TMI Blog2022 (1) TMI 416X X X X Extracts X X X X X X X X Extracts X X X X ..... quired to approach the appropriate Government and its authorities for grant of permits, licenses. Hence it is a prudent decision of the assessee to oblige to the appeal made by the local administration and incurred the expenses for public purposes. Hence the assessee has incurred expenses not only on account of social responsibility, but also keeping in mind the goodwill and benefit it would yield in the long run in earning profit. Hence this expenditure would be in the realm of business expenditure . Accordingly, 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 - See MADRAS REFINERIES LTD. [ 2003 (11) TMI 47 - MADRAS HIGH COURT] , KAMAL AND CO. [ 1992 (12) TMI 19 - RAJASTHAN HIGH COURT] and DEVELOPMENT TRUST PVT. LIMITED [ 1991 (9) TMI 43 - ALLAHABAD HIGH COURT] - we direct the Ld.AO to delete the disallowance made - Decided in favour of assessee. - ITA No. 1654/Bang/2018 - - - Dated:- 4-1-2022 - SHRI. CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER Assessee by : Shri S.V. Ravishankar, Advocate Revenue by : Shri Sumer S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal, the Appellant prays that the appeal be allowed in the interest of equity and justice. 2. Brief facts of the case are as under: 2.1 The assessee was a registered Partnership Firm during the impugned A.Y. 2011-12 and was carrying on the business of extraction of Iron Ore and trading in Iron Ore and also owns wind mills. 2.2 The assessee for the impugned assessment year filed its return of income on 30/09/2011, declaring a total income of ₹ 80,57,19,700/- being income derived from income from mining of ₹ 260,45,81,668/- and from Power generation of ₹ 11,22,98,536/- along with other receipts. The return of income filed by the assessee was processed under section 143 [1] of the Act on 13/06/2012. 2.3 The case of the assessee was selected for scrutiny and statutory notices were issued by the Ld.AO and details were called for and the same were furnished by the assessee. The Ld.AO concluded the assessment by passing order of assessment under section 143 [3] of the Act, dated 28/03/2014, by making following additions determining the total income of the assessee at ₹ 81,69,16,200/-. Particulars Amount in Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of reasoning of the Hon'ble Madras High Court in the case of CIT Vs. Madras Refinery Ltd., reported in 266 ITR 170, wherein the Hon'ble Court has held that the amount spent for bringing the drinking water as also for establishing or improving the school meant for the residents of the locality in which the business was situated could not be regarded as being wholly outside the ambit of business concerns of the assessee. Thus the Hon'ble Court held that, the expenditure was a deductible expenditure under section 37 of the Act. Hon ble Court has held that public benefit in the discharge of social responsibility need not be a bar for deduction as under: The concept of business is not static. It has evolved over a period of time to include within its fold the concrete expression of care and concern for the society at large and the people of the locality in which the business is located in particular. Being known as a good corporate citizen brings goodwill of the local community, as also with the regulatory agencies and the society at large, thereby creating an atmosphere in which the business can succeed in a greater measure with the aid of such goodwill.... 4. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penses were disallowed on the ground that it was not incurred in the course of business but for philanthropic purposes. Hon'ble Karnataka High Court, however, held that it is allowable as deduction. The relevant observations made by Hon ble High Court are extracted below:- 8. It is not in dispute that an MOU came to be entered into between appellants and the Government of Karnataka, represented by jurisdictional Deputy Commissioner on 02.07.2010, a copy of which has been made available for our perusal. It would clearly indicate on account of unprecedented floods and abnormal rain which severely ravaged the North Interior Karnataka during last week of September and first week of October, 2009, which claimed more than 226 human lives and loss of nearly 8000 head of cattle, flattened about 5.41 lakhs houses and destroyed standing crops in about 25 lakh hectares of land huge destruction of infrastructure, Government of Karnataka which was facing an undaunted task of rehabilitating the persons who were in destitute and to restore the normalcy for nearly about 7.2 lakh people and to build 5.41 lakhs houses spread over 12 affected districts, an appeal came to be made by then Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e under Section 37(1) of the Act, had held for purpose of business used in Section 37(1) of the Act should not be limited to meaning of earning profit alone and it includes providing facility to its employees also for the efficient working . It came to be held: 28. 24. As is clear from the case of Mysore Kirloskar Ltd, the expenditure claimed need not be necessarily spent by the assessee. It might be incurred voluntarily and without any necessity, but it must be for promoting the business. The fact that somebody other than the assessee is also benefited by the expenditure should not come in the way of an expenditure being allowed by way of deduction under Section 37(1) of the Act, if it satisfies otherwise the tests laid down by law. Similarly, the words 'for the purpose of business' used in Section 37(1) of the Act, should not be limited to the meaning of earning profit alone. Business expediency or commercial expediency may require providing facilities like schools, hospitals, etc., for the employees or their children or for the children of the ex- employees. The employees of today may become the ex-employees tomorrow. Any expenditure laid out or expended for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of such a donation. The mere fact that making of a donation for 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 s.37(1) of the Act when such payment had been made for the purpose of assessee's business. 28. In the light of the analysis of the case laws above referred to, it cannot be gain said by the revenue that contribution made by an assessee to a public welfare cause is not directly connected or related with the carrying on of the assessee's business. As to whether such activity undertaken and discharged by the assessee would benefit to the assessee's business has to be examined in the light of the observations made by us herein above. Tribunal committed a serious error in arriving at a conclusion that MOU entered into between the assessee and the Government of Karnataka is opposed to public policy and void under Section 23 of the Contract Act. In fact, Hon'ble Apex Court in case of SRI VENKATA SATHYANARAYANA RICE MILL CONTRACTORS COMPANY's case referred to herein supra has held that where a donation, whether voluntary or at th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies would not stand the test of law and is liable to be set aside. 30. However, it requires to be noticed that while examining the claim for deduction under Section 37(1) of the Act the assessing officer would not blindly or only on the say of the assessee accept the claim. In other words, assessing officer would be required to scrutinise and examine as to whether said deduction claimed for having incurred the expenditure has been incurred and only on being satisfied that expenditure so incurred is relatable to the work undertaken by the assessee namely, only on nexus being established, assessing officer would be required to allow such expenditure under Section 37(1) of the Act and not otherwise. 31. For the reasons afore stated, we are of the considered view that substantial question law formulated herein is to be answered in the negative i.e., against the revenue and in favour of the assessee. 6. In the instant case also, the assessee has contributed funds at the specific request of local administration, which is meant to be used for the benefit of public. As observed in the above said case, the assessee would also be required to approach the appropriate Governm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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