Alex Grinders Pvt. Ltd. Vs DCIT (ITAT Mumbai)
Payment to Labour Union Held Business-Driven: ITAT Mumbai Allows Deduction u/s 37(1)
In this appeal, Alex Grinders Pvt. Ltd. challenged the disallowance of ₹26,60,000 paid to the Maharashtra Rajya Shramik Mathadi Transport Suraksha Rakshak & General Kamgar Union, which the AO treated as a non-business payment & disallowed u/s 37(1). Assessment was originally completed u/s 143(3) wherein AO held that the payment resembled a donation as there was no documentary evidence of labour dispute, no strike notices, no conciliation records, no arbitration, & the cheque was issued on the last day of the year. CIT(A)/NFAC sustained the disallowance holding that Assessee failed to prove commercial expediency.
Before Tribunal, Assessee explained that its Lonavala factory was facing labour unrest; some workers had joined the Union, production was getting disrupted, export schedules were at risk, & to secure uninterrupted production & remove troublesome workers, settlement was reached with the Union. Assessee produced turnover & profit comparison showing substantial growth after the settlement, emphasising business necessity. Tribunal directed Assessee to provide supporting evidence, whereupon Assessee produced a Memorandum of Settlement dated 31.03.2013 executed u/s 2(p) r.w.s.18(1) of Industrial Disputes Act between management, the Union & 26 concerned workmen. The settlement detailed resignation of workmen, legal dues, ex-gratia payouts & was signed by all parties including individual workers. Payment to the Union was made through banking channels & was part of facilitating this settlement.
After examining the settlement document & submissions, Tribunal held that Assessee had clearly demonstrated nexus between the expenditure & its business interest. Payment was made to secure peace, avoid disruption in production, maintain export commitments & complete pending orders, thereby satisfying the test of commercial expediency as recognised by Gujarat High Court in PCIT v GNFC Ltd. Tribunal held that the payment was wholly & exclusively for business purposes & allowable u/s 37(1).
Disallowance of ₹26,60,000 was therefore deleted & appeal of Assessee was allowed.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
