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TMI Blog2019 (4) TMI 1504X X X X Extracts X X X X X X X X Extracts X X X X ..... l knowledge along with diploma courses to the employees of the assessee company and their children. These students with qualified diploma degrees are in turn recruited by the assessee company for their manufacturing division. Thus the amount given to Shanti Seva Nidhi have resulted in training and providing technical knowledge along with diploma course to the employees of the assessee company and their children and who in turn were recruited by the assessee company in its manufacturing division. Thus, the business purpose of assessee is fulfilled. There is no justification for disallowance of the expenditure u/s 37(1). - ITA No. 7565/Mum/2014 - - - Dated:- 27-12-2018 - SHRI R. C. SHARMA, AM AND SHRI AMARJIT SINGH, JM For The Assessee : Shri Vijay Mehta For The Revenue : Shri Debashis Chandra ORDER PER R. C. SHARMA (A. M): This is an appeal filed by the assessee against the order of CIT(A)-15 Mumbai, dated 03.12.2013, for the assessment year 2010-11, in the matter of order passed u/s.143(3) of the I.T. Act. 2. Following the grounds of appeal taken by the assessee r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Ld. CIT(A) may kindly be delated. (d) On the facts and circumstances of the case and in law, the Learned CTT (A) erred in ignoring the contention of the appellant that interest rate in respect of international transaction in foreign currency has to be m accordance with LIBOR. Ground No. 4: On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) erred in sustaining the disallowance of a sum of ₹ 50 lakhs claimed by the appellant u/s 37(1) of the Act in respect of the donation made to Shanti Seva Nidhi. The appellant prays that the said action of the Hon'ble QT(A) may kindly be deleted, The appellant craves, leave to add, amend, alter, omit any of the grounds of appeal before the hearing of the appeal, if so advised. For Technocraft Industries (India) Ltd. 3. Rival contentions have been heard and record perused. The brief facts of the case are that the assessee is a Public Limited Company incorporated under the Companies Act, 1956 and was engaged at the relevant time in the business of manufacture and export of drum closures, pipes, cotton yarn, knitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted enterprise does not repay a loan, the same would be made good by such corporate. Keeping the said ratio of the Hon'ble Bombay High Court in mind, it is quite clear that the manner in which the Transfer Pricing Officer has proceeded to determine the arm's length rate based on the probable rate being charged by the commercial banks is not justified. In this view of the matter, we are unable to approve ITA No. 859 768/MUM/2014 (Assessment Year : 2008-09) 3% rate of guarantee commission fee determined as arm's length rate by the income-tax authorities. In the alternative, the addition that is required to be sustained is the position canvassed by the assessee before the Transfer Pricing Officer i.e. adoption of 0.50% as arm's length rate for the purpose of determining the arm's length income on account of guarantee commission fee in the present case. The Ld. Departmental Representative had referred to certain decisions of the Mumbai Tribunal, wherein a rate higher than 0.50% has also been approved in order to determine the guarantee commission fee. All those decisions are based on the probable rates at which the guarantees are issued by the commercial banks, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. Grievance of the assessee also relates to addition of ₹ 25,55,509/-in respect of interest on loan advanced to AE. 9. From the record we find that the assessee had charged interest @ 8% in respect of loan provided to its AE Anhul Reliable Steel Tech. China based on cost of its borrowed funds. The TPO however worked out interest of ₹ 33,98,947/- @ 11.5% as per the working given by him in his order dated 03.12.2013 under section 154 of the Act, and has made upward adjustment towards interest of ₹ 25,55,509/- being the difference between the total amount of interest of ₹ 33,98,947/- chargeable and the interest of ₹ 8,43,438/- already charged by the assessee. By the impugned order the CIT(A) confirmed the action of AO, against which assessee is in further appeal before us. 10. The Ld. AR invited our attention to the order of the Tribunal dated 31.07.2018 for the assessment year 2009-10 wherein page No. 2, para 6 similar issue has been dealt by the Tribunal and the AO was directed to confirm addition only to the extent of LIBOR interest rate prevailing during the year. 11. We have carefully gone throug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g conducted in the premises of Shanti Seva Nidhi. The same serves following purposes as under: 1. Readymade skilled employees- Recruiting trained candidates (many of whom are employee's children) who have been trained with the NTTF assist the appellant company's development tremendously. The same results in developing and creating better quality products capable of competing at an international level. 2. Employee Welfare, as the employees children have excess to a well reputed educational institute imparting quality technical education in various discipline at different levels. This expenditure confers the advantage of admission of the employees' children in the school and hostel imparting technical training. This prompts to overall livelihood and well being of employees. 3. Innovation, new ideas for manufacturing process - The personnel trained at Shanti Seva Nidhi have excess to lates production tools/machineries and well equipped laboratories. Further, it is not out of place to mention that the appellant is one of the leading manufacturer and exporters of Drum Closures, scaffolding systems and accessories. To susta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly for the purpose of benefiting the employees and obtaining overall employee welfare. The said Objective is purely for the purpose of the business because employee welfare will help the appellant company to ensure low employee turnover and dedicated employees help the company to reach higher horizons. 2. The expenditure incurred is nowhere personal in nature since the same is solely incurred with the purpose of staff welfare. 3. The expenditure incurred is operational in nature and is required to be incurred for business development. In view of the above discussion, it can be said that the appellant company does satisfy all the pre-conditions prescribed u/s 37(1) of the Income Tax Act, 1961 for claiming expenditure under the said section. Accordingly, disallowance made by the Ld. AO on account of sum paid to Shanti Seva Nidhi u/s 37(1) is bad in law and liable to be deleted. Herein it is also imperative to consider the Ld. AO's view in this regards. His observations are reproduced as under: Expenditure in the nature of donation, being voluntary, cannot be held to be fulfilling the criteria ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 37(1) claiming that The expenditure was in the nature of staff welfare activity. The Assessing Officer held that in view of the fact the assessee would get priority rights in the matter of allotment of seats, the enduring benefit has accrued to the assesses, and therefore, the same has resulted in acquisition of capital asset. When the matter came up for consideration before the CIT(A), the CIT(A) directed the Assessing Officer to verify the assessee's claim and allow deduction under section 80G of the Act the Tribunal held that the donation made by assessee to Cricket Club could not be treated as capital expenditure though it conferred certain privileges on the assessee. The tribunal directed the Assessing Officer to deduct the donation amount from the computation of income of the assessee. The High Court upheld the order of the Tribunal. 18. The decision of the Ahmedabad Tribunal in the case of Surat Electricity Co.Ltd. v. Asstt. CIT [2010] 125 TTD 277. 19. In the said case, the assessee made payment by cheque to Chief Minister's Relief Fund at the behest of Government of Gujarat which was used for supplying grass fodder to various c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made for social considerations and to build up goodwill for the business run by an assessees. In this regard, reliance can be placed on the decision of the Madras High Court in the case of CIT v. Madras Refineries Ltd 266 ITR 170 upholding the concept of corporate social responsibility and allowing expenditure on social welfare of local residents. In its decision, the Madras High Court held as under : The concept of business is not static. It has evolved over a period of time to include within ifs 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 Monies spent for bringing drinking water as also for establishing or improving the school meant for the residents of the locality in which the business is situated cannot be regarded as being wholly outside the ambit of the business concerns of the assessee, especi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Package Scheme of Incentives, 2007 as issued by the Government of Maharashtra. The locality is a rural area and its residents do not have the privilege of quality living facilities as available in developed areas. One of the primary problems faced by the appellant in establishing the manufacturing facility at such location is the non-availability of skilled man power. The appellant industry is a technology driven industry wherein skilled man power is required to deal with the metal products of the company. In such a scenario, the charitable institute - M/s Shanti Seva Nidhi had set up the vocational training school at Murbad itself and the appellant thought it fit to contribute to the said trust to achieve the varied business purposes. We found that the Board resolution categorically states that the contribution was being made for the benefit of employees. This is a vital and critical fact, which proves that the said expenditure was done keeping in mind the employee welfare of the appellant company and not from a pure donation perspective. From the record, we also found that course at Shanti Seva Nidhi are run by Nettur Technical Training Foundation (NTTF). NTTF is a repute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m Closure Mohammed Faizan Yarn Chandru K. Annigeri Garment Pradeep B. Mallapnavr We observed that the Ld. AO has made the disallowance only on two aspects - 1. Contribution made is voluntary 2. In the original return, the claim was made u/s 80G The above two aspects are completely factual and the appellant doesn't deny the existence of the same. On the contrary, it amply proves that the learned AO has not examined the aspect from the legal point of view. As discussed above, the commercial expediency has been amply demonstrated by the appellant. There are plethora of judgments which state that the commercial expediency is not hampered by voluntary nature of the contribution. The other aspect which AO relies on is that the appellant had originally claimed the amount u/s 80G. In this regard we observe that the appellant had filed a revised return within time limit prescribed by law and accordingly the same is a valid return of income which needs to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ought Relief Fund was allowed as deduction u/s 37 citing the fact that the assesses made donation as a matter of commercial expediency. Further, we can be placed reliance on the decision of CIT vs Rajasthan Spg Wvg Mills Ltd. (2005-198 CTR 96 RAJ), wherein the Hon ble Rajasthan High Court ruled for allowability of expenses which were incurred wholly and exclusively for the business of the assessee as the same was for the benefit and welfare of its employees. The facts of the present case under consideration are smilarto that of the case law quoted above. In the present case, the amount donated by the appellant company was towards employee welfare and also for seeking benefit of securing trained/skilled personnel for appellant s manufacturing division. Therefore, as long as there is some benefit accruing to the appellant company from such contribution and there is live nexus between the amount spent and promotion of the appellant business, the amount incurred can be claimed as deduction u/s 37(1), even if partial benefit accrues to outsiders from such contribution. Further, the Hon ble Karnataka High Court in the case of CIT and Anr. V. Infosy ..... X X X X Extracts X X X X X X X X Extracts X X X X
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