ODISHA INDUSTRIAL INFRASTRUCTURE DEVELOPMENT CORPORATION(IDCO),BHUBANESWAR vs. DY COMMISSIONER OF INCOME TAX, CIRCLE-4(1), BHUBANESWAR, BHUBANESWAR

On perusal of the appeal record, we found that the appeal of the assessee has been filed belatedly by 409 days. In this regard, the assessee has filed condonation application along with affidavit stating sufficient reasons for delay in filing the present appeal. The contents of the affidavit filed by the assessee are as under :-

On the other hand, ld. CIT-DR vehemently opposed the condonation of delay in filing the appeal by the assessee and submitted that the assessee itself received the order and since it is a Government Organization having sufficient staff and merely stating that there no professional consultant is available for filing the appeal, is not a reasonable cause and could not be accepted. Therefore, the delay should not be condoned.

After considering the arguments of both the sides and looking to the fact that the assessee is a Government Organization, which depends upon professionals for technical work like filing of appeal etc., we find sufficient and reasonable cause given for delay in filing the appeal. Accordingly, delay in filing the present appeal is hereby condoned and the appeal is heard finally.

The assessee has raised following grounds of appeal :-

Ground No.1 is general in nature and needs no adjudication.

In regard to ground No.2, ld. AR submitted that assessee had claimed total expenditure of Rs.10,09,00,041/- under the head CSR Expenses out of which Rs.2,82,98,849/- towards the construction of roads was allowed and remaining amount of Rs.7,26,01,192/- was disallowed for the reason that assessee has failed to submit reasonable explanation for the same. Ld. AR further submitted that during the course of appellate proceedings the assessee has submitted the nature of expenses incurred. Though the ld. CIT(A) had not doubted the genuineness of the expenses incurred, however, by invoking the provisions of Explanation 2 to Section 37(1) has confirmed the disallowance by treating the assessee corporation as a company registered under the Companies Act in whose case the CSR expenses are not allowable u/s.37(1) of the Act. Ld. AR submitted that assessee is a corporation and incorporated as trust by the State Government and filing its return under the status of AOP and since it is not a company registered under the Companies Act, therefore, the provisions of Explanation 2 to Section 37(1) are not applicable to it.

With regard to the disallowance made u/s.40(a)(ia) of the Act, it was submitted that the assessee though had not deducted the TDS on the payments made to various parties, however, the recipients have already included the said amounts in their respective returns and paid the taxes thereon, therefore, no disallowance should be made in the hands of the assessee. However, as the assessee has not been able to furnish the necessary details with respect to the CSR expenses disallowed by the AO and also the necessary certificates of the recipients to whom payments were made without TDS could not be furnished before the lower authorities, therefore, in the interest of justice, it was prayed by ld. AR that both the issues may be sent back to the AO so that the assessee could be able to file the necessary details in this regard.

On the contrary, ld. CIIT-DR submitted that the assessee has incurred the CSR expenses on the directives of the State Government and those expenses are not pertaining to its business activity, therefore, are not allowable as revenue expenses u/s.37(1) of the Act. For this, ld. CIT-DR also placed reliance on various judicial pronouncements on the issue of allowability of these expenses u/s.37(1) of the Act. He, however, fairly admit that the ld. CIT(A) has wrongly applied Explanation 2 to Section 37(1) of the Act. With regard to other issue of disallowance u/s.40(a)(ia) of the Act, ld. CIT-DR vehemently supported the orders of the lower authorities and requested for confirmation of the disallowance so made.

We have heard the rival submissions and perused the material available on record. From the order of the ld. CIT(A), it is seen that the ld. CIT(A) has not considered the issue of disallowance of CSR expenses on merits nor any details were furnished by the assessee either before the AO or before the ld. CIT(A) and the ld. CIT(A) has simply confirmed the order of ld. AO by invoking the provisions of Explanation 2 to Section 37(1) of the Act. Admittedly, the assessee is a corporation established by the state government as trust and not registered under the Companies Act, therefore, Explanation 2 to Section 37(1) of the Act is not applicable to it. Accordingly, we set aside the order of the ld. CIT(A) and held that the Explanation 2 to Section 37(1) of the Act is not at all applicable in the case of the assessee corporation. It is further seen that no details were filed with respect to the expenses of Rs.7,26,01,192/- claimed under the head CSR expenses before the lower authorities, therefore, in the interest of justice, we set aside this issue to the file of AO for examination afresh. Needless to say the assessee shall be allowed sufficient opportunities of being heard.

With regard to the other issues of disallowance u/s.40(a)(ia) of the Act, it is an admitted position that no TDS was made before making the payments to these parties, however, it was the submission of the assessee that due taxes were paid by the recipients and necessary certificates would be submitted if one more opportunity is provided.