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2021 (9) TMI 13 - AT - Income TaxExpenditure under the head Special Purpose Vehicle (SPV) Charges - allowable revenue expenditure u/s 37(1) or not? - contribution of 10% out of auction sales towards SPV - HELD THAT - As decided in M/S RAMGAD MINERALS MINING LIMITED VERSUS ACIT CIRCLE 1, BELLARY 2020 (11) TMI 174 - ITAT BANGALORE contribution to SPV being 15% of sale proceeds, under category B, is an allowable expenditure for year under consideration. Also see M/S VEERABHADRAPPA SANGAPPA CO. 2020 (12) TMI 1145 - ITAT BANGALORE wherein held contribution to SPV being 10%/15% of sale proceeds, under category A/B, is to be allowable as expenditure for year under consideration. Contribution towards SPV under both the Category mines disallowed by applying Explanation 2 to section 37(1) - voluntary expenditure incurred by assessee towards community welfare - Asst. Year 2014-15 - HELD THAT - As decided in SHRI B. RUDRAGOUDA VERSUS THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1, BELLARY. 2021 (4) TMI 1249 - ITAT BANGALORE the assessee being an individual, and not a corporation under the Companies Act, 2013, Explanation 2 to section 37 cannot be applied so as to deny the voluntary expenditure incurred by assessee towards community welfare. Accordingly, we are of the opinion that the expenditure incurred is wholly and exclusively for the purpose of business of assessee and has to be allowed as business expenditure. Accordingly, this ground of appeal is allowed. Contribution to Flood Relief - Eligibility of relief u/s. 80G - Contribution towards Flood Relief Works in pursuant to MOU dated 2/7/2010 entered with local Dy. Commissioner - as per CIT-A as per the MOU entered by assessee with Govt. of Karnataka the donations were given to Chief Minister's Relief Fund and was eligible for exemption u/s. 80G - only reason for not granting relief u/s. 80G is that assessee did not obtain the exemption certificate under the relevant provisions of the Act - HELD THAT - It is not the case of the Revenue that said expenditure has not been incurred for the purpose as entered into Govt. of Karnataka. The above reproduced clause clearly states that assessee is eligible for exemption u/s. 80G - authorities below even after admitting these facts have not granted relief to the assessee as per the provisions of sec. 80G of the Act. We thus remand this issue to the Ld. AO for computing the deduction eligible to assessee under 80G of the Act for the donations given to the Chief Minister's Relief Fund (calamity).Accordingly the grounds raised by assessee for year under consideration stands allowed for statistical purposes. Payment towards membership fee and legal fund respectively to Federation of Indian Mineral Industries - Allowable revenue expenditure u/s 37 or not? - HELD THAT - The legal payment incurred by assessee is towards representing case filed of FIMI against which TDS has been deducted as observed by the Ld. CIT(A) - this organization has been formed to safeguard the rights of mine owners and to protect interest of industries, present in this spear of mineral exploration and production. In our opinion the said amount does not qualify to be considered as donation. It is an expenditure incurred to safe-guard assessee's business interests and has to be considered under the provisions of Sec. 37(1).
Issues Involved:
1. Disallowance of 10%/15% of sale proceeds withheld and retained by Central Empowered Committee (CEC). 2. Disallowance of contribution towards flood relief. 3. Disallowance of contribution to Federation of Indian Mineral Industries (FIMI) towards legal expenses. 4. Disallowance of travelling expenses. 5. Liability to pay interest under sections 234B and 234C of the Income Tax Act. Issue-wise Detailed Analysis: 1. Disallowance of 10%/15% of Sale Proceeds Withheld and Retained by CEC: The assessee argued that the amount of ?1,22,93,688/- withheld and retained by the CEC, as directed by the Supreme Court, is not income as it never reached the assessee. The assessee claimed it as a statutory deduction since it was mandated by law and allowable under section 37(1) of the IT Act. The authorities below, however, treated it as appropriation of profit and compensatory payment towards environmental damages, thus disallowing it under section 37(1). The Tribunal, relying on previous decisions (e.g., NMDC Ltd. vs. ACIT, Ramgad Minerals & Mining Ltd.), held that such contributions were necessary for resuming mining operations and were thus allowable business expenditures under section 37(1). 2. Disallowance of Contribution Towards Flood Relief: The assessee contributed ?2,40,00,000/- towards flood relief as per an MOU with the Government of Karnataka. The authorities disallowed this expenditure, arguing it did not comply with the conditions of the MOU and lacked a direct nexus with the business. The Tribunal, however, noted that the contribution was made as per the MOU and eligible for exemption under section 80G. The Tribunal remanded the issue to the AO to compute the deduction eligible under section 80G. 3. Disallowance of Contribution to FIMI Towards Legal Expenses: The assessee claimed ?20,00,000/- paid to FIMI as legal expenses under section 37(1). The authorities restricted the deduction to 50% under section 80G, treating it as a donation. The Tribunal, referencing the case of Rio Tinto India Pvt. Ltd. vs. ACIT, held that contributions to FIMI were for safeguarding business interests and should be allowed as business expenses under section 37(1). 4. Disallowance of Travelling Expenses: The assessee claimed foreign travel expenses of ?4,68,259/-. The CIT(A) found no defect in the claim but did not order deletion of the addition. The Tribunal dismissed this ground as not pressed since it was not raised before the CIT(A). 5. Liability to Pay Interest Under Sections 234B and 234C: The assessee denied liability to pay interest under sections 234B and 234C. However, the Tribunal did not provide a detailed analysis or ruling on this issue within the provided text. Conclusion: The Tribunal allowed the appeal partly, granting relief on the disallowance of SPV contributions and contributions to FIMI, while remanding the issue of flood relief contributions for further verification. The ground regarding travelling expenses was dismissed as not pressed. The liability to pay interest under sections 234B and 234C was not addressed in detail.
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