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TMI Blog2022 (1) TMI 416X X X X Extracts X X X X X X X X Extracts X X X X ..... y the appellant of Rs. 80,57,19,700/-, on the facts and circumstances of the case. 3. The learned Commissioner of Income-tax [Appeals] is not justified in confirming the disallowance made by the learned assessing officer amounting to Rs. 11,24,000/- being the expenditure incurred by the appellant towards Economic Social a Economic Development of the Society, erroneously holding that the said amounts incurred by the appellant is not an allowable expenditure and is not relating to the business of the appellant, on the facts and circumstances of the case. 4. The learned authorities below failed to appreciate that the expenditure incurred by the appellant towards Economic Social Et Economic Development of the Society is for the purposes of business and the said expenditure is allowable as per the provisions of section 37 of the Act on the facts and circumstances of the case. 5. Without prejudice to the right to seek waiver as per the parity of reasoning of the decision of the Hon'ble Apex Court in the case of Karanvir Singh 349 ITR 692, the Appellant Trust denies itself liable to be charged to interest under section 234 B Et 234 C of the Income Tax Act under the facts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eferred appeal before us. 3. Before us, the Ld.AR submitted that as a matter of Socially Responsibility the assessee distributed frocks to the school children in and around Ramadurga. By doing the same the reputation of the assessee increased and the children of people in and around the mining area go to school with proper dress. He submitted that the said expenditure incurred by the assessee is in connection to the business of the assessee and for smooth running of business without any problems from people of Ramadurga. It is submitted that as a part of business expediency and commercial thinking process these expenditure were incurred and connected with activities of assessee and is in the nature of Corporate Social Responsibility or CSR nature. He further submitted that if an entity does any activity which is helpful and useful to the general public at large. He submitted that the activity of assessee requires to be appreciated and the revenue cannot take the contention that the expenditure incurred is not relating to the business of the assessee. It is also submitted that by carrying out of certain Social Responsibility activities the assessee is contributing to the developmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s donation. The Ld.AO also records that the amount donated by the assessee was to the State Government and assessee failed to obtain certificate of exemption u/s. 80G. It was under such circumstances that an expenditure u/s. 37(1) was claimed by assessee in the profit & loss account. The Ld.AO disallowed the same only for the reason that certificate u/s. 80G was not obtained. Admittedly, the entire payment has gone for social development of an area wherein mining activities were undertaken and assessee was one of the licensee to the mines allotted by the Indian Bureau of Mines. An identical issue has been considered by the Coordinate Bench of this Tribunal in case of M/s. Veerabhadrappa Sangappa & Co. vs. ACIT in ITA No. 1054/Bang/2019 dated 08.12.2020, wherein this Tribunal has observed as under: "10.5.1. We heard rival contentions and perused the record. We notice that an identical issue was examined by the Hon'ble Karnataka High Court in the case of Kanhaiyalal Dudheria (supra). In the case before Hon'ble High Court, the assessee was carrying on the business of extraction of iron-ore and also trading in iron-ore. Assessee had incurred expenses of Rs. 1,61,30,480/- and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed as a business expenditure, solely on the ground that the activity involved for such expenditure is not directly connected to the business activity. In other words, the issue of commercial expediency would also arise. 20. In fact, the Hon'ble Apex Court approving the observation of ATHERTON's case - 1926 AC 205 in the matter of EASTERN INVESTMENT LIMITED vs COMMISSIONER OF INCOME TAX reported in (1951) 20 ITR 1, held: "..a sum of money expended, none of necessity and with a view to a direct and immediate benefit to the trade, but voluntarily on the grounds of commercial expediency, and in order indirectly to facilitate the carrying on of the business, may yet be expended wholly and exclusively for the purposes of the trade", can be adopted as the best interpretation of the crucial words of Section 10(2)(xv). The imprudence of the expenditure and its depressing effect on the taxable profits would not deflect the applicability of the section. The acid test, "did the expenditure fall on the assessee in this character as trader and was it for the purpose of the business". 27. The co-ordinate Bench in the matter of CIT & ANOTHER vs INFOSYS TECHNOLOGIES LIMITE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carrying on the assessee's business or which results in the benefit of the assessee's business has to be regarded as an allowable deduction under Section 37(1)'. In the facts obtained in the said case, it was noticed that assessee was doing business of export of rice and contributing 50 paise per quintal to the district welfare fund maintained by the District Collector, without which contribution, he would not get permit and as such, it came to be held that expenditure so incurred by way of contribution is directly connected with the assessee's carrying on the business. It is further held: "10. From the abovesaid discussion it follows that any contribution made by an assessee to a public welfare fund which is directly connected or related with the carrying on of the assessee's business or which results in the benefit to the assessee's business has to be regarded as an allowable deduction under s. 37(1) of the Act. Such a donation, whether voluntary or at the instance of the authorities concerned, when made to a Chief Minister's Drought Relief Fund or a District Welfare Fund established by the District Collector or any business, cannot be regarded as p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extended by the Government of Karnataka namely, providing land and design of the house to be constructed, approval of layout and to take care of all local problems. In fact, the State Government had also agreed to exempt such of those persons who undertake to execute the work from the purview of sale tax, royalty, entry tax and other related State taxes and is said to have extended to the appellant also. In this background it cannot be construed that MOU entered into between the assessee and the Government of Karnataka is opposed to public policy. 29. In the facts on hand, it requires to be noticed that assessee is carrying of business of iron ore and also trading in iron ore. Thus, day in and day out the assessee would be approaching the appropriate Government and its authorities for grant of permits, licenses and as such the assessee in its wisdom and as prudent business decision has entered into MOU with the Government of Karnataka and incurred the expenditure towards construction of houses for the needy persons, not only as a social responsibility but also keeping in mind the goodwill and benefit it would yield in the long run in earning profit which is the ultimate object o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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