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TMI Blog2017 (8) TMI 444X X X X Extracts X X X X X X X X Extracts X X X X ..... otection of its business interest, in the instant case the expenses incurred in connection with the accident occurred in course of the business where 7 lives of divers were lost, thus the expenditure incurred was wholly and exclusively for the purpose of the company's business. In view of the above legal and factual position we are of the view that compensation paid by the assessee to the family members of deceased divers was in course of the assessee business, and the assessee had rightly considered the business expediency and there after incurred the said legitimate business expenses - Decided against revenue - ITA No.5542/Mum/2016 - - - Dated:- 15-3-2017 - SRI MAHAVIR SINGH, JM AND SRI RAJESH KUMAR, AM For The Revenue : Shri M.C. Omi Ningshen, DR For The Assessee : Shri Ajay Singh, AR ORDER PER MAHAVIR SINGH, JM : This appeal by the Revenue is arising out of the order of CIT(A)-16, Mumbai, in appeal No CIT(A)-16/DCIT-9(1)(1)/IT-286/2014-15 dated 24-06-2016. The Assessment was framed by DCIT Circle-9(1)(1), Mumbai for the A.Y. 2012-13 vide order dated 16-02-2015 under section 143(3) of the Income Tax Act, 1961 (hereinafter the Act‟). 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mediately to three such Divers and the balance amount was promised to be arranged through the Principal employer on whose ship the divers were deputed to work and through the personal contacts of the Directors of the company. Thus, even the assessee admits that this was not the liability of the assessee company per se, yet it chose to make a payment to these divers and is now making a claim that the said expense made be allowed under section 37. Such a claim is not tenable as the assessee cannot take upon itself someone else's liability arid make a claim of such expenditure when the same was not its liability in the first place. This was precisely the reason because of which the major compensation has been paid by Adsun Middle East FZE. And finally, added this sum of ₹ 94.50 lakhs to the return of income. Aggrieved, Assessee preferred appeal before CIT(A). 4. CIT(A) deleted the disallowance of ₹ 1,16,460/-made by AO by observing as under: - 6.2.8 Since the expenditure was incurred by the appellant with a intention to protect its business interest it was purely a commercial decision to avoid further litigation in the international court where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the contract for diving support services with Simakoosh offshore is enclosed at pages: 60-62 of the assessee‟s paper book. Copies of sub- contract agreements with divers are at pages: 63 -104 of the assessee‟s paper book. It was claimed by the assessee that these free lance divers were regularly being engaged by the Adsun group for various projects being undertaken by them under Adsun Middle East FZE, Fujairah UAE and Adsun Offshore Diving Contractors Pvt. Ltd, the assessee. Thus these divers had a long association with Adsun group. 6. The assessee narrated the facts that the deceased Divers were sole bread earners for their family and also high net worth individuals who were undertaking risky work and thus were earning good income. Their family was to be deprived off the good amount of income due to death of these divers. The directors were under tremendous pressure from the family members of the deceased divers to provide for monetary compensation. Some of them had also threatened to file legal cases against the assessee. The directors of the assessee company were of the view that the Adsun group has always been dependent on free lance divers' fraternity to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... safe guard the business interest of the assessee. It was with view to maintain co-ordial relations and goodwill amongst free lance divers who were regularly being employed by Adsun group companies for execution of the sub-sea projects. Without the support of these free lance divers it would not be possible for the assessee to execute contracts it signs up and honour its commercial commitments. Hence, it as a need of the business to maintain good relations and gain the confidence amongst diving community. 9. We are of the view that the remark of the that AO that liability of some other company was taken up by assessee, which is not the fact. AO did not realise that entire compensation amount was a liability of assessee and even then only small amount was claimed as expenditure. The contract with divers was entered by the assessee company.And another aspect that the AO disallowed the said Compensation paid for accident ₹ 94,50,000/- treating it as application of income of the assessee. As can be observed from the facts narrated above, the said expenditure was a genuine business expenditure of the assessee and it never formed part of the income of the assessee. Income is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he welfare of the employees. The Hon. Court held, that it was not a payment either towards or from a gratuity fund that was a payment in excess of the payment that would be required to be made under the Payment of Gratuity Act though made oil basis of the legitimate expectations of the workmen in the facts of the case on the one hand and the commercial expediency of the employer oil other. The legitimate business needs of an assessee had to be judged from the point of view of business. It was for the assessee to consider the business expediency and whether a particular expenditure would be incurred for the business. Provision of gratuity to the employees for the continuous services rendered to the company taken over could not be said to be either unusual or unnecessary. The Tribunal was right in allowing the compensation paid as allowable revenue expenditure. 12. We are of the view that in the given facts of the present case that whatever test may be applied in deciding whether any expenditure is allowable as a deduction under section 37, the essential requirement must in every case be as to whether the expenditure was either in reality or as a measure of business expediency nec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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