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Income Tax Appellate Tribunal, D BENCH, MUMBAI
order
: 27.12.2022 O R D E R
Per Rahul Chaudhary, Judicial Member:
The present appeal is directed against Final Assessment Order dated, 27.07.2022, passed under Section 143(3) read with Section 144C(13) read with Section 144B of the Income Tax Act, 1961 [hereinafter referred to as „the Act‟] as per directions issued by CIT (Dispute Resolution Panel-3), Mumbai-2 (hereinafter referred to as „the DRP‟) under Section 144C(5) of the Act pertaining to the Assessment Year 2018-19.
The Appellant has raised following grounds of appeals:
Assessment Year: 2018-19 “General Ground 1. erred in assessing the total income for the captioned AY at Rs. 49,31,60,128 instead of returned income of Rs 49.02.87,550, Failure to follow directions of the Hon'ble Dispute Resolution Panel (DRP) issued under section 144C(5) of the Act 2 erred in not following the directions of the Hon'ble DRP issued under section 144C(5) of the Act which required the id AO to only verify if the donations made by the Appellant satisfied the conditions laid down in section 80G of the Act and if so allow the Appellant's claim for deduction under section 80G. Without prejudice: 3. erred in disallowing the Appellant's claim for deduction under section 80G of the Act amounting to Rs 28,72.578 on the premise that the same are grouped under CSR expenses in the Appellants books of accounts and have not been voluntarily expended by the Appellant 4. erred in not appreciating the fact that the impugned donations fulfill the conditions specified under section 80G of the Act as demonstrated by the Appellant in its submissions.
The relevant facts in brief are that the Appellant (formerly known as Jardine Lloyd Thompson India Pvt. Ltd.) filed return of income declaring total income of INR 49,02,87,550/-. The case of the Appellant was selected for scrutiny. In the Draft Assessment Order, dated 17.09.2021, passed under Section 144C of the Act, the Assessing Officer proposed a disallowance of INR 28,72,578/- under Section 80G of the Act. The Appellant filed objections before the DRP against the proposed disallowance. The DRP vide order, dated 15.06.2022, issued following directions and allowed the objection raised by the Appellant for statistical purposes:
Assessment Year: 2018-19 “6.2.3 In view of the above, the AO is directed to verify if the donations made by the assessee fulfil the conditions laid down u/s 80G. If yes, the deduction claimed by the assessee has to be allowed. This ground of objection is allowed for statistical purposes.”
Final Assessment Order was passed under Section 143(3) read with Section 144C(13) and 144B of the Act on 27.07.2022 after making disallowance of INR 28,72,578/- being entire amount of deduction claimed by the Appellant under Section 80G of the Act.
Being aggrieved, the Appellant has filed the present appeal. The Ld. Authorised Representative for the Appellant appearing before us submitted that the Assessing Officer has disregarded the directions issued by DRP and passed the Final Assessment Order giving the same reasoning as adopted by the Assessing Officer in the Draft Assessment Order which stood rejected by the DRP. Elaborating upon the aforesaid submission, the Ld. Authorised Representative for the Appellant submitted that during the relevant previous year the Appellant had incurred INR 65,96,000/- towards Corporate Social Responsibility (CSR). Out of the aforesaid CSR Expenses, the Appellant had claimed deduction in the return of income for CSR Expenses aggregating to INR 28,72,578/- incurred by way of making donations to Section 80G entities. The Assessing Officer had proposed disallowance of the aforesaid amount in the Draft Assessment Order for the reason that the Assessing Officer was of the view that the aforesaid donations were made under the mandate to spent 2% of average net profit of the preceding three years on CSR activity contained in Section 135 of the Companies Act, 2013, and therefore, lacked the element of charity which was necessary for claiming deduction under Assessment Year: 2018-19 Section 80G of the Act. However, the DRP had granted relief to the Appellant by holding that the Appellant was entitled to claim deduction under Section 80G of the Act in respect of all the donations made by the Appellant except those made to Swach Bharat Kosh and the Clean Ganga Fund provided all the other conditions of Section 80G of the Act are satisfied. The DRP, therefore, directed the Assessing Officer to verify whether the donations made by the Appellant (other than donations to Swach Bharat Kosh and the Clean Ganga Fund) fulfilled the conditions laid down under Section 80G of the Act and allow deduction for the same in case the aforesaid conditions were fulfilled. However, in the Final Assessment Order, the Assessing Officer has again made the disallowance of INR 28,72,578/- holding that the deduction under Section 80G of the Act is available only for donations made on voluntary basis and not for CSR contributions.
Per contra, the Ld. Departmental Representative referred to the Draft Assessment Order and submitted that during the relevant previous year, the Appellant had incurred expenses amounting to INR 65,96,000/- towards CSR which was duly added back in the computation of income. However, the Appellant thereafter claimed deduction under Section 80G of the Act in respect of expenses of INR 28,72,578/- out of aforesaid CSR expenses of INR 65,96,000/-. Since the CSR expenses were made as per requirements of Section 135 of the Companies Act, 2013 the element of charity was missing and therefore, the aforesaid expenses could not have qualified as donation eligible for deduction under Section 80G of the Act. Thus, the Ld. Departmental Representative supported the Final Assessment Order passed by the Assessing Officer. 4
We have heard the rival contention and perused the material on record. It is admitted position that the Appellant had incurred CSR Expenses amounting to INR 65,96,000/- out of which the Appellant has claimed deduction under Section 80G of the Act in respect of payment/donation made to the following entities registered under Section 80G of the Act:
S. No. Name of Entity Donation 80G Deduction Made (INR) Claimed (INR) 1 Udaan India Foundation 43,07,656/- 21,53,828/- 2 Rotary Club of Mumbai 10,00,000/- 5,00,000/- Lakers Charitable Trust 3 United Way Mumbai 4,37,500/- 2,18,750/- Total 54,45,156/- 28,72,578/-
In the Draft Assessment Order, the Assessing Officer had proposed disallowance of the aforesaid amount of INR 28,72,578/- claimed as deduction under Section 80G of the Act. While disposing of the objections of the Appellant against the aforesaid proposed disallowance, the DRP directed as under:
“6.2 Findings: 6.2.1 The assessee has claimed deduction of donation u/s 80G of the Act to the tune of Rs 28,72,578/-, in respect of payments made to Udaan India Foundation (Rs.43,07,656/-). Rotary Club of Mumbai-Lakers Charitable Trust (Rs 10,00,000/-) and United Way Mumbai (Rs.4,37.500/-), which were in the nature of CSR expenses. The AO has observed that the assessee has incurred CSR expenditure of Rs 65,96,000/-, which included the above payments totalling Rs.57,45,156/. The assessee has added back the amount of CSR expenditure to the total income, but has claimed deduction u/s.80G of the Act in respect of the above payments. The AO has held that deduction u/s.80G is not Assessment Year: 2018-19 allowable on payments made by the assessee towards CSR expenditure. 6.2.2 After careful appreciation of the facts, we are of the view that CSR expenses are not allowable u/s.37 of the IT Act in view of the Explanation 2 of that section inserted by the Finance Act, 2014, with effect from 01/04/2015. However, there is no bar for allowance of the same u/s.80G, except for two sub-clauses (iiihk) and (iiihl) of sub-section (2) of Sec.80G, which are reproduced as under: "(iiihk) the Swachh Bharat Kosh, set up by the Central Government, other than the sum spent by the assessee in pursuance of Corporate Social Responsibility under sub- section (5) of section 135 of the Companies Act, 2013 (18 of 2013), or (iiihl) the Clean Ganga Fund, set up by the Central Government, where such assessee is a resident and such sum is other than the sum spent by the assessee in pursuance of Corporate Social Responsibility under sub- section (5) of section 135 of the Companies Act, 2013 (18 of 2013);" Therefore, it is seen that except the donations made to Swach Bharat Kosh and the Clean Ganga Fund as above, the rest of the donations would be eligible for deduction, if all the other conditions of Sec. 80G are fulfilled. Reliance is also placed on the judgement of Hon'ble ITAT, Bangalore, in the case of M/s. Goldman sachs Services vs. JCIT (ITA No. IT(TP)A No.2355/Bang /2019) dated 15/06/2020. The relevant portion of the said judgement is as under: “16. The last ground of appeal argued by the learned Authorized Representative in respect of disallowance of deduction under Section 80G of the Act. In the financial year 2014-15, the assessee has incurred expenditure of Rs.4,72.00.024/- to meet the CSR (Corporate Social Responsibility) as per Policy formulated under Section 135 of the Companies Act, 2013. Out of the said amount, a sum of Rs.2,25,21,500 qualified for deduction under Section 80G of the Act and therefore the assessee claimed of 50% of amount being Rs.1,12,60,750/- as deduction under Section 80G of the Act. The TPO/A.O. has disallowed 6 Assessment Year: 2018-19 substantial portion of donation under Section 80G of the Act on the ground that donations were not in the nature of voluntary contribution as required -under CSR Policy. Further the Assessing Officer has allowed the contribution to PM National Relief Fund under Section 80G of the Act as it was a direct contribution to the Government. No other inferences were raised by the TPO/A.O. in respect of other donations which are equally eligible for deduction under Section 80G of the Act. The learned Authorized Representative submitted that the donations or expenditure has been incurred wholly and exclusively for the purpose of business and eligible for deduction under Section 37 of the Act and alternatively under Section 80G of the IT(TP)A No.2355/Bang/2019 Act. We found the DRP has dealt at page 81 of the order and observed that, the claims are in the nature of CSR Policy expenditure and hence does not qualify for deduction under Section 80G of the Act. The learned Authorized Representative demonstrated in Paper Book Vol II at pages 882 & 883 the list of deductions claimed under Section 80G of the Act with a statement of donees along with PAN and address and donation receipts. Further the donation receipts are self- explanatory and are eligible for deduction under Section 80G of the Act. We find that the CSR expenses are required to be incurred by companies as per Section 135 of the Companies Act and the deduction u/s. 37(1) of the Act, is not available from Assessment Year 2015-16 as per the Explanation 2 to Section 37(1) of the Act inserted by the Finance Act No.2. 2014. Whereas, the assessee company has made a claim for deduction of CSR expenses u/s, 80G of the Income Tax Act, 1961 But the assessing officer has rejected the assesses claim without verifying the nature of contributions and observed that it is not a donation, and was not spent voluntarily for the eligibility of claim u/s.80G of the Act but due to legal obligation prescribed u/s. 135 r.w Schedule VII of Companies Act, 2013. We find that the A.O has allowed deduction u/s.80G of the Act in respect of contribution made to PM Relief Fund which is not disputed We are of the opinion that the A.O. has not made his observations clear that no CSR expenses are eligible for deduction u/s. 80G of the IT(TP)A No.2355/Bang/2019 Act. We consider it appropriate to Assessment Year: 2018-19 refer to the Clauses (iiihk) & (whl) of sub- section 2 of Section 80G of the Act which are read as under: "(iiihk) the Swachh Bharat Kosh, set up by the Central Government. other than the sum spent by the assessee in pursuance of Corporate Social Responsibility under sub-section (5) of Section 135 of the Companies Act, 2013 (18 of 2013); or (whl) the Clean Ganga Fund set up by the Central Government, where such assessee is a resident and such sum is other than the sum spent by the assessee in pursuance of Corporate Social Responsibility under sub-section (5) of Section 135 of the Companies Act, 2013) (18 of 2013)." Where these two exceptions are provided in Section 80G of the Act, it can be inferred that the other contributions made u/s. 135(5) of the Companies Act are also eligible for deduction u/s. 80G of Income Tax Act subject to assessee satisfying the requisite conditions prescribed for deduction u/s.80G of the Act. In the present case the A.O. has not dealt on these aspects, prima facie, considered the contributions as not voluntary but a legal obligation and has accepted the genuineness of the contributions. We are of the opinion, that the matter has to be considered for examination and verification of facts subject to the assessee satisfying the requirements of claim u/s.80G of the Act. Accordingly, we restore the entire disputed issues to the file of A.O. for fresh examination and verification as discussed above and the assessee should be provided adequate opportunity of IT(TP)A No.2355/Bang/2019 hearing and shall co- operate in submitting the information and we allow the ground of appeal of the assessee for statistical purposes.”
9. On perusal of above, it is clear that after considering the position taken by the Assessing Officer and the objections raised by the Appellant, the DRP concluded that even though deduction for CSR Expenses was not allowable under Section 37 of the Act (in view of the Explanation 2 to Section 37 of the Act inserted by the Finance Act, 2014, with effect from 01.04.2015), there was no bar for allowance of the same under ITA. No. 2452/Mum/2022 Assessment Year: 2018-19 Section 80G of the Act (except for the donations made to the Swach Bharat Kosh and the Clean Ganga Fund), provided all the other conditions of Sec. 80G are fulfilled. Therefore, the DRP issued specific direction to allow deduction for INR.28,72,578/- under Section 80G of the Act after verifying whether the other conditions specified under Section 80G were fulfilled. As per mandate of Section 144C(13) of the Act, upon receipt of directions issued by DRP the Assessing Officer was required to complete the assessment in conformity with the directions issued by the DRP. We hold that the Final Assessment Order, dated 27.07.2022, passed by the Assessing Officer was not in conformity with the directions issued by the DRP and is therefore, set aside, being contrary provisions of Section 144C(13) of the Act. The issue is remanded back to the file of Assessing Officer with the directions to pass the Final Assessment Order in conformity with the directions issued by the DRP. Accordingly, Ground No. 2 raised by the Appellant is allowed while all other grounds raised by the Appellant are disposed off as being infructuous.