TECHNOCRAFT INDUSTRIES (INDIA) LTD, MUMBAI V. DCIT 8(3), MUMBAI

ITA 7565/MUM/2014

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 7816 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-12-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Assessment Year: 2010-2011
• Appeal Filed On: 18-12-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DEBASHIS CHANDRA
• Keywords: Capital asset; Transfer pricing; Business expenditure; Charitable institution; International transaction; Commercial expediency; Revised return; Revenue expenditure; Capital expenditure
• Section: 37(1); 80G; 37; 154

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL J , BENCH MUMBAI BEFORE SHRI R.C. SHARMA, AM & SHRI AMARJIT SINGH , JM ./ ITA NO.7565/MUM/2014 ( / ASSESSMENT YEAR :2010 - 11) TECHNOCRAFT INDUSTRIES (INDIA) LTD. A - 25, MIDC STREET NO. 3, MAROL INDUSTRIAL AREA, OPP ESIS HOSPITAL, ANDHERI (EAST), MUMBAI - 400093. VS. DY. COMMISSIONER OF INCOME TAX - 8(3), MUMBAI. ./ ./ PAN/GIR NO. : AAACT2724P ( / APPELLANT ) .. ( / RESPONDENT ) /ASSESSEE BY : SHRI VIJAY MEHTA /REVENUE BY : SHRI DEBASHIS CHANDRA / DATE OF HEARING : 28 .1 1 .2018 / DATE OF PRONOUNCEMENT: 27.12.2018 / O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE OR DER OF CIT(A) - 15 MUMBAI, DATED 03.12.2013 , FOR THE ASSESSMENT YEAR 201 0 - 11 , IN THE MATTER OF ORDER PASSED U/S. 1 4 3(3) OF THE I.T. ACT. TECHNOCRAT INDUSTRIES 2 2. FOLLOWING THE GROUNDS OF APPEAL TAKEN BY THE ASSESSEE READ AS UNDER: GROUND NO. 1: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE CIT(A) ERRED BY SUSTAINING THE UPWARD ADJUSTMENT OF RS.68, 77,987 IN R E SP EC T OF ARM'S LENGTH PRICE IN RELATION TO INTERNATIONAL TRANSACTION ENTERED INTO BY THE APPELLANT WITH ITS ASSOCIATED ENTERPRISES. THE APPELLANT PRAYS THAT THE SAID ACTION OF THE HON'BLE CIT(A) MAY KINDLY BE DELETED. GROUND N. 2: (A) ON THE FACTS AND CIRCUMST ANCES OF THE CASE AND IN LAW, THE CIT (A) ERRED IN UPHOLDING THE UPWARDADJUSTMENT O F ALP DONE BY THE AO/TPO OF RS. 43,22,4 78/ - IN RESPECT OF CORPORATE GUA RANTEE FEES. THE APPELLANT PRAYS THAT THE UPWARD ADJUSTMENT MAY PLEASE BE HELD AS BAD - IN - LAW AND BE DEL ETED. (B) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) ERRED IN UPHOLDING THAT CORPORATE GUARANTEE IS AN INTERNATIONAL TRANSACTION. THE APPELLANT PRAYS THAT THE SAID ACTION TAKEN BY LD. CI T(A) MAY KINDLY BE DELETED . (C) ON THE FACTS A ND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CI T (A) ERRED IN DISREGARDING THE FACT THAT GUARANTEE WAS ADVANCED BY THE APPELLANT AS A MATTER OF COMMERCIAL PRUDENCE TO PROTECT THE BUSINESS INTEREST OF THE GROUP. (D) WITHOUT PREJUDICE, THE LEARNED CI T (A) ERRED ON FACTS AND IN LAW IN UPHOLDING THE TRANSFER PRICING ADJUSTMENT BY CONFIRMING THE RATE OF COMMISSION ON GUAR ANTEE FEE. THE APPELLANT PRAYS T HAT THE SAID ACTION TAKEN BY LD. CIT(A) MAY KINDLY BE DELETED. GROUND NO. 3: (A) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT (A) ERRED IN CONFIRMING THE ADDITION OF RS. 25,55,509/ - IN RESPECT OF LOAN AND SHORT TER M BUSINESS ADVANCES GIVEN TO AE. THE APPELLANT PRAYS T HAT THE SAID ACTI ON TAKEN BY LD. CI T ( A) MAY KINDLY BE DELETED. (B) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT (A) ERRED IN CONFIRMING THE ACTION OF AO/TPO BY TREATING SHORT TERM BUSINESS ADVANCES AS LOAN GIVEN TO AE. THE APPELLANT PRAYS THATTHE SAID ACTION TAKEN BY LD. C IT(A) MAY KINDLY BE DELETED. (C) ON THE FACTS AND CIRC UMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT (A) ERRED IN CONFIRMING THE RATE O F INTEREST APPLIED BY THE TPO . THE APPELLANT PRAYS THAT THE SAID ACTION TAKEN BY LD. CIT(A) MAY KINDLY BE DELATED. (D) ON THE FACTS AND CIRCUM S TANC ES OF THE CASE AND IN LAW, THE LEARNED CTT (A) ERRED IN IGNORING THE CONTENTION OF THE APPELLANT THAT INTEREST RATE IN RESPECT OF INTERNATIONAL TRANSACTION IN FOREIGN CURRENCY HAS TO BE M ACCORDANCE WITH LIBOR. GROUND NO. 4: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE C I T(A) ERRED IN SUSTAINING T HE DISALLOWANCE OF A SUM OF RS. 50 LAKHS CLAIMED BY THE APPELLANT U/S 37(1) OF THE ACT IN RESPECT OF THE DONATION MADE TO SHAN TI SEVA NIDHI . THE APPELLANT PR AYS THAT THE SAID ACTION OF THE HON'BLE QT(A) MAY KINDLY BE DELETED, THE APPELLANT CRAVES, LEAVE TO ADD, AMEND, ALTER, OMIT ANY OF THE GROUNDS OF APPEAL BEFORE THE HEARING OF THE APPEAL, IF SO ADVISED. FOR TECH NOCRAFT INDUSTRIES (INDIA) LTD. TECHNOCRAT INDUSTRIES 3 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. THE BR IEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PUBLIC LIMITED COMPANY INCORPORATED UNDER THE COMPANIES ACT, 1956 AND WAS ENGAGED AT THE RELEVANT TIME IN THE BUSINESS OF MANUFACTURE AND EXPORT OF DRUM CLOSURES, PIPES, COTTON YARN, KNITTED COTTON AND TEXTILE PRODUCTS. DURING THE COURSE OF ASSESSMENT, THE AO FOUND THAT THE ASSESSEE HAD ENTERED INTO INTERNATIONAL TRANSACTIONS WITH ASSOCIATED ENTERPRISES. REFERENCE WAS MADE TO THE TRANSFER PRICING OFF ICER BY THE A.O. AND THE TPO VIDE ITS ORDER U/S 92CA(3) DATED 30.09.2013 DETERMINED UPWARD ADJUSTMENT OF RS.1,21,97,403/ - IN RESPECT OF THE ASSESSEES INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES, WHICH WAS SUBSEQUENTLY REDUCED TO RS.68,77,98 7/ - VIDE HIS ORDER DATED 03.12.2013 UNDER SECTION 154 OF THE ACT. DURING THE COURSE OF ASSESSMENT AO MADE AN ADDITION OF RS.43,22,478/ - ON ACCOUNT OF CORPORATE GUARANTEE FEES. 4. BY THE IMPUGNED ORDER, THE CIT(A) CONFIRMED THE ACTION OF THE AO. 5. THE LD. AR HAS RELIED ON THE DECISION OF THOMAS COOK (INDIA) LTD. IN ITA NO. 859/MUM/2014 ORDERED 29.04.2016 WHEREIN GUARANTEE COMMISSION WAS DIRECTED TO CHARGE @ 0.5% AFTER HAVING THE FOLLOWING OBSERVATION : 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUB MISSIONS. BE THAT AS IT MAY, THE ONLY DISPUTE THAT THE ASSESSEE HAS CONTESTED BEFORE US RELATES TO THE APPLICATION OF THE RATE OF 3% TAKE BY THE TRANSFER PRICING OFFICER TO DETERMINE THE ARM'S LENGTH RATE TECHNOCRAT INDUSTRIES 4 OF THE INTERNATIONAL TRANSACTION OF PROVISION OF CO RPORATE GUARANTEE ON BEHALF OF THE ASSOCIATED ENTERPRISE. THEREFORE, WE CONFINE OURSELVES TO EXAMINE THE VERACITY OF THE ARM'S LENGTH RATE ADOPTED BY THE INCOME - TAX AUTHORITIES. IN THE PRESENT CASE, ASSESSEE COMPANY ISSUED CORPORATE GUARANTEE ON BEHALF OF THE IT'S ASSOCIATED ENTERPRISE WHICH ENABLED IT'S ASSOCIATED ENTERPRISE TO AVAIL BANKING FACILITIES FROM HSBC BANK IN MAURITIUS. THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF EVEREST KENTO CYLINDERS LTD.(SUPRA) WAS CONSIDERING A SOMEWHAT SIMILAR SITUATION, WHERE IN THE MATTER OF GUARANTEE COMMISSION FEE THE ADJUSTMENT MADE BY THE INCOME - TAX AUTHORITIES WAS BASED ON INSTANCES OF COMMERCIAL BANKS PROVIDING GUARANTEES. THE HON'BLE BOMBAY HIGH COURT HAS EXPLAINED THAT INSTANCES OF COMMERCIAL BANKS PROVIDING GUAR ANTEES COULD NOT BE COMPARED TO INSTANCES OF ISSUANCE OF CORPORATE GUARANTEE. AS PER HON'BLE BOMBAY HIGH COURT, WHEN COMMERCIAL BANKS ISSUE BANK GUARANTEES, THE SAME IS QUITE DISTINCT IN CHARACTER, THAN THE SITUATION WHERE A CORPORATE ISSUES GUARANTEE TO T HE EFFECT THAT, IF A SUBSIDIARY ASSOCIATED ENTERPRISE DOES NOT REPAY A LOAN, THE SAME WOULD BE MADE GOOD BY SUCH CORPORATE. KEEPING THE SAID RATIO OF THE HON'BLE BOMBAY HIGH COURT IN MIND, IT IS QUITE CLEAR THAT THE MANNER IN WHICH THE TRANSFER PRICING OFF ICER HAS PROCEEDED TO DETERMINE THE ARM'S LENGTH RATE BASED ON THE PROBABLE RATE BEING CHARGED BY THE COMMERCIAL BANKS IS NOT JUSTIFIED. IN THIS VIEW OF THE MATTER, WE ARE UNABLE TO APPROVE ITA NO. 859&768/MUM/2014 (ASSESSMENT YEAR : 2008 - 09) 3% RATE OF GU ARANTEE COMMISSION FEE DETERMINED AS ARM'S LENGTH RATE BY THE INCOME - TAX AUTHORITIES. IN THE ALTERNATIVE, THE ADDITION THAT IS REQUIRED TO BE SUSTAINED IS THE POSITION CANVASSED BY THE ASSESSEE BEFORE THE TRANSFER PRICING OFFICER I.E. ADOPTION OF 0.50% AS ARM'S LENGTH RATE FOR THE PURPOSE OF DETERMINING THE ARM'S LENGTH INCOME ON ACCOUNT OF GUARANTEE COMMISSION FEE IN THE PRESENT CASE. THE LD. DEPARTMENTAL REPRESENTATIVE HAD REFERRED TO CERTAIN DECISIONS OF THE MUMBAI TRIBUNAL, WHEREIN A RATE HIGHER THAN 0. 50% HAS ALSO BEEN APPROVED IN ORDER TO DETERMINE THE GUARANTEE COMMISSION FEE. ALL THOSE DECISIONS ARE BASED ON THE PROBABLE RATES AT WHICH THE GUARANTEES ARE ISSUED BY THE COMMERCIAL BANKS, AND IN VIEW OF THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT IN THE C ASE OF EVEREST TECHNOCRAT INDUSTRIES 5 KENTO CYLINDERS LTD.(SUPRA), SUCH AN APPROACH CANNOT BE UPHELD SINCE THE INSTANT IS A CASE, WHERE A CORPORATE GUARANTEE HAS BEEN ISSUED BY HOLDING COMPANY FOR THE BENEFITS OF ITS STEP - DOWN SUBSIDIARY ASSOCIATED ENTERPRISE. CONSIDERING THE EN TIRETY OF FACTS AND CIRCUMSTANCES OF THE CASE AND ON THE BASIS OF THE MATERIAL AVAILABLE ON RECORD, WE, THEREFORE, PROCEED TO UPHOLD THE RATE OF 0.50% FOR THE PURPOSE OF DETERMINING THE ARM'S LENGTH RATE OF THE GUARANTEE COMMISSION FEE. IN THIS VIEW OF THE MATTER, WE SET - ASIDE THE ORDER OF CIT(APPEALS) AND DIRECT THE ASSESSING OFFICER TO DETERMINE THE ADDITION IN VIEW OF OUR AFORESAID DIRECTION. THUS, ON THIS ASPECT ASSESSEE PARTLY SUCCEEDS. 6 . THE LD. AR ALSO PLACED ON RECORD, ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE IN THE ASSESSMENT YEAR 2009 - 10 DATED 31.07.2018 WHEREIN ADDITION ON ACCOUNT OF CORPORATE GUARANTEE WAS UPHELD TO THE EXTENT OF 0 . 9% AFTER HAVING THE FOLLOWING OBSERVATION: 5. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT, AS DISCUSSED IN VARIOUS JUDGMENTS THE RATE ADOPTED WAS IN THE RANGE OF 0.25% - 0.50%. THESE RATES WERE IN CASE OF CORPORATE GUARANTEE WHEREAS IN CASE OF ASSESSEE, IT IS ISSUANCE OF SBLC. HENCE, THE S AID RATES ARE NOT APPLICABLE IN CASE OF THE ASSESSEE. WE OBSERVE THAT THE ASSESSEE HAS BEEN CHARGED A RATE OF 0.9% BY AN INDIAN BANK FOR SBLC. IN OUR VIEW, THIS IS A CLEAR CASE OF INTERNAL CUP. FURTHER, IN THIS CASE, THE DR HAS NOT RAISED ANY OBJECTION ON ADOPTION OF INTERNAL CUP OF 0.9% P.A. HENCE, IN OUR OPINION SINCE THE INTERNAL CUP IS AVAILABLE WITH THE ASSESSEE, THE SAID RATE OF COMMISSION OF 0.9% P.A. SHOULD BE CONSIDERED AS ARMS LENGTH RATE OF COMMISSION. ACCORDINGLY, AO IS DIRECTED TO COMPUTE GUAR ANTEE FEES @0.9%. TECHNOCRAT INDUSTRIES 6 7 . WE HAVE CONSIDERED RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS ORDER PASSED BY THE TRIBUNAL IN ASSESSEES OWN CASE WHEREIN WITH RESPECT TO THE SIMILAR BANK GUARANTEE THE TRIBUNAL HAS UP HELD ADDITION TO THE EXTENT OF 0.9%. AS THE FACTS AND CIRCUMSTANCES OF THE CASE DURING THE YEAR UNDER CONSIDERATION ARE SAME , RESPECTFULLY FOLLOWING THE ORDER OF THE TRI BUNAL IN ASSESSEES OWN CASE , WE DIRECT THE AO TO RESTRICT ADDITION ON ACCOUNT OF GUARANTEE FEE @ 0.9%. 8 . GRIEVANCE OF THE ASSESSEE ALSO RELATE S TO ADDITION OF RS.25,55,509/ - IN RESPECT OF INTEREST ON LOAN ADVANCED TO AE. 9. FROM THE RECORD WE FIND THAT THE ASSESSEE HAD CHARGED INTEREST @ 8% IN RESPECT OF LOAN PROVIDED TO ITS AE ANHUL RELIABLE STEEL TECH. CHINA BASED ON COST OF ITS BORROWED FUNDS. THE TPO HOWEVER WORKED OUT INTEREST OF RS.33,98,947/ - @ 11.5% AS PER THE WORKING GIVEN BY HIM IN HIS ORDER DATED 03.12.2013 UNDER SECTION 154 OF THE ACT, AND HAS MADE UPWARD ADJUSTMENT TOWARDS INTEREST OF RS.25,55,509/ - BEING THE DIFFERENCE BETWEEN THE TOTAL AMOUNT OF INTEREST OF RS.33,98,947/ - CHARGEABLE AND THE INTEREST OF RS.8,43,438/ - ALREADY CHARGED BY THE ASSESSEE. BY THE IMPUGNED ORDER THE CIT(A) CONFIRMED THE ACTION OF AO, AGAINS T WHICH ASSESSEE IS IN FURTHER APPEAL BEFORE US. 10. THE LD. AR INVITED OUR ATTENTION TO THE ORDER OF THE TRIBUNAL DATED 31.07.2018 FOR THE ASSESSMENT YEAR 2009 - 10 WHEREIN PAGE NO. 2, PARA 6 SIMILAR ISSUE HAS BEEN DEALT BY THE TRIBUNAL AND THE AO WAS DIREC TED TO CONFIRM ADDITION ONLY TO THE EXTENT OF LIBOR INTEREST RATE PREVAILING DURING THE YEAR. 11. WE HAVE CAREFULLY GONE THROUGH THE ORDER OF THE TR IBUNAL DATED 31.07.2018, THE PRECISE OBSERVATION OF THE TRIBUNAL WAS AS UNDER: TECHNOCRAT INDUSTRIES 7 6. NEXT GRIEVANCE PERTAINS TO ADDITION ON ACCOUNT OF INTEREST CHARGED ON LOAN ADVANCED TO AE AMOUNTING TO RS.59,172/ - . ISSUE UNDERCONSIDERATION IS SQUARELY COVERED BY THE DECISION OF DELHI HIGH COURT IN THE CASE OF COTTON NATURALS (I) PVT. LTD., 55 TAXMANN.COM 523 WHEREIN IT WAS HEL D THAT ARMS LENGTH INTEREST RATE FOR LOAN ADVANCED TO FOREIGN SUBSIDIARY BY THE INDIAN COMPANY SHOULD BE COMPUTED BASED ON MARKET DETERMINED INTEREST RATE APPLICABLE TO CURRENCY IN WHICH LOAN HAS TO BE REPAID. RESPECTFULLY FOLLOWING THE PROPOSITION LAID D OWN BY DELHI HIGH COURT, WE DIRECT THE AO TO COMPUTE INTEREST AS PER THE INTEREST RATES APPLICABLE TO CURRENCY IN WHICH LOAN WAS REQUIRED TO BE REPAID BY THE ASSESSEE. WE DIRECT ACCORDINGLY. 12. AS THE FACTS AND CIRCUMSTANCES OF DURING THE YEAR UNDER CONSI DERATION ARE SAME WE DIRECT THE AO TO RESTRICT THE ADDITION ON ACCOUNT OF INTEREST AS PER RATES APPLICABLE TO CURRENCY IN WHICH LOAN WAS REQUIRED TO BE REPAID TO THE ASSESSEE I.E. LABOR RATE . 13. GROUND NO. 4 RELATED TO DISALLOWANCE OF RS.50 LAKHS CLAIMED BY T HE ASSESSEE U/S 37(1)OF THE ACT IN RESPECT OF DONATION MADE TO SHANTI SEVA NIDHI. 14. WE HAVE HEARD THE RIVAL CONTENTIONS AND FOUND THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS CLAIMED DEDUCTION U/S 37(1) SUM OF RS.50 LAKHS IN RESPECT OF DONATION MADE TO SHANTI SEVA NIDHI .B EFORE THE LOWER AUTHORITIES THE ASSESSEE HAD SUBMITTED DETAILED SUBMISSI ON AS TO WHY SUCH DONATION MADE BY THE ASSESSEE WAS EXCLUSIVELY LINKED TO THE BUSINESS OF ASSESSEE A LONG WITH LIST OF EMPLOYEES WHO HAD QUALIFIED FROM SHANTI SEVA NIDHI AND WERE DEPLOYED BY THE ASSESSEE. T HE CIT(A) HAS DISMISSED THE GROUND TAKEN BY THE ASS ESSEE . THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. TECHNOCRAT INDUSTRIES 8 IT WAS ARGUED BY THE LD. AR THAT THE APPELLANT COMPANY IS A MANUFACTURER WHO EXPORTS MAJORITY OF ITS FINISHED PRODUCTS. TO COMPLETE IN THE INTERNATIONAL ARENA, THE APPELLANT COMPANY HAS TO BE UP - TO - DATE WITH BEST PRACTICES IN ITS INDUSTRY. THE COMPANY HAS TO ENGAGE IN A PROCESS OF CONTINUOUS IMPROVEMENT AND DEVELOPMENT OF ITS PRODUCTS. ALSO TO PROMOTE NEW SET OF IDEAS AND FRESH TALENT, THE COMPANY ENCOURAGE ITS EMPLOYEES TO SEND THEIR CHILDREN TO ATTEND V OCATIONAL TRAINING CONDUCTED IN THE PREMISES OF SHANTI SEVA NIDHI. THE SAME SERVES FOLLOWING PURPOSES AS UNDER: 1. READYMADE SKILLED EMPLOYEES - RECRUITING TRAINED CANDIDATES (MANY OF WHOM ARE EMPLOYEES CHILDREN) WHO HAVE BEEN TRAINED WITH THE NTTF ASSIST THE APPELLANT COMPANYS DEVELOPMENT TREMENDOUSLY. THE SAME RESULTS IN DEVELOPING AND CREATING BETTER QUALITY PRODUCTS CAPABLE OF COMPETING AT AN INTERNATIONAL LEVEL . 2. EMPLOYEE WELFARE, AS THE EMPLOYEES CHILDREN HAVE EXCESS TO A WELL REPUTED EDUCATIONAL I NSTITUTE IMPARTING QUALITY TECHNICAL EDUCATION IN VARIOUS DISCIPLINE AT DIFFERENT LEVELS. THIS EXPENDITURE CONFERS THE ADVANTAGE OF ADMISSION OF THE EMPLOYEES CHILDREN IN THE SCHOOL AND HOSTEL IMPARTING TECHNICAL TRAINING. THIS PROMPTS TO OVERALL LIVELIHO OD AND WELL BEING OF EMPLOYEES. 3. INNOVATION, NEW IDEAS FOR MANUFACTURING PROCESS THE PERSONNEL TRAINED AT SHANTI SEVA NIDHI HAVE EXCESS TO LATES PRODUCTION TOOLS/MACHINERIES AND WELL EQUIPPED LABORATORIES. FURTHER, IT IS NOT OUT OF PLACE TO MENTION THAT THE APPELLANT IS ONE OF THE LEADING MANUFACTURER AND EXPORTERS OF DRUM CLOSURES, SC AFFOLDING SYSTEMS AND ACCESSORIES. TO SUSTAIN AND GROW IN THE EXPORT MARKET, THE APPELLANT COMPANY CANNOT AFFORD TO STAY STAGNANT. THE APPELLANT COMPANY IS OPEN TO VIEWS/IDEAS SHARED BY THE PERSONNEL WHO HAVE ATTAINED TECHNICAL TRAINING FROM NTTF. THE SAME CREATES A MORE SMOOTH MANUFACTURING PROCESS AND INCREASE THE PRODUCTION CAPACITY WITHOUT ANY NEED TO ADD ANY RESOURCES. IN VIEW OF THE ABOVE FACTS OF THE CASE, IT WAS EVIDENT THAT APART FROM EMPLOYEES WELFARE, THE EXPENDITURE INCURRED BY THE APPELLANT COMPANY IN - TURN BENEFITS FROM THE IMPUTS OBTAINED FROM SUCH TRAINED PERSONNEL. HENCE, ON ACCOUNT OF COMMERCIAL EXPEDIENCY, THE APPELLANT COMPANY HAD CLAIMED THE AMOUNT PAID TO M/S SHANTI SEVA NIDHI OF RS.50 LAKHS U/S 37(1) OF THE INCOME TAX ACT, 1961. AS PER THE LD. AR, SECTION 37(1) OF THE INCOME TAX ACT, 1961 IS A RESIDUARY SECTION. HENCE THIS SECTION COVERS ONLY THOSE ITEMS OF BUSINESS TECHNOCRAT INDUSTRIES 9 EXPENDITURE WHICH ARE NOT COVERED UNDER SECTION 30 TO 36. THE TEST OF ALLOWABILITY OF ANY EXPENDITURE U/S 37 LAYS IN THE ABOVE MENTIONED THREE CONDITIONS MENTIONED: 1. EXPENDITURE IS INCURRED WHOLL Y AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. THE WORD 'WHOLLY' REFERS TO THE QUANTUM OF EXPENDITU RE AND THE WORD 'EXCLUSIVELY' RE FER S TO THE MOTIVE, OBJECT OR PURPOSE OF THE EXPENDITURE. THE EXPRESSION ' FOR THE PURPOSE OF THE BUSINESS' IS ESSENTIALLY WIDER THAN THE EXPRESSION ' FOR THE PURPOSE OF EARNING PROFITS'. 2. SUCH EXPENDITURE IS NOT IN THE NATURE OF PERSONA L E XPENDITURE. 3. SUCH EXPENDITURE IS NOT OF CAPITAL IN NATURE I.E . EXPENSES SHOULD BE OF REVENUE IN NATURE. THE WORD ''CAPITAL' CONNOTES PERMANEN CY AND 'CAPITAL EXPENDITURE' IS, THEREFORE, CL OSELY AKIN TO THE CONCEPT OF SECURING SOMETHING, TANGIBLE OR INTANGIBLE PROPERTY , OR CORPOREAL OR INCORPOREAL RIGHT, SO THAT THEY COULD BE OF A LASTING OR ENDURING BENEFIT TO THE ENTERPRISE IN ISSUE. REVENUE EXPENDITURE. QN_THE OTHER HAND, IS OPERATIONAL IN ITS PERSPECTIVE AND SOLELY INTENDED FOR THE FURTHERANCE OF THE ENTERPRISE . ON PERUSAL OF THE PORTIONS HIGHLIGHTED IN THE PRE - CONDITIONS FOR CLAIMING AN EXPENDITURE U/S 37(1]OF THE INCOME TAX ACT, 1961, IT CAN BE CLEARLY HELD THAT THE APPELLANT COMPANY HAS SATISFIED ALL THE 3 CONDITIONS SINCE - 1. AMOUNT PAID TO SHANTI SEVA N IDHI WAS WHO LLY AND EXCLUSIVELY FOR THE PURPOSE OF BENEFITING THE EMPLOYEES AND OBTAINING OVERALL EMPLOYEE WELFARE. THE SAID QBJECTJV E IS PURELY FOR THE PURPOSE OF THE BUSINESS BECAUSE EMPLOYEE WELFARE WILL HELP THE APPELLANT COMPANY TO ENSURE LOW EMPLOYEE TURN OVER AND DEDICATED EMPLOYEES HEL P THE COMPANY TO REACH HIGHER HORJ Z ONS. 2. THE EXPENDITURE INCURRED IS NO WHERE PERSONAL IN NATURE SINCE THE SAME IS SOLELY INCURRED WITH THE PURPOSE OF STAFF WELFARE. 3. T HE EXPENDITURE INCURRED I S OPERATIONAL IN NATURE AND IS REQUIRED TO BE INCURRED FOR BUSINESS DEVELOPMENT. IN VIEW OF THE ABOVE DISCUSSION, IT CAN BE SAID THAT THE APPELLANT COMPANY DOES SATISFY ALL THE PRE - CONDITIONS PRESCRIBED U/S 37(1) OF THE INCOME TAX ACT, 1961 FOR CLAIMING EXPENDITURE UNDER THE SAID SECTION. ACCORDIN GLY, DISALLOWANCE MADE BY THE LD. AO ON ACCOUNT OF SUM PAID TO SHANTI SEVA NIDHI U/S 37(1) IS BAD IN LAW AND LIABLE TO BE DELETED. TECHNOCRAT INDUSTRIES 10 HEREIN IT IS ALSO IMPERATIVE TO CONSIDER THE LD. AOS VIEW IN THIS REGARDS. HIS OBSERVATIONS ARE REPRODUCED AS UNDER: EXPE NDITURE IN THE NATURE OF DONATION, BEING VOLUNTARY, CANNOT BE HELD TO BE FULFILLING THE CRITERIA OF BUSINESS EXIGENCY/COMMERCIAL EXPEDIENCY. THIS ONUS HAS NOT BEEN DISCHARGED BY THE ASSESSEE. IT IS PERTINENT TO MENTION HERE THAT THE ASSESSEE ITSELF HAD, IN THE ORIGINAL RETURN OF INCOME, CLAIMING THE PAYMENT MADE TO SHANTISEVA NIDHI AS DONATION AND CLAIMED DEDUCTION U/S 80G ON THE SAME. HOWEVER, LATER ON THE ASSESSEE COMPANY HAS FILED REVISED RETURN CLAIMING THAT THE DONATION OF RS.50 LAKH GIVEN TO SHANTI SE VA NIDHI IS BUSINESS EXPENDITURE AND NOT DONATION. THIS CLAIM OF THE ASSESSEE IS CLEARLY ON AFTERTHOUGHT AND MADE WITH AN INTENTION OF REDUCING ITS LIABILITY TOWARDS PAYMENT OF LEGITIMATE TAXES. 15. THE LD. AR RELIED ON THE DECISION OF THE HONBLE M.P. HIGH COURT IN THE CASE OF ADDITIONAL CIT V. KUBER SINGH BHAGWANDAS [118 ITR 379 M.P. (FB)]. 16. IN THE SAID CASE THE ASSESSEE, FOOD GRAIN MERCHANTS MADE DONATION T O CHIEF MINISTER'S DROUGHT RELIEF FUND FOR OBTAINING PERMITS FOR EXPORT OF FOODGRAIN. IT WAS HE LD BY THE M.P. HIGH COURT THAT T HE MERCHANTS MADE DONATION TO CHIEF MINISTER'S DROUGHT RELIEF FUND AS A MATTER OF COMMERCIAL EXPEDIENCY TO FACILITATE OBTAINING PERMITS WHICH WERE NECESSARY FOR CARRYING ON EXPORT TRADE. THE COURT ALSO HELD THAT MERE FACT THAT DONATIONS W ERE VOLUNTARY AND SOME MERCHANTS GOT PERMITS EVEN WITHOUT MAKING DONATIONS IS NOT CRUCIAL FOR DETERMINING WHETHER DONATIONS CONSTITUTED BUSINESS EXPENDITURE ELIGIBLE FOR DE DUCTION UNDER SECTION 37(1) OF THE ACT, BECAUSE THE EXPRESSION 'COMM ERCIAL EXPEDIENCY' IS NOT LIMITED TO AN EXISTING PRACTICE PREVAILING IN ANY PARTICULAR T RADE OR BUSINESS AND EVEN IF INCURRING OF A PARTICULAR EXPENDITURE MAY NOT BE SUPPORTED BY ANY PREVAILING PRACTICES, YET IF AT THE TIME WHEN THE EXPENDITURE IS INCURRE D, COMME RCIAL EXPEDIENCY JUSTIFIES IT, T HE EXPENDITURE WOULD BE TAKEN TO BE FOR TECHNOCRAT INDUSTRIES 11 T HE PURPOSES OF THE BUSINESS. THE ABOVE DECISION OF THE M.P. HIGH COURT HAS BEEN APPROVED BY THE SUPREME COURT IN THE CASE OF SRI VENKATA SATYANARAY ANA RICE MILL CONTRACTORS CO . V. CIT (223 ITR 101) . 17. RELIANCE WAS ALSO PLACED ON THE DECISION OF THE GUJARAT HIGH COURT IN T HE CASE OF CIT V . EMTICI ENGINEERING L T D. IN THE SAID CASE THE ASSE SSEE MADE A DONATION OF RS.2,50 , 000/ - TO THE GUJARAT CRICKET CLUB WHICH WAS ELIGIBLE FOR D EDUCTION UNDER SECTION 80G OF THE ACT. THE ASS E SSEE CLAIMED THE ENTIRE DONATION AS BUSINESS EXPENDITURE UNDER SECTION 37( 1) CLAIMING THAT THE EXPENDITURE WAS IN THE NATURE OF STAFF WELFARE ACTIVITY. THE ASSESSING OFFICER HELD THAT IN VIEW OF THE FACT THE ASSE SSEE WOULD GET PRIORITY RIGHTS IN THE MATTER OF ALLOTMENT OF SE ATS, THE ENDURING BENEFIT HAS ACCRUED TO THE ASSESSES, AND THEREFORE, THE SAME HAS RESULTED IN ACQUISITION OF CAPITAL ASSET. WHEN THE MATTER CAME UP FOR CONSIDERATION BEFORE THE CIT(A), THE CIT(A) DIRECTED THE ASSESSING OFFICER TO VERIFY THE ASSESSEE 'S CLAIM AND ALLOW DEDUCTION UNDER SECTION 80G OF THE ACT T HE TRIBUNAL HELD THAT THE DONATION MADE BY A SSESSEE TO CRICKET CLUB COULD NOT BE TREATED AS CAPITAL EXPENDITURE THOUGH IT CONFERRED CERT AIN PRIVILEGES ON THE ASSESSEE. THE TRIBUNAL DIRECTED T HE ASSESSING OFFICER TO DEDUCT THE DONATION AMOUNT FROM THE COMPUTATION OF INCOME OF THE ASSESSEE. THE HIGH COURT UPHELD THE ORDER OF THE TRIBUNAL. 18. THE DECISION OF THE AHMEDABAD TRIBUNAL IN THE CAS E OF SURAT ELECTRICITY CO.LTD . V. ACIT (125 TTD 277) . 19. IN THE SAID CASE, THE ASSESSEE MADE PAYMENT BY CHEQUE TO CHIEF MINISTER'S RELIEF FUND AT THE BEHEST OF GOVERNMENT OF GUJARAT WHICH WAS USED FOR SUPPLYING GRASS FODDER TO VARIOUS CATTLE CAMPS AS DIR ECTED BY THE STATE GOVERNMENT TO THE DESIGNATED AGENTS. T HE ASSESSEE CLAIMED DEDUCTION UNDER SECTION 80G OF THE ACT ON THE GROUND THAT PAYMENT WAS TECHNOCRAT INDUSTRIES 12 MADE AT THE REQUEST OF THE GOVERNMENT OF GUJARAT FOR THE PURPOSE OF CHIEF MINISTER'S RELIEF FUND. THE SAID CL AIM MADE BY THE ASSESSEE WAS DISALLOWED BY THE A.O . RELYING ON EXPLANATION 5 TO SEC.80 - G ON THE GROUND THAT ASSESSEE MADE DONATION IN KIND. THE CIT(A) CONFIRMED THE DISALLOWANCE. THE MATTER WENT IN FURTHER IN APPEAL BEFORE TRIBUNAL AND AT THE TRIBUNAL LEVE L, THE ASSESSEE RAISED AN ALTERNATIVE PLEA THAT IF T HE DONATION IS NOT ALLOWABLE UNDER SECTION 8G - G OF THE ACT, THEN SAME MAY BE CONSIDERED AS ALLOWABLE EXPENDITURE UNDER SECTION 37(1) OF THE ACT, AS BUSINESS EXPENDITURE ON THE GROUND THAT SUCH DONATION W A S MADE ON THE DIRECTION OF GOVERNMENT OF GUJARAT FOR KEEPING SMOOTH RELATION WITH THE GOVERNMENT AS ENLIGHT ENED INDUSTRIALIST. WHILE ALLOW ING T HE ASSESSEE'S ALTERNATIVE PLEA, THE TRIBUNAL HELD AS UNDER : 'THE EXPENDITURE MUST BE INCIDENTAL TO THE BUSINESS AND MUST BE NECESSITATED OR JUSTIFIED BY THE COMMERCIAL EXPEDIENCY. IF MUST BE DIRECTLY AND INTIMATELY CONNECTED WITH THE BUSINESS AND THERE MUST BE A DIRECT AND INTIMATE CONNECTION BETWEEN THE BUSINESS AND THE EXPENDITURE. AN EXPENDITURE MADE BY BUSINESSM AN BY WAY OF COMMERCIAL EXPEDIENCY MUST BE AN EXPENDITURE WHICH HAS BEEN INCURRED IN THE EXPECTATION THAT SUCH PAYMENT SHOULD DIRECTLY OR INDIRECTLY BENEFIT THE BUSINESS OF THE ASSESSEE OR FACILITATE THE CARRYING ON THE ASSESSEE'S BUSINESS. A MAN'S BUSINES S MAY HE BENEFITED IN A NUMBER OF WAYS. ONE OF THEM MAY BE PROMOTING OF BUSINESS RELATIONS WITH WHOM HE HAS TO DEAL WITH IN THE COURSE OF HIS BUSINESS. IN THE PRESENT CASE, BEFORE US THE FACTS ARE VERY CLEAR AND FAKING INTO CONSIDERATION THE PECULIARITY OF THE ASSESSEE'S BUSINESS THE IMPUGNED EXPENDITURE WHICH THE ASSESSEE HAS ADMITTEDLY INCURRED IN RESPONSE TO AN APPEAL OF THE GOVERNMENT OF GUJARAT, IMMINENTLY PASS THROUGH THE TESTS OF COMMERCIAL EXPEDIENCY AND HAVING BEEN INCURRED FOR THE PURPOSE OF BUSIN ESS, IT IS TO BE ALLOWED UNDER S. 37(1) OF THE ACT. ' TECHNOCRAT INDUSTRIES 13 20. IT NEEDS TO BE APPRECIATED THAT THE DONATIONS ARE MADE TO CHARITABLE INSTITUTIONS OR FUNDS SET UP BY T HE GOVERNMENT OR SEMI GOVERNMENT BODIES. AS FAR AS DONATIONS TO CHARITABLE INSTITUTIONS ARE CONCERNED, THEY ARE MAINLY MADE FOR SOCIAL CONSIDERATIONS AND TO BUILD UP GOODWILL FOR THE BUSINESS RUN BY AN ASSESSES. IN THIS REGARD, RELIANCE CAN BE PLACED ON THE DECISION OF THE MADRAS HIGH COURT IN THE CASE OF CIT V. MADRAS REFINERIES LTD (266 ITR 170 ) UPHOLDING THE CONCEPT OF CORPORATE SOCIAL RESPONSIBILITY AND ALLOWING EXPENDITURE ON SOCIAL WELFARE OF LOCAL RESIDENTS. IN ITS DECISION, THE MADRAS HIGH COURT HELD AS UNDER : 'THE CONCEPT OF BUSINESS IS NOT STATIC. IT HAS EVOLVED OVER A PERIOD OF TIME TO INCLUDE WITHIN IFS FOLD THE CONCRETE EXPRESSION OF CARE AND CONCERN FOR THE SOCIETY AT LARGE AND THE PEOPLE OF THE LOCALITY IN WHICH THE BUSINESS IS LOCATED IN PARTICULAR. BEING KNOWN AS A GOOD CORPORATE CITIZEN BRINGS GOODWILL OF THE LOCAL COMMUNITY, AS ALSO WITH THE REGULATORY AGENCIES AND THE SOCIETY AT LARGE, THEREBY CREATING AN ATMOSPHERE IN WHICH THE BUSINESS CAN SUCCEED IN A GREATER MEASURE WITH THE AID OF SUCH GOODWILL MONIES SPENT FOR BRINGING DRINKING WATER AS ALSO FOR ESTABLISHING OR IMPROVING T HE SCHOOL MEANT FOR THE RESIDENTS OF THE LOCALITY IN WHICH THE BUSINESS IS SITUATED CANNOT BE REGARDED AS BEING WHOLLY OUTSIDE THE AMBIT OF THE BUSINESS CONCERNS OF THE ASSESSEE, ESPECIALLY WHERE THE UNDERTAKING OWNED BY THE ASSESSEE IS ONE WHICH IS TO SOM E EXTENT A POLLUTING INDUSTRY. THE TRIBUNAL WAS RIGHT IN ALLOWING THE DEDUCTION OF THE ENTIRE EXPENDITURE OF RS.15,32,000 AS BUSINESS EXPENDITURE'. 21. IT WAS FURTHER ARGUED BY LD. AR THAT SO FAR AS DONATIONS TO FUNDS SET UP BY THE GOVERNMENT OR S EMI GOVER NMENT BODIES ARE CONCERNED, ONE HAS TO ESTABLISH THE NE X US BETWEEN THE INCURRING OF EXPENDITURE AND THE BENEFIT WHICH IT WILL BRING TO BUSINESS. THIS NEXUS CAN BE ESTABLISHED BY CONTENDING THAT MAINTAINING CORDIAL RELATIONSHIP WITH THE GOVERNMENTAL AND SEMI GOVERNMENTAL BODIES ULTIMATELY RESULTED IN SMOOTH RUNN ING OF BUSINESS. IN THIS REGARD, RELIANCE CAN BE PLACED ON THE RATIOS OF DECISIONS OF T HE ORISSA HIGH COURT IN THE CASE OF CIT V. INDUSTRY & COMMERCE ENTERPRISES PVT. LTD (118 ITR 606) AND OF THE MADRAS HIGH COURT IN THE CASE OF ADDITIONAL CIT V. BMS PVT. LTD (119 ITR 321) HOLDING THAT WHERE TECHNOCRAT INDUSTRIES 14 GOVERNMENT SECURITIES AND BONDS ARE PURCHASED BY THE ASSESSEE WITH A VIEW TO INCREASING ITS BUSINESS WITH THE GOVERNMENT AND WITH THE OBJECT OF RETAINING AND EARNING GOODWILL OF ME AUTHORITIES FOR THE PURPOSE OF ITS BUS INESS, LOSS INCURRED ON SALE OF SUCH BONDS AND SECURITIES IS ALLOWABLE AS BUSINESS LOSS. THE SAID DECISIONS OF THE ORISSA HIGH COURT AND MADRAS HIGH COURT WERE LATER APPROVED BY THE SUPREME COURT IN THE CASE OF PATNAIK & CO. V . CIT (161 ITR 365) HOLDING TH AT LOSS O N SALE OF SECURITIES PURCHASED W ITH A VIEW TO OBTAIN PREFERENTIAL TREATMENT FROM THE GOVERNMENT IS ALLOWABLE AS BUSINESS LOSS. 22. IN VIEW OF THE ABOVE DISCUSSION, LD. AR CONTENDED THAT THE DONATION WHICH ARE ELIGIBLE FOR DEDUCTION UNDER SECTION 8 0G CAN BE CLAIMED AS ALLOWABLE DEDUCTION UNDER SECTION 37(1) OF THE ACT AS BUSINESS EXPENDITURE. 23. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDERS OF THE AUTH ORITIES BELOW WE HAVE ALSO DELIBERATED ON THE JUDICIAL PRONOUNC EMENTS REFERRED BY LOWER AUTHORITIES IN THEIR RESPECTIVE ORDER S AS WELL AS CITED BY LD. A.R. AND D.R. DURING THE COURSE OF HEARING US IN THE CONTEXT OF FACTUAL MATRIX OF THE CASE. FROM THE RECORD WE FOUND THAT THE APPELLANTS MANUFACTURING FACI LITIES ARE LOCATED IN MURBAD TALUK A OF THANE DISTRICT. THE SAID AREA - MURBAD IS A BACKWARD AREA AS EVIDENCED BY THE CLASSIFICATION UNDER GROUP B OF TALUKAS UNDER PACKAGE SCHEME OF INCENTIVES, 2007 AS ISSUED BY THE GOVERNMENT OF MAHARASHTRA. THE LOCALITY IS A RURAL AREA AND ITS RESIDENTS DO NOT HAVE THE PRIVILEGE OF QUALITY LIVING FACILITIES AS AVAILABLE IN DEVELOPED AREAS. ONE OF THE PRIMARY PROBLEMS FACED BY THE APPELLANT IN ESTABLISHING THE MANUFACTURING FACILITY AT SUCH LOCATION IS THE NON - AVAILABILITY OF SKILLED MAN POWER. THE APPELLANT INDUSTRY IS A TECHNOLOGY DRIVEN INDUSTRY WHEREIN SKILLED MAN POWER IS REQUIRED TO TECHNOCRAT INDUSTRIES 15 DEAL WITH THE METAL PRODUCTS OF THE COMPANY. IN SUCH A SCENARIO, THE CHARITABLE INSTITUTE M/S SHANTI SEVA NIDHI HAD SET UP THE VOCATIONAL TRAINING SCHOOL AT MURBAD ITSELF AND THE APPELLANT THOUGHT IT FIT TO CONTRIBUTE TO THE SAID TRUST TO ACHIEVE THE VARIED BUSINESS PURPOSES. WE FOUND THAT THE BOARD RESOLUTION CATEGORICALLY STATES THAT THE CONTRIBUTION WAS BEING MADE FOR THE BENEFIT OF EMPLOYEES. TH IS IS A VITAL AND CRITICAL FACT, WHICH PROVES THAT THE SAID EXPENDITURE WAS DONE KEEPING IN MIND THE EMPLOYEE WELFARE OF THE APPELLANT COMPANY AND NOT FROM A PURE DONATION PERSPECTIVE . FROM THE RECORD, WE ALSO FOUND THAT COURSE AT SHANTI SEVA NIDHI ARE RUN BY NETTUR TECHNICAL TRAINING FOUNDATION (NTTF). NTTF IS A REPUTED AND KNOWN VOCATIONAL TRAINING INSTITUTE IN INDIA WITH A 50 YEAR HISTORY. IT WAS FORMED WITH SWISS COOPERATION AND HAS ONE OF THE MOST RIGOROUS DIPLOMA PROGRAMMES IN INDIA. EMPHASIS ON PRA CTICAL AND HANDS ON KNOWLEDGE. THE PROGRAMMES ARE KNOWN FOR THEIR EMPHASIS ON PRACTICAL AND HANDS ON KNOWLEDGE NTTF GRADUATES ARE RENOWNED FOR THEIR PRACTICAL SKILLS IN THE INDUSTRY. NTTF OPERATES MORE THAN 20 TRAINING CENTRES ALL OVER INDIA. BRINING SUCH AN INSTITUTE TO MURBAD, SHANTI SEVA NIDHI HAD INSURED THAT THE QUALITY TRAINING GETS IMPARTED IN THE BACK YARD OF THE ASSESSEES MANUFACTURING FACILITIES. WE ALSO FOUND THAT IN MURBAD, NTTF PROVIDES THE FOLLOWING TRAINING FACILITIES IN THE SCHOOLS OF SHANT I SEVA NIDHI: 1. DIPLOMA IN TOOL AND DIE MAKING FOLLOWED BY ONE YEAR OF INDUSTRIAL TRAINING, 2. DIPLOMA IN MECHATRONICS AND 3. POST DIPLOMA IN TOOL DESIGN FURTHER, IT ALSO CONDUCTS VARIOUS TAILOR MADE SHORT TERM AND LONG TERM TRAINING PROGRAMMES IN THE ANCILLARY FIELDS OF TOOLS AND DIE MAKING, ELECTRONICS, COMPUTER AND OTHER RELEVANT AREAS. THUS THERE IS DIRECT NEXUS BETWEEN THE ABOVE COURSES AND MANUFACTURI NG PROCESS OF THE APPELLANT. TECHNOCRAT INDUSTRIES 16 THE TOOL AND DIE MAKING PROCESS IS ONE OF THE INTEGRAL PROCESS IN MANUFACTURING OF APPELLANTS VARIOUS PRODUCTS VIZ. DRUM CLOSURES, TUBES, SCAFFOLDING. THE HUGE ADVANTAGE OF THE SCHOOL IS THAT THE READYMADE TRAINED PERSONNEL WHO ARE WELL VERSED WITH THE SKILLS REQUIRED FOR APPELLANTS PRODUCTS ARE AVAILABLE FOR RECRUITMENT WHEN THEY PASS OUT OF THE SCHOOL. FROM THE RECORD WE FOUND THAT FOLLOWING HAVE BEEN ABSORBED BY THE COMPANY AFTER COMPLETING THEIR COURSES AT SHANTI SEVA NI DHI DIVISION EMPLOYEE NAME DRUM CLOSURE HANUMANTHGOUDA K. DRUM CLOSURE RAVI SHANKER BHARTI DRUM CLOSURE MADHUKAR KUMAR JHA DRUM CLOSURE POOJA NAIR DRUM CLOSURE NARAHARISETTI DEEPAK DRUM CLOSURE DHIRAJ MUKHI DRUM CLOSURE MOHAMMED FAIZAN YARN CHANDRU K. ANNIGERI GARMENT PRADEEP B. MALLAPNAVR WE OBSERVED THAT THE LD. AO HAS MADE THE DISALLOWANCE ONLY ON TWO ASPECTS 1. CONTRIBUTION MADE IS VOLUNTARY 2. IN THE ORIGINAL RETURN, THE CLAIM WAS MADE U/S 80G THE ABOVE TWO ASPECTS ARE COMPLETELY FACTUAL AND THE APPELLANT DOESNT DENY THE EXISTENCE OF THE SAME. ON THE CONTRARY, IT AMPLY PROVES THAT THE LEARNED AO HAS NOT EXAMINED THE ASPECT FROM THE LEGAL POINT OF VIEW. AS DISCUSSED ABOVE, THE COMMERCIAL EXPEDIE NCY HAS BEEN AMPLY DEMONSTRATED BY THE APPELLANT. THERE ARE PLETHORA OF JUDGMENTS WHICH STATE THAT THE COMMERCIAL EXPEDIENCY IS NOT HAMPERED BY VOLUNTARY NATURE OF THE CONTRIBUTION. THE OTHER ASPECT WHICH AO RELIES ON IS THAT THE APPELLANT HAD ORIGINALLY CLAIMED THE AMOUNT U/S 80G. IN THIS REGARD WE OBSERVE THAT THE APPELLANT HAD FILED A REVISED RETURN WITHIN TIME LIMIT TECHNOCRAT INDUSTRIES 17 PRESCRIBED BY LAW AND ACCORDINGLY THE SAME IS A VALID RETURN OF INCOME WHICH NEEDS TO BE CONSIDERED FOR ASSESSMENT. NOW, WE DISCUSS THE LEGAL PRECEDENTS FOR THE ABOVE ISSUE WHICH ARE SEVERAL. IT IS TO BE NOTED THAT SEVERAL D ECISIONS HAVE HELD A VIEW THAT I F A PAYMENT IS INCURRED FOR THE PURPO SE OF THE TRADE OF THE ASSESSES, IT IS DEDUCTIBLE EVEN IF IT MAY BRING A BENEFIT TO A THIRD PAR TY. THE LEADING CASE IN THIS REGARDS IS APEX COURT DECISION IN THE CASE OF CIT VS. CHANDULAL KESHAV JAL & CO. (38 ITR 601). ANOTHER IMPORTANT LEGAL IS SUE TO EXAMINE IS THE LEARNED AO 'S ASSERTION THAT THE CONTRIBUTION IS VOLUN TARY IN NATURE. IN THIS REGARDS L AW IS VERY DEAR ON THE POINT THAT THE DONATIONS EVEN THOUGH VOLUNTARY IN NATURE, THE SAME HAS TO BE ALLOWED IF THE TEST OF 'COMM ERCIAL EXPEDIENCY' IS SATISFIES.FOR THIS PURPOSE RELIANCE IS PLACED ON FOLLOWING JUDICIAL PRONOUNCEMENTS: VOLTAS LTD. V. CI T [1994 ] 207 ITR 47(BOM). - IF THE CASE OF AN ASSESSEE IS THAT WHAT IS GIVEN BY HIM, THOUGH TERMED AS DONATION IS NOT A DONATION BUT BUSINESS EXPENDITURE AND IF HE SATISFIES AUTHORITIES IN THAT REGARD, THERE IS NO BAR IN ALLOWING DEDUCTION IN RESPECT OF SUC H PAYMENT UNDER SECTION 37(1) . CITV . KUBER SINGH BHAGWANDAS [1979] 118 ITR 379 (MP )(FB ) , DELHI CLOTH AND GENERA L MILLS CO. LTD. V. CIT [1986] 158 ITR 64 (DELHI), CI T V. KAIRA DISTT, CO - OP, MILK PRODUCER'S UNION LTD. [2001] 114 TAXMAN 215 (GUJ) - IF THE TAX PAYER IS ABLE TO ESTABLISH A NEXUS BETWEEN THE DONATION AND THE BUSINESS, IT WOULD BE HELD TO BE FOR THE PURPOSE OF THE BUSINESS AND ALLOWABLE UNDER SECTION 37(1). KRISH NA SAHAKARI SAKHAR KARKHANA LTD. V. CIT [2000] 112 TAXMAN 246 (BORN.) R.B - NARA I N SINGH SUGAR MILLS (P) LTD. V. CIT [1980 ] 4 TAXMAN 519 (DELHI) - THE LAW IS WELT SETTLED THAT FOR THE PURPOSE OF INCOME - TAX, ANY CONTRIBUTION MADE OR EXPENDITURE INCURRED BY THE ASSESSES WHICH IS DIRECTL Y CONNECTED OR RELATED TO THE CARRYING ON OF THE ASSESSEE'S BUSINESS OR WHICH RESULTS IN A BENEFIT TO THE ASSESSEE'S BUSINESS, HAS TO BE REGARDED AS AN ALLOWABLE DEDUCTION UNDER SECTION 37(1). TECHNOCRAT INDUSTRIES 18 T HE BEST FIT APPLICATION OF THE ABOVE CASES CAN BE FOUND IN DECISION OF FULL BENCH OF MADHYA PRADESH HIGH COURT IN THE CASE OF ADDL. COMMISSIONER O F INCOME - TA X VS. KUBER SINGH BHAGWANDAS (118 ITR 379) WHEREIN THE DONATION MADE TO CHIEF MINISTER DROUGHT RELIEF FUND WAS AL LOWED AS DEDUCTION U/S 37 CITING THE FACT THAT THE ASSESSES MADE DONATION AS A MATTER OF COMMERCIAL EXPEDIEN CY. FURTHER, WE CAN BE PLACED RELIANCE ON THE DECISION OF CIT VS RAJASTHAN SPG & WVG MILLS LTD. (2005 - 198 CTR 96 RAJ), WHEREIN THE HON BLE RAJASTHAN HIGH COURT RU L ED FOR ALLOWABILITY OF EXPENSES WHICH WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS OF THE ASSESSEE AS THE SAME WAS FOR THE BENEFIT AND WELFARE OF ITS EMPLOYEES . THE FACTS OF THE PRESENT CASE UNDER CONSIDERATION ARE SMILARTO THAT OF THE CASE LAW QUOTED ABOVE. IN THE PRESENT CASE, THE AMOUNT DONATED BY THE APPELLANT COMPANY WAS TOWARDS EMPL OYEE WELFARE AND ALSO FOR SEEKING BENEFIT OF SECURING TRAINED/SKILLED PERSONNEL FOR APPELLANTS MANUFACTURING DIVISION. THEREFORE, AS LONG AS THERE IS SOME BENEFIT ACCRUING TO THE APPELLANT COMPANY FROM SUCH CONTRIBUTION AND THERE IS LIVE NEXUS BETWEEN THE AMOUNT SPENT AND PROMOTION OF THE APPELLANT BUSINESS, THE AMOUNT INCURRED CAN BE CLAIMED AS DEDUCTION U/S 37(1), EVEN IF PARTIAL BENEFIT ACCRUES TO OUTSIDERS FROM SUCH CONTRIBUTION. FURTHER, THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT AND ANR. V. INFOSYS TECHNOLOGIES LTD. (2014) (360 ITR 714), HAS OPINED THAT CSR DONATION EXPENDITURE WHICH FACILITIES THE BUSINESS OF THE ASSESSEE IS ALLOWABLE U/S 37(1) OF THE ACT. IN ADDITION TO ABOVE, RELIANCE COULD BE PLACED ON THE FOLLOWING DECISIONS, WHEREIN COU RTS HAVE TIME AND AGAIN HELD THAT CONTRIBUTION MADE BY THE ASSESSEE COMPANY IN PUBLIC WELFARE FUNDS WHICH ARE DIRECTLY CONNECTED OR RELATED WITH THE CARRYING ON THE BUSINESS OR WHICH RESULTS IN BENEFIT TO THE BUSINESS HAS TO BE REGARDED AS ALLOWABLE DEDUCT ION U/S 37(1) OF THE ACT: SRI VENKATA SATYANARAYAN RICE MILLS CONTRACTOR CO. V. CIT (223 ITR 101) (SC); ADDL. CIT V. RAJASTHAN SPINNING AND WEAVING LTD. CIT (274 ITR 463) RAJ); MEHSANA DISTRICT CO - OPERATIVE MILK PRODUCERS UNION LTD. CIT (203 ITR 601) (GUJ); TECHNOCRAT INDUSTRIES 19 CIT V. KAIRA DISTRICT CO - OPERATIVE MILK PRODUCERS UNION LTD. CIT (247 ITR 314) (GUJ); KRISHNA SAHAKARI SAKHAR KARKHANA LTD. V. CIT (229 ITR 577) AND SURAT ELECTRICITY CO. LTD. V. ACIT (125 ITD 227) (AHD.) D URING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD CLAIMED AN EXPENDITURE OF RS.50,00,000/ - U/S 37(1) OF THE ACT WHICH IS IN THE FORM OF DONATION GIVEN TO SHANTI SEVA NIDHI FOR THE PURPOSE OF TRAINING AND PROVIDING TEC HNICAL KNOWLEDGE ALONG WITH DIPLOMA COURSES TO THE EMPLOYEES OF THE ASSESSEE COMPANY AND THEIR CHILDREN. THESE STUDENTS WITH QUALIFIED DIPLOMA DEGREES ARE INTURN RECRUITED BY THE ASSESSEE COMPANY FOR THEIR MANUFACTURING DIVISION. THUS THE AMOUNT GIVEN TO S HANTI SEVA NIDHI HAVE RESULTED IN TRAINING AND PROVIDING TECHNICAL KNOWLEDGE ALONG WITH DIPLOMA COURSE TO THE EMPLOYEES OF THE ASSESSEE COMPANY AND THEIR CHILDREN AND WHO INTURN WERE RECRUITED BY THE ASSESSEE COMPANY IN ITS MANUFACTURING DIVISION. THUS, THE BUSINESS PURPOSE OF ASSESSEE IS FULFILLED. UNDER THESE FACTS AND CIRCUMSTANCES OF THE CASE, T HERE IS NO JUSTIFICATION FOR DISALLOWANCE OF THE EXPENDITURE U/S 37(1) OF THE I.T. ACT. W E DIRECT ACCORDINGLY. 24. IN THE RESULT, THE APPEAL OF THE ASSESSEE I S ALLOWED IN PART. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 27/12/2018 SD/ - ( AMARJIT SINGH ) SD/ - (R.C.SHARMA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 27/12/2018 RAHUL SHARMA (SR. P.S.) TECHNOCRAT INDUSTRIES 20 / COPY OF THE ORDER FORWARDED TO : / BY ORDER, / ( ASSTT.REGISTRAR) , / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A), MUMBAI. 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. //TRUE COPY//