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Facts
The assessee, a listed company, paid management fees to a group company, Anand Automotive Private Limited (AAPL). The Assessing Officer (AO) disallowed 20% of these fees. Subsequently, the assessee also incurred Corporate Social Responsibility (CSR) expenses, which were disallowed by the AO, but the assessee claimed deduction under Section 80G of the Act.
Held
The Tribunal held that the disallowance of management fees was made on an ad-hoc basis without questioning the books of account and was therefore not sustainable. Regarding CSR expenses, the Tribunal noted that there is no restriction in the Act preventing deduction under Section 80G if the donee institutions are registered, even if the expenses were disallowed under Section 37(1).
Key Issues
Whether the disallowance of management fees paid to a group company is justified, and whether deduction under Section 80G can be claimed for CSR expenses.
Sections Cited
40A(2)(a), 37(1), 80G
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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY, HON’BLE & SHRI NARENDRA KUMAR BILLAIYA, HON’BLE
O R D E R PER NARENDRA KUMAR BILLAIYA, AM: 1709 & 1710/PUN/2024 are three separate appeals preferred by the revenue against three separate orders of the ld. CIT(A)-53 [hereinafter ‘the ld. CIT(A)’], pertaining to AYs 2018-19, 2019-20 & 2020-21.
The common grievance in AY 2018-19, 2019-20 and 2020-21 relate to the deletion of disallowance of management fees u/s 40A(2)(a) of the Act.
Briefly stated the facts of the case are that the assessee is a listed company engaged in the business of manufacturing of ride control products and components thereof. Its flagship company is Anand Group which has more than 19 companies in auto component manufacturing. Anand Automotive Private Limited (AAPL) is engaged in business of providing management and corporate services to group I.T.A. No. 1708, 1709 & 1710/PUN/2024 Assessment Years: 2018-19, 2019-20 & 2020-21 2 companies including the assessee. While scrutinising the return of income the AO noticed that the assessee has made payment of management fee to AAPL. The AO disallowed 20% of the management fee of Rs.5.46 Crores and made the impugned disallowance. 3.1. The assessee challenged the addition before the ld. CIT(A) who followed his own order for AY 2017-18 which was challenged before the Tribunal and the Coordinate Bench in has deleted the disallowance. The relevant findings of the Coordinate Bench read as under:- “5. Bare perusal of the findings returned by the Id CIT(A) goes to prove that the impugned order has been passed by thrashing the facts by relying upon the order passed by the coordinate bench in a group case of the assessee company. The AO has made the addition merely on ad hoc basis without questioning the books of account, who has accounted the entire receipts in its books and offered the same to tax. Moreover all the services have been rendered by AAPL to the assessee company as per corporate services agreement that "all services of AAPL have been allowed at 1.5% of sales of the assessee".
The assessee brought on record the fact that AAPL has agreed to provide use of trade mark and various other corporate/ management services which include wide ranging provisions for giving of all marketing, industrial, manufacturing, commercial and scientific knowledge, experience and skill for the efficient working and management of the company in which it has charges a consolidated bundled fees @1.5% of sales for the use of trademark and all other services referred to above.
The assessee has brought on record the entire details of management services rendered by AAPL group company, along with copies of invoices raised and also ledger account of management fee in books of account, which has been duly examined. The assessee company has also brought on record detailed quantification of services rendered by group company, but the AO without questioning the same on merit merely proceeded to made the addition on ad hoc basis by way of estimation and guess work which is not sustainable in the eyes of law.
8. The Id DR for the revenue has failed to dispute the legal proposition mooted out by the coordinate bench of Tribunal in case of Spicer India pvt. Ltd (supra) wherein, identical services were also taken from AAPL @2.85% of sales of the assessee. Moreover, expenditure has to be examined with the businessman's stand point and revenue authority cannot sit in the chair of the businessman to decide as to availing of any services to run its business.
The Id CIT(A) has passed the order by following the decision rendered by the coordinate bench of Tribunal in case of Spicer India Pvt Ltd (supra) a group company of the appellant wherein identical issue has been decided. , 1709 & 1710/PUN/2024 Assessment Years: 2018-19, 2019-20 & 2020-21 3
So in view of the matter we find no illegality or perversity in the impugned order passed by the Id CIT(A), hence, the appeal filed by the revenue is dismissed.” 4. Finding parity of facts, respectfully following the decision of the Coordinate Bench, we decline to interfere with the findings of the ld. CIT(A). Accordingly, & 1709/PUN/2024, are dismissed. 5. Coming to 40A(2)(a) of the Act, there is another deletion of disallowance of Rs.1,62,20,000/- on account of Corporate Social Responsibility (CSR). 5.1. While scrutinising the return of income, the AO observed that the assessee has disallowed Rs. 2,59,60,000/- on account of CSR expenses and in turn claimed deduction u/s 80G of the Act @ 50% of such amount. Since the CSR expenses are specifically disallowed under Explanation 2 to Section 37(1) of the Act, the assessee was showcaused as to why tax should not be computed while disallowing the claim of deduction u/s 80G of the Act. 5.1.1. When the disallowance was challenged before the ld. CIT(A), the ld. CIT(A) was of the opinion that this quarrel has been decided by the Tribunal in favour of the assessee in the case of Ericsson India global services (P.) Ltd. vs. DCIT [2024] 160 taxmann.com 599 (Delhi-Trib.) wherein, the Coordinate Bench has held that Section 80 G deduction could not be denied. Similar were the facts before the Mumbai Tribunal in Rustomjee Realty Private Limited ITA No.1585/Mum/2023. 6. Before us, the ld. D/R strongly objected to the decision of the ld. CIT(A) and filed a detailed written submissions contending that deduction u/s 80 G of the Act cannot be allowed on the expenses I.T.A. No. 1708, 1709 & 1710/PUN/2024 Assessment Years: 2018-19, 2019-20 & 2020-21 4 disallowed on account of CSR. The ld. D/R relied upon the decision of the Co-ordinate Bench in the case of Agilent Technologies (International) (P.) Ltd. v. NFAC (2024) 205 ITD 551 (Delhi) (Trib.). The ld. Counsel for the assessee reiterated what has been stated before the lower authorities.
7. After giving a thoughtful consideration to the orders of the authorities below, we are of the considered view that the Coordinate Benches have been consistently taking the stand that 80G deduction cannot be denied. The relevant findings in the case of Ericsson India Global Services (P) Ltd. (supra), read as under:- “7. We have considered rival submissions and perused the material on record. We have also applied our mind to case laws cited before us. Undisputedly, expenditure incurred towards CSR is specifically prohibited from being allowed as deduction towards business expenditure by insertion of Explanation - 2 to Section 37(1) of the Act by Finance Act, 2014 w.e.f 01.04.2015. However, there is no such Ericsson India Global Services Pvt. Ltd. vs. DCIT corresponding amendment to section 80G of the Act. Only condition for claiming deduction under section 80G of the Act as per the existing provision is the institute to which donation is made must have been registered under section 80G of the Act. Once the aforesaid condition is fulfilled, the donor is entitled to avail the deduction. This is also the view expressed by the Co- ordinate Bench in case of Honda Motorcycle and Scooter India Pvt. Ltd. (supra). The relevant observation are as under: "17. Apropos the issue of disallowance u/s 80G of the Income-tax Act, 1961 (for short 'the Act') : The assessee made certain donation to approved institutions or funds and claimed 50% of the total donation made as deduction u/s 80G. This amount also formed part of the CSR initiative of the assessee company which amounts to INR 22,81,29,964/-. It is observed that the assessee has duly disallowed CSR expenditure of INR 22,81,29,964/- debited to the statement of profit and loss under section 37 of the Act. DRP rejected the claim of the assessee by saying that the donation is pursuant to the CSR policy of the company and lacks the test of voluntariness as required under section 80G. The AO has disallowed the claim on the ground that anything donation over and above the CSR u/s 80G will be only allowed as the CSR expense is not an allowable expense u/s 37 of the Act. Ld. Counsel of the assessee placed reliance on the following decisions :- (i) JMS Mining (P.) Ltd. vs. PCIT [2021] 130 taxmann.com 118 (Kolkata - Trib.) , 1709 & 1710/PUN/2024 Assessment Years: 2018-19, 2019-20 & 2020-21 5 (ii) Goldman Sachs Services (P) Ltd. vs. JCIT (2020) (117 taxmann.com 535) {ITAT Bangalore} (iii) First American (India) Pvt. Ltd. (ITA No. 1762/Bang/2019) (iv) Allegis Services (India) Pvt. Ltd. (ITA No. 1693 /Bang/ 2019) Ld. Counsel further submitted that if the intention was to deny deduction of CSR expenses under section 80G, appropriate amendments on lines of section 37(1) should also have been made under section 80G of the Act. In the absence of any such amendment, CSR expenses should not be disallowed under section 80G of the Act.
We have heard both the parties and perused the records. We find that ITAT, Bangalore Bench in the case of Goldman Sachs Services (P.) Ltd. (supra) has held that the other contributions made under section 135 (5) of the Companies Act are also eligible for deduction/s 80G of Ericsson India Global Services Pvt. Ltd. vs. DCIT the Act subject to satisfying the requisite conditions prescribed for deduction u/s 80G of the Act. For this purpose, the issue is remanded to the file of AO to examine the same whether the payments satisfy the claim of donation u/s 80G of the Act. We find that the case law is fully applicable to the facts of the case. There is no restriction in the Act that expenditure when disallowed for CSR cannot be considered u/s 80G of the Act. Hence, we remit the issue to the file of AO to verify whether these payments were qualified as donations u/s 80G of the Act or not, if they qualify as donation u/s 80G of the Act then the requisite amount deserves to be allowed."
8. Before us, it is the specific contention of learned Counsel of the assessee that the institutes to whom the assessee has donated the CRS fund are registered under section 80G of the Act. Keeping in view the submissions of the assessee as well as the ratio laid down in the judicial precedents cited before us, we direct the Assessing Officer to allow assessee's claim of deduction under section 80G of the Act, subject to, factual verification of assessee's claim that the donee institutions are registered under section 80G of the Act and other conditions of section 80G of the Act are fulfilled. Ground is allowed for statistical purposes.”
The facts of the case in hand show that the assessee has submitted the receipts of the donees evidencing the eligibility of deduction u/s 80G of the Act. Therefore, respectfully following the decision of the Co- ordinate Bench, we do not find any reason to interfere with the findings of the ld. CIT(A). The decision relied upon by the ld. D/R is on different reasoning as the Co-ordinate Bench was of the opinion that CSR expenses cannot be allowed u/s 37(1) of the Act, therefore, no deduction is allowed u/s 80G, whereas in the case in hand, assessee has claimed