DY. COMMISSIONER OF INCOME TAX, CIRCLE-16(2), HYDERABAD vs. MISHRA DHATU NIGAM LIMITED, HYDERABAD

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ITA 1468/HYD/2018Status: DisposedITAT Hyderabad17 August 2021AY 2014-155 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal upheld the deletion of Section 14A disallowance as there was no exempt income. Regarding CSR expenditure, the Tribunal found no substance in the Revenue's argument that it was capital in nature and rejected the appeal.

What were the facts?

The Revenue appealed against the deletion of disallowance under Section 14A r.w. Rule 8D and the disallowance of Corporate Social Responsibility (CSR) expenditure. The assessee had not earned any exempt income in the relevant assessment year.

What were the issues?

Whether disallowance under Section 14A is applicable when no exempt income is earned, and whether CSR expenditure is allowable as a business expense.

Which sections of the Income-tax Act were involved?

Section 14A,Section 37

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(5)Show list

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Income Tax Appellate Tribunal, HYDERABAD BENCHES “A” : HYDERABAD

Before: SHRI S.S.GODARA & SHRI LAXMI PRASAD SAHU

O R D E R PER S.S.GODARA, J.M. :

This Revenue’s appeal for AY.2014-15 arises from the CIT(A)-4, Hyderabad’s order dated 25-04-2018 passed in case No.0323/2016-17/FCIT,Cir.16(2)/CIT(A)-4/Hyd/18-19, in proceedings u/s.143(3) of the Income Tax Act, 1961 [in short, ‘the Act’]. Heard both the parties. Case file perused.

2.

Coming to Revenue’s first and foremost substantive grievance forming subject matter of its former three substantive grounds that the CIT(A) has erred in law and on facts in deleting Section 14A r.w. Rule 8D disallowance of Rs.7,49,544/-, we find that the assessee has not derived any exempt income in the relevant previous year.

3.

At the outset, learned authorised representative submitted that since there is no dividend income earned in the relevant previous year the CIT(A)’s order deleting the impugned disallowance may be upheld. In this connection, he relied on the following case law: i. CIT Vs. Chettinad Logistics Pvt. Ltd., [80 taxmann.com 221] (Madras); ii. CIT Vs. Corrtech Energy Pvt. Ltd., [223 Taxman 130] (Guj); iii. Cheminvest Ltd., Vs. CIT (2015) [378 ITR 33] (Del)

Their lordships hold that Section 14A read with Rule 8D applies only in relation to an assessee’s exempt income and not otherwise. It is an admitted fact that the assessee has not derived any exempt income in the relevant previous year. We therefore sustain the order of CIT(A) under challenge. The Revenue’s instant former three substantive grounds fail therefore.

4.

Next comes the Revenue’s latter substantive grievance that the Assessing Officer had rightly disallowed the assessee’s “corporate social responsibility” (CSR) expenditure to the tune of Rs.1,91,70,559/- in light of Section 37, Explanation-II, the CIT(A)’s detailed discussion deleting the same reads as under: “5.The Ground Nos.2 is with regard to disallowance of an amount of Rs.1,91,70,559/- being Corporate Social Responsibility Expenses u/s.37. 5.1 With regard to above grounds, during the course of assessment proceedings, the Assessing Officer observed as under:

On verification of the Profit and Loss account filed by the assessee company along with the return of income, it is observed that the assessee company had claimed "Corporate Social Responsibility(CSR) Expenditure" to the tune of Rs.1,91,70,559/- under the head 'Other expenses' besides various other items of expenditure. The said expenditure is not allowable as per the provisions of Explanation -2 of sec.37 of the I.T.act. It is pertinent to mention here that the said provisions are declaratory in nature. In this regard, reliance may be made to the decision of Hon'ble Apex Court in the case of Mithilesh Kumari & Anr. Vs. Prem Behari Khare(SC) 177 ITR 97, wherein, it is held that when an act is declaratory in nature, the presumption against its retrospectivity is not applicable. Further, reliance may be drawn in the cases of Laxmi Industries Ltd. Co. & Ors vs. ITO 7 Anr. (Raj) 231 ITR 514 wherein it is held that an explanation brought in the statute book is ordinarily clarificatory in nature and has retrospective effect and (ii) CIT vs. Glenmark Pharmaceuticals Ltd. (Bam) 324 ITR 199 wherein it is held that amendment to remove ambiguity has retrospective effect. In view of the above, the CSR expenditure of Rs. 1,91,70,559/-claimed by the assessee company is not an allowable expenditure for deduction as per the provisions, of explanation-2 of sec.37 of the Act. Hence, the same is disallowed and added to the total income. 5.2 During the course of appeal proceedings, with regard to above grounds, the appellant's AR stated that, the appellant company incurred an amount of Rs.1,91,70,559/- on schemes like Skill Development and Education of Economically Backward Children, Renovation of some Schools, Supply of Aides and Appliances to persons with disabilities, Water Purification Programmes for the colonies around the factory, Social Responsibility Awareness Programmes, Supply of Subsidized Food to Contract. All these expenses incurred in the course of carrying on the business mainly were as a measure of welfare of the employees of the appellant company. For the sake of convenience, this expenditure was grouped under "Corporate Social Responsibility A/c". The details of all these expenses were submitted to the Assessing Officer. It was explained that the appellant company is greatly benefited because of these programmes and therefore, it is an expenditure incurred in the course of carrying on the business by the appellant company. However, the Assessing Officer citing the Explanation to Section 37(1), brought into the Statute Book with effect from 01-04-2015, has disallowed the whole of the expenditure of Rs.1,91,70,559/-· 5.3 I have carefully considered the assessment order and facts of the case. From the assessment order, it was observed that the Assessing Officer has not allowed the CSR expenditure by applying the provisions of section 37(2) of the I.T.Act, which is not correct, since not applicable for this assessment year. In this regard, during the course of appeal proceedings, the appellant company submitted the evidences to justify that the expenditure incurred under the head CSR is eligible for deduction. Since these are not verified by the Assessing Officer, the same are being forwarded to the Assessing Officer for his verification and after verification, the Assessing Officer is directed to allow accordingly.

8.

In the result, the appeal is partly allowed”.

5.

Suffice to say, it is come on record that the foregoing statutory explanations carries prospective effect from 01-04- 2015, whereas we are in AY.2014-15. Learned departmental representative at this stage filed a list of assessee’s corresponding CSR expenditure summary involving 18 items; totalling to Rs.1,91,70,559/- that the same is in the nature of capital expenditure than Revenue and therefore liable to be declined. We find no substance in the Revenue’s latter substantive grievance as well. This tribunal’s Special Bench decision in Mahindra and Mahindra Ltd., Vs. DCIT (2010) 122 ITD 216 (Mum) holds that the Revenue could not be allowed to improve its case other than those findings recorded in the assessment order. Coupled with this, we fail to understand as to in what manner any of the said items could be held as in falling under the capital head. We thus reject the Revenue’s instant second substantive grievance as well.

6.

This Revenue’s appeal is dismissed.

Order pronounced in the open court on 17th August, 2021

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