M/S. HOUSING & URBAN DEVELOPMENT CORPORATION LTD.,NEW DELHI vs. DCIT, NEW DELHI

At the very outset, the ld. counsel for the assessee vehemently contended that the issue pertaining to Corporate Social Responsibilities is squarely covered in favour of the assessee and against the Revenue by the decision of this Tribunal in assessee’s own case for A.Y 2011-12 decided on 04.11.2024.

“25.1. We have heard the rival submissions and perused the material available on record. During the year under consideration, the assessee company had debited in its profit and loss account a sum of Rs.

ITA No. 3305 & 3704/DEL/2017 [A.Y. 2012-13] & 2063/DEL/2018 [A.Y. 2014-15] & 6829/DEL/2018 [A.Y. 2015-16] M/s Housing & Urban Dev. Corpn Ltd Vs.The Dy. C.I.T Circle – 11(2) 4,98,75,665/- under the head CSR, details of which were called for and provided by the assessee company. The assessee explained as under:-

"The Mission of HUDCO's Corporate Social Responsibility is to Promote, facilitate and, support inclusive human settlement development with focus on sustainability and marginalized communities. The focus is on two distinct thrust areas viz, sustainability and/or issues related to marginalized community. Disaster rehabilitation is of the components of the HUDCO CSR Policy. The intention is to identify and associates with projects/ interventions that would help to achieve environmental sustainability or help improving the conditions of the weaker sections of the community in urban society. HUDCO sets apart 3% of its annual net profit for CSR activities.

On 6th August, 2010, Ladakh was struck by a cloud burst that washed away houses across Ladakh region and resulted in the loss of 191 civilians and 26 army personnel. HUDCO officials alongwith representatives of Hindustan Prefab Limited (HPL) and Building Material and Technology Promotion Council (BMPTC) visited the affected areas to assess the damage and to provide housing solutions to the families left homeless by the calamity.

HUDCO decided to make available Rs.4,98,75,665/- from its Corporate Social Responsibility Fund for construction of 133 houses in Solar, Leh. The construction of 133 houses in the Page 4 of 27

ITA No. 3305 & 3704/DEL/2017 [A.Y. 2012-13] & 2063/DEL/2018 [A.Y. 2014-15] & 6829/DEL/2018 [A.Y. 2015-16] M/s Housing & Urban Dev. Corpn Ltd Vs.The Dy. C.I.T Circle – 11(2) Solar Colony at Leh for rehabilitation of cloud burst affected households was entirely funded by HUDCO at a cost of Rs.4,98,75,665/- under the CSR policy"

25.2. The ld AO observed that assessee's business is only to provide finance for development of housing and infrastructure project and to earn interest income thereon and not to disburse finance free of cost/ house free of cost. Accordingly, he held that the said expenditure cannot be construed as having being incurred wholly and exclusively for the purpose of business of the assessee and proceeded to disallow the entire CSR expenditure in the assessment. It is pertinent to note that CSR is mandated by regulatory agency, Department of Public Enterprises. Hence, an expenditure which is incurred as per the mandate of the regulatory authority by a particular assessee cannot be construed as not incurred wholly and exclusively for the purpose of the business. The assessee has sought to follow the dictates of regulatory authority mandating the assessee to incur certain expenses on account of CSR for a particular purpose. What is required to be seen here is whether that expenditure incurred by the assessee result in overall welfare of the society at large. It is pertinent to note that the assessment year involved herein is AY 2011-12. We are conscious of the fact that Explanation 2 to section 37(1) of the Act specifically prohibits allowability of deduction of expenditure incurred by an assessee on the activity relating to CSR referred to section 135 of the Companies Act, 2013. But we find that this Explanation 2 was introduced by Finance (No.2 ) Act, 2014 w.e.f. 01.04.2015 and hence Page 5 of 27

ITA No. 3305 & 3704/DEL/2017 [A.Y. 2012-13] & 2063/DEL/2018 [A.Y. 2014-15] & 6829/DEL/2018 [A.Y. 2015-16] M/s Housing & Urban Dev. Corpn Ltd Vs.The Dy. C.I.T Circle – 11(2) cannot be made applicable for the year under consideration. Hence, the allowability of the expenditure should be determined based on the fact whether it had resulted in overall welfare / benefit of the society at large. Reliance in this regard is placed on the decision of Hon'ble Madras High Court in the case of CIT Vs. Madras Refineries reported 266 ITR 170 (Mad) wherein, it was held that even a remote nexus to a business of the assessee is allowable revenue expenditure. The relevant observation is reproduced herein below:-

"5. The concept of business is not static. It has evolved over a period of time to include within its 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 the 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 some extent a polluting industry."

ITA No. 3305 & 3704/DEL/2017 [A.Y. 2012-13] & 2063/DEL/2018 [A.Y. 2014-15] & 6829/DEL/2018 [A.Y. 2015-16] M/s Housing & Urban Dev. Corpn Ltd Vs.The Dy. C.I.T Circle – 11(2) 25.3. Further, we find that the Hon'ble Karnataka High Court in the case of Kanhaiyalal Dudheriya Vs. JCIT reported in 418 ITR 410 (Kar) had taken a similar view qua the issue in dispute before us. The relevant operative portion of the said order is reproduced herein below:-

"29. In the facts on hand, it requires to be noticed that assessee is carrying of business of iron ore and also trading in iron ore. Thus, day in and day out the assessee would be approaching the appropriate Government and its authorities for grant of permits, licenses and as such the assessee in its wisdom and as prudent business decision has entered into MOU with the Government of Karnataka and incurred the expenditure towards construction of houses for the needy persons, not only as a social responsibility but also keeping in mind the goodwill and benefit it would yield in the long run in earning profit which is the ultimate object of conducting business and as such, expenditure incurred by the assessee would be in the realm of "business expenditure". Hence, the orders passed by the authorities would not stand the test of law and is liable to be set aside.

ITA No. 3305 & 3704/DEL/2017 [A.Y. 2012-13] & 2063/DEL/2018 [A.Y. 2014-15] & 6829/DEL/2018 [A.Y. 2015-16] M/s Housing & Urban Dev. Corpn Ltd Vs.The Dy. C.I.T Circle – 11(2) expenditure so incurred is relatable to the work undertaken by the assessee namely, only on nexus being established, assessing officer would be required to allow such expenditure under Section 37(1) of the Act and not otherwise."

The issue in dispute is clearly covered by the decision of the Hon'ble Jurisdictional High Court in case of PCIT Vs. PEC Ltd reported in 451 ITR 136 (Delhi) wherein, it was held that amendment by way of Explanation 2 to section 37(1) of the Act w.e.f. 01.04.2015 was prospective in nature and thus CSR expenditure incurred prior 01.04.2015 was to be allowed.

25.5. In view of the aforesaid observations, the ground No. 1 raised by the assessee is allowed.”

Respectfully following the same, we allow Ground No. 1.

ITA No. 3305 & 3704/DEL/2017 [A.Y. 2012-13] & 2063/DEL/2018 [A.Y. 2014-15] & 6829/DEL/2018 [A.Y. 2015-16] M/s Housing & Urban Dev. Corpn Ltd Vs.The Dy. C.I.T Circle – 11(2) 10. We have heard the rival submissions and have perused the relevant material on record. We find force in the contentions of the ld. counsel for the assessee. An identical issue came up before the co-ordinate bench in assessee’s own case in for A.Y 2010-11 and others.

Vide order dated 04.11.2024, the co-ordinate bench has held as under:

“3.1. We have heard the rival submissions and perused the material available on record. The return of income for AY 2010-11 was filed by the assessee company on 28.09.2010 declaring total income of Rs. 789,09,90,414/-. The assessee company is engaged in the business of providing finance for development of housing and infrastructure projects. During the course of assessment proceedings, the assessee claimed expenditure pertaining to earlier years amounting to Rs. 3 lakhs as deduction. The assessee was asked to explain why those expenditure of Rs. 3 lakhs not pertaining to the year under consideration be not disallowed in the assessment. In response, the assessee submitted that the entire expenditure have been crystallized during the year under consideration; that the assessee is a massive organization and located in multiple locations and that the exercise of collation of data does not get completed before the time of finalization of annual accounts. Hence, there would be always certain delays in receiving the data from multiple locations and the same would be received by the head office only after the completion of audited financial statements. Accordingly, the details which were received after the completion of audit were booked as prior period expenditure Page 9 of 27

ITA No. 3305 & 3704/DEL/2017 [A.Y. 2012-13] & 2063/DEL/2018 [A.Y. 2014-15] & 6829/DEL/2018 [A.Y. 2015-16] M/s Housing & Urban Dev. Corpn Ltd Vs.The Dy. C.I.T Circle – 11(2) and also where the expenditure stood crystallized during the year under consideration, even though the assessee pertains to earlier years were also booked under prior period expenditure. As per the mandate of Companies Act to show prior period items separately in the financial statements, this sum of Rs. 3 lakhs was reflected by the assessee separately in the profit and loss account. The assessee gave the details of the said expenditure before the ld AO as under:- Rs.(in ‘000) Office Rent Rs. 149; Water and Electricity Rs. 16; Interest in investment Rs. 130; Other expenditure Rs. 5; Total Rs. 300.

3.2. The ld AO however did not heed to the contentions of the assessee and proceeded to disallow this sum of Rs. 3 lakhs as expenditure not pertaining to the year under consideration. This action of the ld AO was upheld by the ld CIT(A).

3.3. The ld AR before us fairly submitted that let the details given by the assessee be examined by the ld AO as no finding whatsoever has been given by the ld AO with regard to each of such expenditure. It was always the case of the assessee that this expenditure get crystallized during the year or the details of the incurrence of the said expenditure were received after the completion of the audit of the earlier years. Both these categories of the expenditure were booked by the assessee as prior period expenditure. We find that the genuineness of the said expenditure is not doubted by the lower authorities. The prayer made by the ld AR before us is very fair and Page 10 of 27

ITA No. 3305 & 3704/DEL/2017 [A.Y. 2012-13] & 2063/DEL/2018 [A.Y. 2014-15] & 6829/DEL/2018 [A.Y. 2015-16] M/s Housing & Urban Dev. Corpn Ltd Vs.The Dy. C.I.T Circle – 11(2) hence we deem it fit and appropriate to restore this issue to the file of the ld AO for verification of the fact as to whether the assessee had not claimed the very same expenditure in earlier years. Once it is proved that the said expenditure is not claimed as deduction in earlier years, then the same would be squarely allowable as deduction during the year under consideration. With these directions, the Ground No. 1 raised by the assessee is allowed for statistical purposes.”

Respectfully following the same, we restore the issue to the AO with directions as above, and allow this ground No. 2 for statistical purposes.

ITA No. 3305 & 3704/DEL/2017 [A.Y. 2012-13] & 2063/DEL/2018 [A.Y. 2014-15] & 6829/DEL/2018 [A.Y. 2015-16] M/s Housing & Urban Dev. Corpn Ltd Vs.The Dy. C.I.T Circle – 11(2) coordinate bench of Delhi ITAT vide its order dated 25.04.2025.

Respectfully following the same, we dismiss Ground No. 3.

ITA No. 3305 & 3704/DEL/2017 [A.Y. 2012-13] & 2063/DEL/2018 [A.Y. 2014-15] & 6829/DEL/2018 [A.Y. 2015-16] M/s Housing & Urban Dev. Corpn Ltd Vs.The Dy. C.I.T Circle – 11(2) against accrual basis. At the very outset, the ld. counsel for the assessee submitted that this issue is covered in favour of the assessee by the judgment of the Hon'ble High Court of Delhi in assessee’s own case for A.Y 2007-08 reported in 421 ITR 599 and the order of the Tribunal in ITA No.

3261/DEL/2015 [supra].

[A.Y. 2012-13] [Revenue’s appeal]

ITA No. 3305 & 3704/DEL/2017 [A.Y. 2012-13] & 2063/DEL/2018 [A.Y. 2014-15] & 6829/DEL/2018 [A.Y. 2015-16] M/s Housing & Urban Dev. Corpn Ltd Vs.The Dy. C.I.T Circle – 11(2) 17. Ground No. 1 pertains to action of the ld. CIT(A) in holding that ‘marked to market’ loss on account of reinstatement of assets and liabilities as an allowable deduction by ignoring that the loss is on notional basis and is continent in nature. Facts, in brief are that the Assessing Officer disallowed the expenditure booked as foreign exchange fluctuation expenses amounting to Rs. 40,28,39,290/- on the ground that these are notional losses. The ld. CIT(A), following the decision of the hon’ble Supreme Court in the case of Woodward Governor India P Ltd 312 ITR 254 (SC), allowed the loss as expense.

The ld. CIT(A) observed that from the ledger, it can be seen that provisional losses booked for the three quarters is reversed post finalization and only the actual expenses are reflected in the final balance of the ledger. We are of the considered view that the allowability of foreign exchange fluctuation loss on the basis of rate as on the balance sheet date has been Page 14 of 27

ITA No. 3305 & 3704/DEL/2017 [A.Y. 2012-13] & 2063/DEL/2018 [A.Y. 2014-15] & 6829/DEL/2018 [A.Y. 2015-16] M/s Housing & Urban Dev. Corpn Ltd Vs.The Dy. C.I.T Circle – 11(2) settled in favour of the assessee by the hon’ble Supreme Court in the case of Woodward Governor India P Ltd (supra). After considering the facts and submissions, we are in agreement with the conclusion arrived at by the ld. CIT(A). We, therefore, decline to interfere. Ground No. 1 is dismissed.

ITA No. 3305 & 3704/DEL/2017 [A.Y. 2012-13] & 2063/DEL/2018 [A.Y. 2014-15] & 6829/DEL/2018 [A.Y. 2015-16] M/s Housing & Urban Dev. Corpn Ltd Vs.The Dy. C.I.T Circle – 11(2) 23. The ground no. 4 raised is in respect of disallowance under section 14A of the Act. The Id AO invoking Rule 8D of the IT Rules computed the disallowance of Rs. 53,80,730/- against the exempt income of Rs. 1,72,000/-. The Ld. CIT(A) upheld the disallowance made by the ld AO. Before us the ld AR submitted that the issue may be decided in view of the findings of the Hon'ble Jurisdictional High Court in the case of Joint Investments Pvt. Ltd Vs CIT in ITA No. 117/2015 wherein the Hon'ble Court has held that the portion of expenditure disallowed cannot swallow the entire tax exempt income. Alternatively, the learned AR pleaded that the assessee invested its own funds in investments earning exempted income and thus question of interest disallowance corresponding to borrowed capital did not arise in the case of the assessee. Further, the relying on the judgement of Hon'ble Bombay High Court in the case Godrej Agrovet in ITA No. 934 of 2011 and other decisions of the Tribunal, the ld AR submitted that the disallowance if at all is to be made under section 14A of the Act, then same may be restricted to 2percent. of the exempted income. The Ld CIT DR on the other hand relied on the orders of the lower authorities. We have heard the rival submissions and perused the material on record. We are of considered opinion that the application of Rule 8D of the IT Rules from AY 2008-09 has been upheld by the Hon'ble jurisdictional High Court in the case of Maxopp Investment Ltd. (supra) subject to recording of dissatisfaction by the AO regarding correctness of the claim of the assessee. Further, in the judgment in the case of Joint Investment Pvt. Ltd. Vs. CIT (supra), the Hon'ble jurisdictional High Court has held as under:

"9. In the present case, the AO has not firstly disclosed why the appellant/assessee's claim for attributing Rs. 2,97,440/- as a disallowance under Section 14A had to be rejected. Taikisha says that the jurisdiction to proceed further and determine amounts is derived after examination of the accounts and rejection if any of the assessee's claim or explanation. The second aspect is there appears to have been no scrutiny of the accounts by the AO - an aspect which is completely unnoticed by the CIT (A) and the ITAT. The third, and in Page 16 of 27

ITA No. 3305 & 3704/DEL/2017 [A.Y. 2012-13] & 2063/DEL/2018 [A.Y. 2014-15] & 6829/DEL/2018 [A.Y. 2015-16] M/s Housing & Urban Dev. Corpn Ltd Vs.The Dy. C.I.T Circle – 11(2) the opinion of this court, important anomaly which we cannot be unmindful is that whereas the entire tax exempt income is Rs. 48,90,000/-, the disallowance ultimately directed works out to nearly 110% of that sum, i.e., Rs. 52,56,197/-, By no stretch of imagination can Section 14A or Rule 8D be interpreted so as to mean that the entire tax exempt income is to be disallowed. The window for disallowance is indicated in Section 14A, and is only to the extent of disallowing expenditure "incurred by the assessee in relation to the tax exempt income". This proportion or portion of the tax exempt income surely cannot swallow the entire amount as has happened in this case.

23.1 The ratio of above judgment is squarely applicable to the facts of the case in hand and thus respectfully following the judgment in the case of Joint Investment Pvt. Ltd. (supra), we restrict the disallowance upto the exempt income earned. The ground of the appeal is partly allowed.

24. Accordingly, the appeal is partly allowed for statistical purposes.

We find that in the instant year, the assessee has earned exempt 22. income of Rs.27.36 lakh. The assessee contested the addition u/s 14A stating that the investment are old and made out of surplus own funds and not borrowed funds. The assessee, however further stated that even if addition is made under Rule 8D, it should be restricted to Rs 26,65,455/-.

ITA No. 3305 & 3704/DEL/2017 [A.Y. 2012-13] & 2063/DEL/2018 [A.Y. 2014-15] & 6829/DEL/2018 [A.Y. 2015-16] M/s Housing & Urban Dev. Corpn Ltd Vs.The Dy. C.I.T Circle – 11(2) The CIT(A), following the ITAT decision in assessee’s own case for AY 2005- 06 and AY 2008-09 restricted the addition to Rs 26,65,455/-. Respectfully following the decision of coordinate bench of ITAT in ITA no 3365/Del/2013 for AY 2008-09, we find no reason to interfere with the decision of the CIT(A). Ground No. 2 is dismissed.

[A.Y. 2014-15] [Assessee’s appeal]

13. Respectfully following the same, Ground No. 2 is dismissed.

ITA No. 3305 & 3704/DEL/2017 [A.Y. 2012-13] & 2063/DEL/2018 [A.Y. 2014-15] & 6829/DEL/2018 [A.Y. 2015-16] M/s Housing & Urban Dev. Corpn Ltd Vs.The Dy. C.I.T Circle – 11(2) 26. Ground No. 3 regarding addition of Rs. 1,50,71,817/- being disallowance u/s 14A of the Act. The assessee had claimed Rs 1,97,70,000/- as exempt income. The issue of disallowance u/s 14A has been discussed and decided by us while deciding Ground No. 2 of Revenue’s appeal for A.Y 2012-13. Respectfully following the same, we are not inclined to interfere with the decision of CIT(A). Ground No. 3 is dismissed.

ITA No. 3305 & 3704/DEL/2017 [A.Y. 2012-13] & 2063/DEL/2018 [A.Y. 2014-15] & 6829/DEL/2018 [A.Y. 2015-16] M/s Housing & Urban Dev. Corpn Ltd Vs.The Dy. C.I.T Circle – 11(2) Officer relying upon the judgment of the Hon'ble Supreme Court in the case of Sawhnay Steel and Press Works Ltd 228 ITR 253 and in the case of Ponni Sugar and Chemical Limited 306 ITR 392, held the premium as revenue in and nature and added back the same to the income of the assessee. Upon appeal by the assessee, the ld. CIT(A) upheld the addition made by the Assessing Officer. Now the Assessee is in appeal before us.

ITA No. 3305 & 3704/DEL/2017 [A.Y. 2012-13] & 2063/DEL/2018 [A.Y. 2014-15] & 6829/DEL/2018 [A.Y. 2015-16] M/s Housing & Urban Dev. Corpn Ltd Vs.The Dy. C.I.T Circle – 11(2)

30. Ground No. 6 pertains to incremental Special Reserve u/s 36(1)(viia)(c) and 36(1)(viii) of the Act. We find that the CIT(A), following the ITAT decision in assessee’s own case for the year 2009-10 in ITA 3366/Del/2013, remitted the matter to the AO for allow the enhanced deduction in accordance with law. Respectfully following the coordinate bench of ITAT, we restore the issue of deduction u/s 36(1)(viia)(c) to the file of AO for fresh adjudication in line with decision of ITAT. Ground no 6 is allowed for statistical purposes.

[A.Y. 2014-15] Revenue’s appeal

ITA No. 3305 & 3704/DEL/2017 [A.Y. 2012-13] & 2063/DEL/2018 [A.Y. 2014-15] & 6829/DEL/2018 [A.Y. 2015-16] M/s Housing & Urban Dev. Corpn Ltd Vs.The Dy. C.I.T Circle – 11(2) the issue pertaining to Prior period expenses is squarely covered in favour of the assessee and against the Revenue by the decision of this Tribunal in assessee’s own case for A.Y 2010-11 and others decided on 04.11.2024.

ITA No. 3305 & 3704/DEL/2017 [A.Y. 2012-13] & 2063/DEL/2018 [A.Y. 2014-15] & 6829/DEL/2018 [A.Y. 2015-16] M/s Housing & Urban Dev. Corpn Ltd Vs.The Dy. C.I.T Circle – 11(2) facilities and both are directly related to the specified business of the assessee and fulfilling the assessee’s objective of providing long term finance for industrial or agriculture, development of infrastructure facility in India and development of housing in India. Accordingly, the ld. CIT(A) allowed the appeal of the assessee. Aggrieved, the Revenue is before us.

We are of the considered view that that assessee objective being providing long term finance for industrial or agriculture development, development of infrastructure facility in India and development of housing in India, there becomes the nexus of 1st degree between the income earned as interest on FDRs and Bonds and the assesee’s business of providing finance for infrastructure development. We are therefore not inclined to interfere with the decision of CIT(A). Ground no 3 and 4 are dismissed.

[A.Y. 2015-16] Assessee’s appeal

ITA No. 3305 & 3704/DEL/2017 [A.Y. 2012-13] & 2063/DEL/2018 [A.Y. 2014-15] & 6829/DEL/2018 [A.Y. 2015-16] M/s Housing & Urban Dev. Corpn Ltd Vs.The Dy. C.I.T Circle – 11(2)

Respectfully following the same, Ground No. 2 is restored to the Assessing Officer. Ground No. 2 is allowed for statistical purpose.

ITA No. 3305 & 3704/DEL/2017 [A.Y. 2012-13] & 2063/DEL/2018 [A.Y. 2014-15] & 6829/DEL/2018 [A.Y. 2015-16] M/s Housing & Urban Dev. Corpn Ltd Vs.The Dy. C.I.T Circle – 11(2) 40. As a result, the appeal of the assessee is partly allowed for statistical purposes.

[A.Y. 2015-16] Revenue’s appeal

Respectfully following the same, Ground No. 2 is dismissed.

for statistical purposes.

ITA No. 3305 & 3704/DEL/2017 [A.Y. 2012-13] & 2063/DEL/2018 [A.Y. 2014-15] & 6829/DEL/2018 [A.Y. 2015-16] M/s Housing & Urban Dev. Corpn Ltd Vs.The Dy. C.I.T Circle – 11(2) (ii) Appeal of the Assessee in 1954/DEL/2018 is partly allowed for statistical purposes.

(iii) Appeal of the Assessee in partly allowed for statistical purposes. (iv) Appeal of the Revenue in is dismissed. (v) Appeal of the Revenue in is partly allowed for statistical purposes. (vi) Appeal of the Revenue in is partly allowed for statistical purposes. The order is pronounced in the open court on 31.07.2025.