TMI Blog2024 (1) TMI 496X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivities and not for the purpose of business and accordingly, the expenditure could not be allowed as a deduction under Section 37 of the I.T. Act. 4. Aggrieved by such order, the assessee had preferred an Appeal before ITAT, Bangalore, which by its order dated 06.10.2021 at Annexure- A set aside the disallowance on the ground that the same is an allowable expenditure under Section 37 of the I.T. Act. Being aggrieved by such order of ITAT, the Revenue is in appeal before this Court. 5. The appeal came to be admitted for consideration of the following substantial question of law:- Whether on facts and circumstances of the case and in law, the Income Tax Appellate Tribunal is right in holding that, the amount of contribution of Rs. 11,60,00,000/- made by the respondent to BATF is allowable as business expenditure u/s 37(1) of the IT Act, 1961? 6. The Revenue had contended that the contribution made by assessee to BATF had no nexus with the business carried on by the assessee, that the Tribunal did not appreciate that the contribution made by the assessee to BATF was to be spent on infrastructure and other development activities not related to business of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the order of the Deputy Commissioner dated 17.06.2004 pursuant to order of the Government dated 18.06.2004 authorising the Deputy Commissioner to constitute the BATF including appointment of its Members. 13. The order dated 17.06.2004 of the Deputy Commissioner details the objectives of the constitution of the BATF which includes (a) Improvement of infrastructure relating to roads particularly in light of protests by the public and Associations; (b) To develop infrastructure facilities in partnership with private entities through the BATF; 14. The Deputy Commissioner as President of BATF convened a meeting on 24.02.2009 in the presence of various Members which included Executive Director of the assessee as is evident from the Minutes published on 28.02.2009. Para-4 of the said Minutes is extracted as below:- 4) The Dy. Commissioner said in his speech that every work taken by the BATF will be transparent as per Karnataka Transferance Act. Amount of Rs. 10.00 Crores which is given by the MML will used for the development of roads. Out of Rs. 2.00 Crores contributed by the Obalapuram Mines, Rs. 1.00 Crore by BMM and Rs. 1.00 crore by Deccan Mining Co. for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contribution made to BATF is for the purpose of BATF developmental works in Bellary District and more particularly, the development of road works in Sandur. 17. In light of such facts that are made out from the records filed before the ITAT, the matter requires consideration. 18. The Apex Court in S.A. Builders (supra) while dealing with deductions claimed under Section 37 has dealt with expenditure in the context of Commercial Expediency and observations at para-25 which would be of relevance reads as follows:- 25. The expression commercial expediency is an expression of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business. The expenditure may not have been incurred under any legal obligation, but yet it is allowable as a business expenditure, if it was incurred on grounds of commercial expediency. 19. In the present case, it is clear from the material referred to above 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee had incurred expenses of Rs. 1,61,30,480/- and Rs. 55,90,080/-in FY 2010-11 and 2011-12 towards construction of houses in certain villages as per MOU entered with Government of Karnataka. The assessee's claim of above said expenses were disallowed on the ground that it was not incurred in the course of business but for philanthropic purposes. The Hon'ble High Court, however, held that it is allowable as deduction 21. This aspect of the Assessment Order is common as regards the Assessment Year 2009-10, 2010-11, 2011-12. 22. 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. 23. 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 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... answered in the facts obtained in each case. In other words, commercial expediency varies from one assessee to another. By a precise mathematical formula, it cannot be defined as to what can be commercial expediency in a given case nor it can be put in a water tight compartment. To put it differently, the revenue authorities or the Courts when faced with such situation, will have to place itself in the position of such business men and ascertain whether the expenses so incurred can be said to have been expended for the purpose of the business or the transaction was merely camouflage for the purpose of reducing the tax component by depicting it as an expenditure by reducing the quantum of profit in the profit and loss account. 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. Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncurred the expenditure towards construction of houses for the needy persons, not only as a social responsibility but also keeping in mind the goodwill and benefit it would yield in the long run in earning profit which is the ultimate object of conducting business and as such, expenditure incurred by the assessee would be in the realm of business expenditure . Hence, the orders passed by the authorities would not stand the test of law and is liable to be set aside. 26. 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. Further the Central Board of Direct Taxes has clarified in its Circular dated 21.01.2015 that 13.4 Applicability:- This amendment takes effect from 1st April, 2015 a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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