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TMI Blog2021 (10) TMI 454X X X X Extracts X X X X X X X X Extracts X X X X ..... at the assessee has claimed expenditure of Rs. 58.26 lakhs under the head "Provision towards Medical reimbursements". The assessee submitted that it is liable to reimburse medical expenses up to 20% of basic pay and DA of employees. The reimbursement is made either on monthly or annual basis based on the request made by the employee. If the assessee has not claimed fully, then the balance amount will be carried forward to the next year. It was submitted that the assessee is following mercantile system of accounting and hence provision for medical reimbursement should be allowed as deduction u/s 37(1) of the Income-tax Act,1961 ['the Act' for short]. 3.2 The A.O. took the view that the word "Reimbursement" itself represents that amount is payable only after incurring of expenditure on medical treatment by the assessee, that too, upon production of bills. The A.O. took the view that the assessee cannot anticipate or expect that any employee will go sick and would make a claim. Accordingly, the A.O. took the view that the claim made by the assessee is a contingent liability and accordingly, disallowed the same. The Ld. CIT(A) also confirmed the same. 3.3 We heard the parties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made for leave travelling allowance is an ascertained liability and the same is allowable as deduction as per the decision rendered by Hon'ble Supreme Court in the case of Bharat Earth Movers Vs. CIT (245 ITR 428). 4.2 We heard Ld. D.R. on this issue, who submitted that the coordinate bench has taken identical view in the assessee's own case in assessment year 2008-090 (referred supra). 4.3 We heard the parties on this issue and perused the record. 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. We order accordingly. 5.0 The Ld. A.R. did not press ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim also. Accordingly, the Ld. CIT(A) confirmed the disallowance. 7.2. We heard the parties on this issue and perused the record. The Ld. A.R. submitted that the mining activities carried out in Bellari district have badly affected the ecology, infrastructure and ecology of the district. Hence, the District Commissioner of Bellari has formed BATF for the purpose of meeting the infrastructure like roads, health centre, drinking water and schools at rural areas. The assessee, being in the mining business, has been requested to contribute to BATF as per the directions given by District Commissioner. The Ld. A.R. also invited our attention to the copy of proceedings of the meeting held under the Presidentship of Deputy Commissioner, Ballari, who happens to be the President of BATF. He submitted that the assessee's contribution of Rs. 1.40 crores finds place in the minutes of the meeting and it has been clearly mentioned that the said amount will be used for the development works in Sandur Taluk. Accordingly, the same is indirectly connected with the business of the assessee and is allowable as deduction. 7.3 The Ld A.R further submitted that the assessee is required to have cordial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act states that any expenditure not being expenditure of the nature described in Sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee, laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession". It is not the case of assessee that the expenditure incurred by them is covered by Sections 30 to 36 of the Act, and even if that was so the question of allowing the expenditure under Section 37(1) of the Act would not arise. 18. In our opinion, the expenditure towards the religious funds, charitable institutions, social clubs or for charity do not stand to the test of commercial expediency. In any case, the expenditure under these heads cannot be stated to be exclusively for the purposes of business of the respondent-assessee and to allow it. That apart, the respondent-assessee has failed to place any material, in support of their case so as to claim the aforementioned expenditure under this head as contemplated by Section 37(1) of the Act as being commercial expediency. In the circumst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 90,080/- in FY 2010-11 and 2011-12 towards construction of houses in certain villages as per MOU entered with Government of Karnataka. The assessee's claim of above said expenses were disallowed on the ground that it was not incurred in the course of business but for philanthropic purposes. The Hon'ble High Court, however, held that it is allowable as deduction. The relevant observations made by the jurisdictional High Court are extracted below:- "8. It is not in dispute that an MOU came to be entered into between appellants and the Government of Karnataka, represented by jurisdictional Deputy Commissioner on 02.07.2010, a copy of which has been made available for our perusal. It would clearly indicate on account of unprecedented floods and abnormal rain which severely ravaged the North Interior Karnataka during last week of September and first week of October, 2009, which claimed more than 226 human lives and loss of nearly 8000 head of cattle, flattened about 5.41 lakhs houses and destroyed standing crops in about 25 lakh hectares of land huge destruction of infrastructure, Government of Karnataka which was facing an undaunted task of rehabilitating the persons who were in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITED reported in (2014)360 ITR 174(Kar) while examining the claim of the assessee to treat the expenditure incurred by it for installing the traffic signals as business expenditure under Section 37(1) of the Act, had held " for purpose of business" used in Section 37(1) of the Act should not be limited to meaning of earning profit alone and it includes providing facility to its employees also for the efficient working . It came to be held: 24. As is clear from the case of Mysore Kirloskar Ltd, the expenditure claimed need not be necessarily spent by the assessee. It might be incurred voluntarily and without any necessity, but it must be for promoting the business. The fact that somebody other than the assessee is also benefited by the expenditure should not come in the way of an expenditure being allowed by way of deduction under Section 37(1) of the Act, if it satisfies otherwise the tests laid down by law. Similarly, the words 'for the purpose of business' used in Section 37(1) of the Act, should not be limited to the meaning of earning profit alone. Business expediency or commercial expediency may require providing facilities like schools, hospitals, etc., for the empl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be regarded as payment opposed to public policy. It is not as if the payment in the present case had been made as an illegal gratification. There is no law which prohibits the making of such a donation. The mere fact that making of a donation for charitable or public cause or in public interest results in the Government giving patronage or benefit can be no ground to deny the assessee a deduction of that amount under s.37(1) of the Act when such payment had been made for the purpose of assessee's business." ..................... 28. In the light of the analysis of the case laws above referred to, it cannot be gain said by the revenue that contribution made by an assessee to a public welfare cause is not directly connected or related with the carrying on of the assessee's business. As to whether such activity undertaken and discharged by the assessee would benefit to the assessee's business has to be examined in the light of the observations made by us herein above. Tribunal committed a serious error in arriving at a conclusion that MOU entered into between the assessee and the Government of Karnataka is opposed to public policy and void under Section 23 of the Con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing profit which is the ultimate object of conducting business and as such, expenditure incurred by the assessee would be in the realm of "business expenditure". Hence, the orders passed by the authorities would not stand the test of law and is liable to be set aside. 30. However, it requires to be noticed that while examining the claim for deduction under Section 37(1) of the Act the assessing officer would not blindly or only on the say of the assessee accept the claim. In other words, assessing officer would be required to scrutinise and examine as to whether said deduction claimed for having incurred the expenditure has been incurred and only on being satisfied that expenditure so incurred is relatable to the work undertaken by the assessee namely, only on nexus being established, assessing officer would be required to allow such expenditure under Section 37(1) of the Act and not otherwise. 31. For the reasons afore stated, we are of the considered view that substantial question law formulated herein is to be answered in the negative i.e., against the revenue and in favour of the assessee." 7.7 The Ld A.R submitted that, in the instant case also, the assessee has contribut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce in the absence of details relating to incidental expenses. Following the said decision, we confirm the disallowance in this year also. 12.0 Ground No.9 to 13 relate to disallowance of contribution to Bellary Agenda Task Force. Identical issue has been considered by us in AY 2009-10 in the preceding paragraphs and we have deleted the disallowance for the detailed reasons discussed above. Following the same, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete this disallowance. 13.0 Other grounds are either general in nature or consequential. ASSESSMENT YEAR: 2011-12 14.0 Ground no. 2 & 3 relates to the disallowance of claim of "Provision for medical reimbursement expenses". This issue has been decided against the assessee in ay 2009-10 in the preceding paragraphs. However, we have directed the AO to allow deduction of actual expenses incurred by the assessee during that year. Following the same, while upholding the disallowance, we direct the AO to allow deduction of actual expenses during the year under consideration. 15.0 Ground No.4 to 7 relates to disallowance of claim of "Provision for Leave Travel expenses". This issue has been decided ..... X X X X Extracts X X X X X X X X Extracts X X X X
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