2021 (10) TMI 454 - AT - Income Tax

Disallowance of claim made under the head Provision for medical allowance - HELD THAT - It is the case of the assessee that it has debited the profit loss account with Provision for medical reimbursement . The actual claim if any made by the employees is directly debited to Provision for medical reimbursement account meaning thereby the actual reimbursement have not been debited to the Profit and Loss account. Since the provision for medical reimbursement 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. 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 that the assessee did not furnish proper details - CIT(A) confirmed the same since no detail was furnished before him also - HELD THAT - Before us also the assessee did not furnish nature of incidental expenses claimed by it. Under these facts we do not have any other option but to confirm the order passed by Ld. CIT(A) on this issue. Disallowance of payment made to Bellari Agenda Task Force (BATF) - expenses were disallowed on the ground that it was not incurred in the course of business but for philanthropic purposes - HELD THAT - As the assessee has contributed funds to BATF at the direction 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 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 . We also notice that the payments made to BATF has been held to be allowable expenditure as held in HIREHAL GAVIAPPA RANGAN GOUD 2020 (12) TMI 973 - ITAT BANGALORE and SHRI. GOGGAGURUSHANTIAH AND BROS 2020 (5) TMI 667 - ITAT BANGALORE - thus we hold this expenditure is allowable as deduction. Disallowance of contribution to Chief Minister s Relief Fund - AO disallowed the claim on the reasoning that there is no nexus between the payment and the business of the assessee - CIT(A) also confirmed the disallowance - HELD THAT - We notice that the assessee before the Hon ble Karnataka High Court had entered in a MOU with the Karnataka Government for construction of houses. The assessee also proved the existence of commercial expediency in incurring these expenses. However in the instant case relevant details are not available on record. Accordingly we are of the view that this issue requires fresh examination at the end of the assessing officer in the light of decision in the case of Kanhaiyalal Dudheria 2019 (9) TMI 354 - KARNATAKA HIGH COURT . Accordingly we set aside the order passed by Ld CIT(A) on this issue and restore this issue to the file of AO for examining it afresh.

Summary

Issues Involved:
1. Disallowance of Provision for Medical Allowance
2. Disallowance of Provision for Leave Travelling Allowance
3. Disallowance of Incidental Expenses
4. Disallowance of Payment to Bellari Agenda Task Force (BATF)
5. Disallowance of Contribution to Bhagyalakshmi Yojana
6. Disallowance of Contribution to Chief Minister’s Relief Fund

Issue 1: Disallowance of Provision for Medical Allowance
The assessee claimed an expenditure of Rs. 58.26 lakhs under "Provision towards Medical reimbursements." The A.O. disallowed this claim, viewing it as a contingent liability since reimbursement occurs only upon incurring medical expenses and producing bills. The Ld. CIT(A) upheld this disallowance. However, the Tribunal directed the A.O. to allow actual medical reimbursement expenses incurred during the year, as these were debited to the provision account and not to the Profit and Loss account.

Issue 2: Disallowance of Provision for Leave Travelling Allowance
The assessee claimed Rs. 43.14 lakhs as provision for leave travelling allowance, which the A.O. disallowed as a future liability. The Ld. CIT(A) confirmed this disallowance. The Tribunal upheld the disallowance but directed the A.O. to allow actual leave travel expenses incurred during the year, similar to the treatment of medical reimbursements.

Issue 3: Disallowance of Incidental Expenses
The assessee claimed incidental expenses of Rs. 5,66,703/-, which the A.O. disallowed due to lack of proper details. The Ld. CIT(A) confirmed this disallowance. The Tribunal also upheld this decision, as the assessee did not furnish the nature of these expenses.

Issue 4: Disallowance of Payment to Bellari Agenda Task Force (BATF)
The assessee's payment of Rs. 1,40,00,000/- to BATF was disallowed by the A.O., who considered it a donation unrelated to the business. The Ld. CIT(A) upheld this disallowance, citing the Finance (No.2) Act, 2014, which excludes CSR activities from being business expenses. The Tribunal, however, allowed this expenditure, noting that the payment was made at the direction of local administration for public welfare, thus indirectly benefiting the assessee's business. The Tribunal referenced the jurisdictional High Court's decision in Kanhaiyalal Dudheria's case, which allowed similar expenses as business deductions.

Issue 5: Disallowance of Contribution to Bhagyalakshmi Yojana
The A.O. disallowed Rs. 10.00 lakhs contributed to Bhagyalakshmi Yojana, as the assessee could not establish a business nexus. The Ld. CIT(A) confirmed this disallowance. The Tribunal upheld the decision, noting the lack of evidence linking the payment to the business.

Issue 6: Disallowance of Contribution to Chief Minister’s Relief Fund
The assessee's contribution of Rs. 9.65 crores to the Chief Minister’s Relief Fund for flood victims was disallowed by the A.O. and upheld by the Ld. CIT(A), due to lack of business nexus. The Tribunal referenced the Karnataka High Court's decision in Kanhaiyalal Dudheria's case, which allowed similar expenses, but noted the absence of relevant details in the current case. The Tribunal remanded the issue back to the A.O. for fresh examination.

Conclusion:
The Tribunal partly allowed the assessee's appeals, directing the A.O. to allow actual medical and leave travel expenses incurred, delete the disallowance of BATF payment, and re-examine the contribution to the Chief Minister’s Relief Fund. The disallowances for incidental expenses and contributions to Bhagyalakshmi Yojana were upheld.