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TMI Blog2020 (5) TMI 478X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the order of the Tribunal referred to above. The relevant ground is treated as allowed. Disallowance of Reserve for NOC was purely on business expenditure allowable u/s 37(1) - HELD THAT:- With reference to a specific query as to under what provision in the Contract or any other statutory provision, the assessee is obliged to contribute towards Reserve for NOC , the ld. Cousel for the assessee submitted that such obligations are part of the Contract entered into with the State Government. Another query was raised by the Bench as to whether the sum contributed towards Reserve for NOC will be refunded to the assessee in the event of third party certification of execution of good work being given. Assessee expressed his inability to give an answer to this query. In the circumstance, we are of the view that this issue should be remanded to the AO for fresh consideration and the assessee should demonstrate before the AO that the contribution towards Reserve for NOC is based on contract between parties or is a contribution which is payable under statute or is a matter of practice while executing the Civil work for State Government. The assessee shall also establish that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to appreciate the fact that CBF is mandatory deduction by State Government and not voluntary in nature. 4. The assessee is an individual. He carries on business as Class-I Contractor executing major portion of contract works for the State Government. In the course of assessment proceedings u/s 143(3) of the Income Tax Act, 1961 (Act) for assessment year 2013-14, the A|O noticed that in computing income from business the assessee had deducted a sum of ₹ 2,51,937/- being contribution of assessee to Contractors Benevolent Fund (CBF). According to AO, the aforesaid expenditure was not for the purpose of business of the assessee and therefore cannot be allowed as deduction u/s 37(1) of the Act. 5. On appeal by the assessee the CIT(A) confirmed the order of AO holding that the contribution made by the assessee was purely out of benevolence and not for the purpose of business of the assessee. Following were the relevant observation of the CIT(A). I have gone through the assessment order and the submissions made by the appellant during appellate proceedings. Benevolence is the desire to help someone or a feeling of goodwill towards others. Benevolence can also refer to an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO with a direction to verify whether the assessee had made the contribution to CBF in pursuance to the notification dt.18.1.2007 or the corrigendum issued. If the payment of CBF is made in accordance with the said notification then the same shall be allowed after verification . 8. We are of the view that in the light of the aforesaid decision rendered under identical facts and circumstances of the case as that of the assessee in this appeal, we are of the view that the deduction claimed has to be allowed subject to verification as mentioned in the order of the Tribunal referred to above. The relevant ground is treated as allowed. 9. Ground no.3 raised by the assessee reads as follows; 3. (a) The learned CIT(A) as well as authorities below failed to appreciate the fact that disallowance of Reserve for NOC amounting to ₹ 6,09,351/- was purely on business expenditure allowable u/s 37(1) of the Act. (b) The learned CIT(A) as well as authorities below failed to appreciate the fact that Reserve for NOC is a third party inspection charge which is mandatory deduction and purely business expenditure. As far as ground no.3 is concerned, the facts are that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) as well as authorities below failed to appreciate the fact that penalties paid for non-performance of contract in time amounting to Rsd.7,25,299/- was in the nature of compensatory damages and was purely business expenditure u/s 37(1) of the Act . 12. The assessee claimed as deduction a sum of ₹ 7,25,299/- under the head penalty and charges The AO disallowed the claim of deduction of the aforesaid amount on the ground that it was in the nature of an expenditure incurred by an assessee as contemplated u/s 37(1) explanation-1 of the Act which reads as follows; Explanation 1.-For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure. 12. Before the CIT(A) the assessee submitted that the penalty in question was damage for non-fulfillment of requisite obligation under the contract for execution of civil work and therefore, was not penal in nature but only compensatory. The CIT(A) however, confirmed the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... KHSDRP Bagalkote 1,44,808 12. 10/09/2012 KSWC Jewargi 25,000 10,000 29 30 13. 22/10/2012 KSWC Chittapur 50,000 20,000 31-32.1 14. 22/10/2012 KSWC Athani 5,000 33 35 15. 22/10/2012 KSWC Hunugunda 50,000 30,000 16. 15/11/2012 KSWC Holealur 25,000 36 38 17. 09/11/2012 KSWC Dharwad 10,000 39 41 18. 07/11/2012 KSWC Bagalkot 10,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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