TaxTMI 
TaxTMI 
2024 (1) TMI 496
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....ct, 1961 [for short, 'I.T. Act'] being the sum paid to the Bellary Agenda Task Force (hereinafter referred to as 'BATF') on the ground that the said expenditure was not incurred wholly and exclusively for the purpose of business. 3. It is stated that the assessee had preferred an appeal before the Commissioner of Income Tax, who upheld the disallowance made by the Assessing Officer on the ground that the expenditure was incurred for Corporate Social Responsibility (CSR) activities and not for the purpose of business and accordingly, the expenditure could not be allowed as a deduction under Section 37 of the I.T. Act. 4. Aggrieved by such order, the assessee had preferred an Appeal before ITAT, Bangalore, which by its order dated 06.10.2021 at Annexure-'A' set aside the disallowance on the ground that the same is an allowable expenditure under Section 37 of the I.T. Act. Being aggrieved by such order of ITAT, the Revenue is in appeal before this Court. 5. The appeal came to be admitted for consideration of the following substantial question of law:- "Whether on facts and circumstances of the case and in law, the Income Tax Appellate Tribunal is right in holding tha....
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....cribed 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". 11. Perused the compilation of records before the ITAT filed in the form of paper book before this Court. 12. It must be noted that BATF was set up by the order of the Deputy Commissioner dated 17.06.2004 pursuant to order of the Government dated 18.06.2004 authorising the Deputy Commissioner to constitute the BATF including appointment of its Members. 13. The order dated 17.06.2004 of the Deputy Commissioner details the objectives of the constitution of the BATF which includes - (a) Improvement of infrastructure relating to roads particularly in light of protests by the public and Associations; (b) To develop infrastructure facilities in partnership with private entities through the BATF; 14. The Deputy Commissioner as President of BATF convened a meeting on 24.02.2009 in the presence of various Members which included Executive ....
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....nds of pilgrims from far and near will participate and the said road is the only way to travel to the hill Temple of Lord Kumaraswamy. We assure you of our full cooperation in success of BATF, as we are very keen in ensuring improvement of Infrastructure, especially roads in Bellary District at large and Sandur in particular. We also request you to please prevail upon concerned authorities to extend tax exemption for contributions made in this regard..." 16. It is clear from the above that the contribution made to BATF is for the purpose of BATF developmental works in Bellary District and more particularly, the development of road works in Sandur. 17. In light of such facts that are made out from the records filed before the ITAT, the matter requires consideration. 18. The Apex Court in S.A. Builders (supra) while dealing with deductions claimed under Section 37 has dealt with expenditure in the context of "Commercial Expediency" and observations at para-25 which would be of relevance reads as follows:- "25. The expression "commercial expediency" is an expression of wide import and includes such expenditure as a prudent businessman incurs for the purpose ....
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....t works in Sandur Taluk..... (**assessee herein) We notice that the amount has been contributed to BATF by all mining companies as per the direction of district administration. The question whether such contribution is allowable as deduction has been examined by the Hon'ble jurisdictional Karnataka High Court in the case of Kanhaiyalal Dudheria (supra). In the case before the Hon'ble High Court, the assessee was carrying on the business of extraction of iron-ore and also trading in iron-ore. The assessee had incurred expenses of Rs. 1,61,30,480/- and Rs. 55,90,080/-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..." 21. This aspect of the Assessment Order is common as regards the Assessment Year 2009-10, 2010-11, 2011-12. 22. It is clear that the expenditure made to the BATF was to be expended for the purpose of road infrastructure. Such exp....
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....s in which the expenditure incurred and claimed as allowable under Section 37 of the Act would have to be examined on the facts obtained in each case. There cannot be any straight jacket formula in this regard. What might be commercial expediency to one business enterprise may not be so for another business undertaking. It varies from one business to another, expediency depends on nature of business, the motive and purport of the business carried on to earn profit are also the factors which will have to be considered, determined and answered in the facts obtained in each case. In other words, commercial expediency varies from one assessee to another. By a precise mathematical formula, it cannot be defined as to what can be commercial expediency in a given case nor it can be put in a water tight compartment. To put it differently, the revenue authorities or the Courts when faced with such situation, will have to place itself in the position of such business men and ascertain whether the expenses so incurred can be said to have been expended for the purpose of the business or the transaction was merely camouflage for the purpose of reducing the tax component by depicting it as an exp....
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....round 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 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." 26. Insofar as the contention of the Revenue that by virtue of amendment made to Section 37 of the I.T. Act by insertion of explanation to the effect that expenditure incurred relatin....