ₹ 1.00 crore by Deccan Mining Co for roads in Bellary Town, R.3.00 crores will be used for Bellary Rural and Kampli rural ₹ 2.00 crores each and for Siruguppa, Hadagali, Hagaribommanahalli and Vijayanagar (Hospet) Assembly constituencies ₹ 1.00 crore each. The Amount of ₹ 1.40 crores given by SMIORE** will be preserved with us and after discussion it will be used for the development works in Sandur Taluk .. (** assessee herein) We notice that the amount has been contributed to BATF by all mining companies as per the direction of district administration. The question whether such contribution is allowable as deduction has been examined by the Hon'ble jurisdictional Karnataka High Court in the case of Kanhaiyalal Dudheria (supra). In the case before the Hon'ble High Court, the assessee was carrying on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en with the object both of promoting business and also with some other purpose, such expenditure so incurred would not be disqualified from being claimed as a business expenditure, solely on the ground that the activity involved for such expenditure is not directly connected to the business activity. In other words, the issue of commercial expediency would also arise. 20. In fact, the Hon'ble Apex Court approving the observation of ATHERTON's case - 1926 AC 205 in the matter of EASTERN INVESTMENT LIMITED vs COMMISSIONER OF INCOME TAX reported in (1951) 20 ITR 1, held: ..a sum of money expended, none of necessity and with a view to a direct and immediate benefit to the trade, but voluntarily on the grounds of commercial expediency, and in order indirectly to facilitate the carrying on of the business, may yet be expended wholly and exclusively for the purposes of the trade , can be adopted as the best interpretation of the crucial words of Section 10(2)(xv). The imprudence of the expenditure and its depressing effect on the taxable profits would not deflect the applicability of the section. The acid test, did the expenditure fall on the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... policy and would be allowable under Section 37(1) of the Act. It was also held 'any contribution made by an assessee to a public welfare fund which is directly connected or related with the carrying on the assessee's business or which results in the benefit of the assessee's business has to be regarded as an allowable deduction under Section 37(1)'. In the facts obtained in the said case, it was noticed that assessee was doing business of export of rice and contributing 50 paise per quintal to the district welfare fund maintained by the District Collector, without which contribution, he would not get permit and as such, it came to be held that expenditure so incurred by way of contribution is directly connected with the assessee's carrying on the business. It is further held: 10. From the abovesaid 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 the benefit to the assessee's business has to be regarded as an allowable deduction under s. 37(1) of the Act. Such a donation, whether voluntary or at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... call given by the then Chief Minister of Karnataka in the hour of crisis to all the Philanthropist, industrial and commercial enterprises to extended their whole hearted support and the entire logistic support has been extended by the Government of Karnataka namely, providing land and design of the house to be constructed, approval of layout and to take care of all local problems. In fact, the State Government had also agreed to exempt such of those persons who undertake to execute the work from the purview of sale tax, royalty, entry tax and other related State taxes and is said to have extended to the appellant also. In this background it cannot be construed that MOU entered into between the assessee and the Government of Karnataka is opposed to public policy. 29. In the facts on hand, it requires to be noticed that assessee is carrying of business of iron ore and also trading in iron ore. Thus, day in and day out the assessee would be approaching the appropriate Government and its authorities for grant of permits, licenses and as such the assessee in its wisdom and as prudent business decision has entered into MOU with the Government of Karnataka and incurred the expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he reasons discussed supra, we hold this expenditure is allowable as deduction. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete this disallowance. 8.0 Other grounds urged by the assessee are either general in nature or consequential. ASSESSMENT YEAR 2010-11 9.0 Ground no. 2 3 relates to the disallowance of claim of Provision for medical reimbursement expenses . This issue has been decided against the assessee in AY 2009-10 in the preceding paragraphs. However, we have directed the AO to allow deduction of actual expenses incurred by the assessee during that year. Following the same, while upholding the disallowance, we direct the AO to allow deduction of actual expenses during the year under consideration. 10.0 Ground No.4 to 7 relates to disallowance of claim of Provision for Leave Travel expenses . This issue has been decided against the assessee in AY 2009-10 in the preceding paragraphs. However, we have directed the AO to allow deduction of actual expenses incurred by the assessee during that year. Following the same, while upholding the disallowance, we direct the AO to allow deduction of actual expens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... confirmed the same. 17.1 Before us, the Ld A.R submitted that the above said payment has been made to the Deputy Commissioner, Bellary and hence there is business connection. On the contrary, the Ld D.R supported the order passed by Ld CIT(A) on this issue. 17.2 We notice that the assessee has not furnished any detail to show that there is nexus between the impugned payment and the business of the assessee. Accordingly, following the decision rendered by the jurisdictional Hon'ble Karnataka High Court in the case of Wipro Ltd (supra), we confirm the disallowance. 18.00 Ground No. 9 to 15 relate to disallowance of contribution to Chief Minister s Relief Fund amounting to ₹ 9.65 crores. The assessee submitted that the above said payment was given to the District Commissioner, Bellary towards construction of houses for flood victims in Siruguppa Taluka under AASARE YOJANE. The AO disallowed the claim on the reasoning that there is no nexus between the payment and the business of the assessee. The Ld CIT(A) also confirmed the disallowance. 18.1 Before us, the Ld A.R placed his reliance on the decision rendered by the jurisdictional High Court in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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