SRI HIREHAL GAVIAPPA RANGAN GOUD ,BELLARY vs. THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-1 , BELLARY

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES “ B ” BENCH: BANGALORE BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER ITA No.610/Bang/2018 (Assessment Year: 2010-11) Shri Hirehal Gaviappa Rangan Goud, Mine Owner, HRG Enclaves, Opp. Leelavathi Nilayam, Tilak Nagar, Cantonment, Bellary-583 104 ….Appellant PAN ADWPG 8968L Vs. Assistant Commissioner of Income Tax, Circle 1, Bellary. ……Respondent. Assessee By: Shri V. Srinivasan, Advocate. Revenue By: Shri Priyadarshi Mishra, JCIT (D.R)

Date of Hearing : 30.07.2020. Date of Pronouncement : 25.11.2020.

O R D E R PER SHRI PAVAN KUMAR GADALE, JM : The assessee has filed appeal against the order of Commissioner of Income Tax (Appeals), Kalaburagi passed u/s. 143(3) and u/s 250 of the Income Tax Act, 1961.

2 ITA No.610/Bang/2019

3 ITA No.610/Bang/2019 time to time and produced the books of accounts and furnished the details and the case was discussed. The Assessing Officer on perusal of the financial statements found that the assessee has paid an amount of Rs5Crores to Deputy Commissioner, Bellary Agenda Task Force (BATF), for the purpose of improving the infrastructure like roads, health centre, drinking water and schools in rural areas. The assessee has filed explanations vide letter dt.26.12.2012, that the assessee has contributed the amount after a long deliberations with the Dy. Commissioner and the local mine owners. The Dy. Commissioner has fixed the amount to be contributed based on various criteria and to maintain cordial relationship with the local administration and give benefit to the deprived class of the society. The amount paid is out of business expediency and has to be allowed under Section 37(1) of the Act. But the Assessing Officer observed that, merely incurring of expenditure on infrastructure and other developments cannot be considered as business expenditure incurred for the purpose of business and further, there is no compulsion for commercial expediency and made disallowance of Rs5crs.The assessee has made a provision for audit fees of Rs.15 lakhs and whereas, the AO has observed that no TDS has been deducted by the assessee on the Audit fees and applied the provisions of Section 40(a)(ia) of the Act and disallowed the claim. The Assessing Officer also made disallowance of payments made to forest department for regeneration which was included in Rates & Taxes observing that

4 ITA No.610/Bang/2019 such payments are not in consonance with the environment programmes and assessed the total income of Rs.131,47,23,780/- and passed the order under Section 143(3) of the Act dt.26.03.2013. Aggrieved by the order, the assessee has filed an appeal with the CIT (Appeals). The CIT (Appeals) considered the grounds of appeal, findings of the Assessing Officer and submissions of ld. AR . where as, the ld. AR has reiterated the submissions made before the Assessing Officer on contribution to BATF and submitted that it is part of the business expenditure and has to be allowed. The CIT (Appeals) relying on the decision of jurisdictional High Court in the case of CIT Vs. Infosys Technologies Ltd. 2013-TIOL-507-HC-Kar- IT (349 ITR 588) has confirmed that the assessee contribution towards BATF is not an allowable deduction under Section 37(1) of the Act and confirmed the action of the Assessing Officer. In respect of addition of Rs.15 lakhs being the provision for audit fees, where the assessee has failed to deduct TDS. In the hearing proceedings, the LdAR submitted that the provision of audit fees was not credited to the CA Account and was credited to audit fees payable only hence no TDS has been deducted.Whereas the CIT (Appeals) considered the facts and provisions of Section 40(a)(ia) of the Act and observed that TDS has to be deducted even if provisions are made in the books of Accounts wherever TDS provisions are applicable and has confirmed the addition. In respect of other additions the CIT (Appeals) has granted relief and partly allowed the assessee's

5 ITA No.610/Bang/2019 appeal. Aggrieved by the CIT (A)’s order, the assessee has filed an appeal with the Tribunal.

6 ITA No.610/Bang/2019 6. We heard the rival submissions and perused the material on record. TheLd. AR made submissions on the first disputed issue of contribution to BATF of Rs.5 Crores, which was made as per the Directions of the local Dy. Commissioner for the entire Bellary District Administration to contribute for the purpose of improving infrastructure facilities like roads, health centre, drinking water and schools in rural areas. The Assessee in order to maintain cordial relationship with the Government has contributed for the purpose of providing social facilities to the deprived class of society which should be advantageous to the assessee which is engaged in the mining activities. The learned Authorized Representative referred to the receipt at page 40 of Paper Book, where the Dy. Commissioner has clearly mentioned in letter dt.1.1.2010, that the amount is utilized towards the development of basic infrastructure in Bellary District of Karnataka. The learned Authorized Representative further submitted that the CIT (Appeals) has erred in confirming the addition ,where he has relied on the decision of CIT & Another Vs. Infosys Technologies Ltd. 349 ITR 588 (supra) for providing traffic signals which was considered by the jurisdictional High Court in later decision of CIT Vs. Infosys Technologies Ltd. 360 ITR 714 (supra). Whereas in the earlier decision, it was observed at para 22 in the case of CIT Vs. Infosys Technologies Ltd. 349 ITR 598 (Kar) relying on the decision of Hon'ble High Court of Karnataka in the case of CIT Vs. Neelavathi (2010) 322 ITR 643 (Kar), where the amount was paid

7 ITA No.610/Bang/2019 as contribution to traffic police and rowdies for the protection and maintenance of law and order in the business premises of assessee for running two cinema halls. Whereas in the later Hon’ble High court judgment, the decision of CIT Vs. Infosys Technologies Ltd. 349 ITR 598 (supra) was considered and the amount contributed for fixing the traffic signals was allowed as a deduction under Section 37(1) of the Act. Similarly, we find in the case of Hon’ble High court decision of Kanhaiyalal Dudheria Vs. JCIT 418 ITR 410 (Kar) Dharwad Bench, the decision of CIT Vs. Infosys Technologies Ltd. 360 ITR 714 (supra) was also considered at paras 22 to 25 as under :

“ 22. Yet another Division Bench of this Court in the case of COMMISSIONER OF INCOME TAX & ANR Vs. INFOSYS TECNOLOGIES LTD., reported in (2012) 246 CTR (Kar) 371, held as under: "11. So far as the finding of the Tribunal that contribution of Rs.6.93 lakhs made towards traffic regulation can be claimed as deduction is also not justified as it is well settled that in order to claim deduction under Section 37 of the Act, the expenditure should be wholly for the purpose of business of the assessee and it is well settled that it is the duty of the police to regulate the traffic and the amount, spent towards regulation of traffic can at the most be considered as donation as rightly held by the AO and cannot qualify as deduction under Section 37 of the Act. We are also supported by the decision of the Division Bench of this Court in CIT vs. M.N. Swaminathan (Deed) by LRs (2010) 47DTR (KAR) 359 wherein it is held that contribution made to traffic police would not qualify for deduction under Section 37 of the Act. Therefore, the said question of law is answered against the assessee and in favour of the. Revenue. " 23. In the above said judgment, reliance is placed on the Division Bench of this Court in the case of COMMISSIONER OF INCOME TAX Vs. M.N. SWAMINATHAN (DECD) BY LRs, reported in (2010) 47 DTR (KAR) 359, it was held as under: "6. If any payment is made towards the security, towards the business of the assessee, such amount is an allowable deduction, as the amount spent for the maintenance of peace and law and order in the business premises of the assessee as he was running two cinema theatres. But the amount spew in the instant case claimed by the assessee is towards payment made to the police and rowdies. If any payment is made to the police illegally, if any amount is paid to a rowdy as a precautionary measure to see that he shall not cause any disturbance in the theatre run by the assessee the same is also an amount paid illegally for which no deduction can be allowed by the Department. If the assessee had spent the money for the purpose of security, we would have to concur with the view of the Tribunal. However, in the instant case the payment has been made to the police and rowdies to keep them away from the business premises which payment be held as illegal and such illegal payment cannot be an allowable deduction. " This is not a case where any payment is made to the

8 ITA No.610/Bang/2019 police or rowdies to keep them away from the business premises, which payment is ex facie illegal and illegal payment cannot be an allowable deduction under Section 37(1) of the Act. Secondly, the judgment of the Division Bench in the aforesaid Mysore Kirloskar Ltd case, was not brought to the notice of the coordinate Bench which d alt w th the case of the assessee. More over, in the said judgment, the question was, a sum of Rs.6.93 lakhs was contributed towards traffic regulation. It was not an expenditure incurred by ihe assessee. It was not in the nature of donation made to the police towards traffic regulation. Therefore, in that context, it was held relying on the judgment of Swaminathan’s case, it does not qualify as deduction under Section 37 of the Act. 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 employees or their children or for the children of the ex-employees. The employees of today may become the ex-employees tomorrow. Any expenditure laid out or expended for their benefit, if it satisfied the other requirements, must be allowed as deduction under Section 37(1) of the Act. Expenditure primarily denotes the idea of spending or paying out or away. It is something which is gone irretrievably, but should not be in respect of an unascertained liability of the future Expenditure in this sense is equal to disbursement which, to use a homely phrase means something which comes out of the traders pocket. 25. Therefore in the instant case, admittedly the assessee is having their establishment at Bannerghata Circle. Nearly about 500 employees are working in the said Unit. There was severe traffic congestion. Employees had to wait for longer time to reach the office. It seriously affected the business of the assessee, resulting in delay in completing the project. In order to facilitate its employees to reach their establishment safely and early, the assessee has installed traffic signals at Bannerghata Circle. Though it is the responsibility of the State and in particular, the Police Department either to install the traffic signal or control the traffic, the fact remains that in the absence of traffic signal or traffic police being positioned at Circles, the traffic congestion is a regular phenomenon. It seriously affects the free movement of public and in the instant case, the employees of the assessee. The assesee also has corporate social responsibility. In this background., in order to discharge their corporate social responsibility which also facilitates their business if the employees were to reach the place early, they thought of incurring the expenditure for installing the traffic signal at Bannerghata Circle. This expenditure is laid out or expended wholly and exclusively for the purpose of business. Therefore, the said expenditure incurred is allowable as deduction under Section 37(1) of the Act. That is precisely what the Tribunal has held. The aid finding is in accordance with law and based of legal evidence. Therefore no case for interference is made out. Hence the said substantial question of law is answered in favour of the assessee and against the Revenue.” The fact that the claim was allowed under Section 37(1) of the Act was for the purpose of business which was not disputed. Similarly, the co-ordinate Bench of the Tribunal has relied on the decision of Kanhaiyalal Dudheria Vs. JCIT 418

9 ITA No.610/Bang/2019 ITR 410 (Kar) Dharwad Bench (supra) ,In the case of Shri Gogga Gurushantiah and Bros. Vs. ACIT/DCIT, Circle 1, Bellary (ITA No.504/Bang/2014 Dt.29.05.2020) and allowed the claim at page 4 para 6 of the order as under :

“ 6. We have considered the rival submissions. We find that in para 2 on page 4 of this order, it is noted by learned CIT(A) that in the present case, the payment is not only made by the assessee firm but similar payments have also been made by all the business / industrial houses situated in Bellary and nearby districts depending upon the scale of business. It is also noted by CIT(A) that the present payment has helped the firm in getting goodwill of local citizens, bureaucrats, politicians, press and others. In our considered opinion, when this is admitted by learned CIT(A) that this payment in question will help the firm in getting goodwill of local citizens, bureaucrats, politicians, press and others, this will definitely benefit the assessee firm’s business also, may at a later date. Therefore, in our considered opinion, this expenditure is an allowable expenditure under section 37(1) of the Income Tax Act, 1961. We respectfully follow the judgment of Hon’ble Karnataka High Court rendered in the case of M/s. Kanhaiyalal Dudheria Vs. JCIT (supra) and decide the issue in favour of the assessee.” We, considering the facts and evidences filed find that, the contribution made by the assessee to BATF as per the directions of Dy. Commissioner of Bellary District Administration for the purpose of infrastructure development and to maintain cordial relationship with the Government and provide social facilities to the deprived class and which has a nexus with the assessee business. We find that the Assessing Officer has not disputed the genuineness of the expenditure and of the view, that it is not connected to the business and not allowable under Section 37(1) of the Act. We considered the judicial decisions and the provisions of law, are of the opinion that the contribution made by the assessee is wholly and exclusively for the purpose of business and is allowable under Section 37(1) of the Act. Accordingly, we set aside the order of CIT (Appeals) on this disputed issue and

10 ITA No.610/Bang/2019 direct the Assessing Officer to delete the addition and allow the ground of appeal of the assesse.

11 ITA No.610/Bang/2019 shall cooperate in submitting the details and allow the ground of appeal of assessee allowed for statistical purposes.

Pronounced in the open court on the date mentioned on the caption page.

Sd/- Sd/- (B.R. BASKARAN) (PAVAN KUMAR GADALE) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 25.11.2020. *Reddy GP Copy to 1. The appellant 2. The Respondent 3. CIT (A) 4. Pr. CIT 5. DR, ITAT, Bangalore. 6. Guard File By order

Assistant Registrar Income-tax Appellate Tribunal Bangalore