Social Welfare Expenses incurred at Workplace and nearby Villages are allowable Deduction u/s 37(1): ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT) Hyderabad Bench has held that the social welfare expenses incurred at the workplace and nearby villages are allowable deductions u/s 37(1).

The appellant, NACL Industries Limited, is a company engaged in the business of manufacturing and trading Agro chemicals and pesticides. During the scrutiny assessment, the Assessing Officer made disallowance of the social welfare expenditure and disallowance under section 14A of the Act read with Rule 8D of the Rules alleging that the expenditure incurred by the assessee is the only application of income and has nothing to do with the business of the assessee.

On appeal, the CIT(A) allowed relief to the assessee in respect of the addition made on account of disallowance under section 14A of the Act read with Rule 8D of the Rules but confirmed the addition of ₹ 84,28,163/- made on account of disallowance of social welfare expenditure. The aggrieved assessee filed an appeal before ITAT.

The counsel for the appellant submitted that the assessee is running the chemical plants near the villages and it is necessary for them to incur such expenditure to secure the cooperation of the villages for the smooth running of the manufacturing plants and winning the goodwill is equally important for their business.

The counsel for the revenue by relying on the decision of various High Courts submitted that where the assessee fails to prove that the expense is wholly and exclusively for business, no deduction under section 37(1) of the Act is allowable.

The Coram of Mr. Rama Kanta Panda, Accountant Member, and Mr. K.Narasimha Chary, Judicial Member has observed that winning the goodwill of the people is congenial to the working atmosphere of the assessee and cannot be said that it is something foreign to the business purposes of the assessee.

The division bench has held that “we are of the considered opinion that the expenditure incurred by the assessee is not merely philanthropic, but also has a business angle, which we cannot ignore. For these reasons, we are of the considered opinion that the social welfare expenses incurred by the assessee at their workplace and nearby villages is an allowable deduction under section 37(1) of the act. With this view of the matter, we allow the grounds of appeal, and direct the Assessing Officer to delete the addition of ₹ 84,28,163/-made under section 37(1) of the Act”.

Mr. C. S. Subrahmanyam and Mr. Rohit Mujumdar appeared for the appellant and revenue respectively.

To Read the full text of the Order CLICK HERE

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