Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI
Before: SHRI. PAVAN KUMAR GADALE & SHRI GAGAN GOYAL
PER PAVAN KUMAR GADALE, JM:
The assessee has filed an appeal against the order of CIT(A)- National
Faceless Appeal Centre (NFAC) Delhi, dated 15.06.2022 for the A. Y. 2018-19
passed under section 143(3) and 250 of the Income Tax Act 1961. The assessee
has raised following grounds of appeal.
The order of the Learned AO to the extent appealed against is against law, equity and justice.
2 Agappe Diagnostics Ltd. ITA NO.1870/MUM/2022.
The learned CIT (A) grossly erred in dismissing the grounds of appeal, without giving the appellant an opportunity to of being heard. 3. The Learned CIT (A) grossly erred in confirming the disallowance of the claim of business expenditure made under Section 31 (1) of the Act. The Learned CIT (A) ought to have noted that what is covered in Explanation 2 to Sec. 37 (1) of the Act is the CSR expenditure incurred in terms of sec. 135 of the Companies Act 2013 only and not the expenses incurred for the purpose of business. The Learned AO/ CIT (A) did not appreciate that the said expenses claimed were incurred wholly and exclusively for the purpose of the business of the appellant and the expenditure is supported by invoices and vouchers. 4. The Learned AO grossly erred in disallowing certain claims of deduction under Section. 80JJAA of the Act stating that the said claim is covered in appeal filed against the intimation order under Section. 134(1) of the Act. The statement of the Learned AO is factually not correct and the said claim of allowed in the intimation issued under Section. 143(1) of the Act by the Learned AO. The Learned CIT (A) omitted to appreciate this fact. The Learned CIT (A) also omitted to appreciate the fact that the claim originally made in the earlier assessment year (being 1st year out of the 3 years), was allowed by the Learned AO. As the quantum was determined and allowed in the previous year, the current year installment (being the 2nd Year) as specified under Section. 80JJAA of the Act, ought to have been allowed. The CIT (A) did not appreciate that the claim of deduction was made in the return of income and the Learned AO denied the claim while completing the assessment, without recording any reasons in the assessment order. The CIT (A) did not appreciate that even in the draft assessment issued to the appellant, proposal to disallow the said expenses was not mentioned and no discussion/reason for such adjustment/disallowance is made in the draft/final assessment order. Hence, the disallowance of the claim of deduction under
3 Agappe Diagnostics Ltd. ITA NO.1870/MUM/2022.
Section. 80JJAA made in the assessment order is against natural justice and hence the disallowance may kindly be deleted. 5. For these and other ground that may be further adduced at the time of hearing the order of the Assessing Officer requires to be modified. 2. The brief facts of case are that, the assessee company is engaged the
business of development, manufacturing, sale and distribution of in-vitro
diagnostic reagents and equipment and rendering of maintenance services.
The assessee has filed the return of income on 30-11-2018 for the A. Y. 2018-
19 disclosing a total income of ₹14,26,34,740/-. The assessee has filed the
revised return of income dated on 28.03.2019 with a total income of ₹
14,12,33,870/-. Subsequently, the return of income was selected for complete
scrutiny under E- Assessment scheme 2019 on fallowing issues.
i) Reduction of income in revised return of &claim of refund.ii) Duty drawbacks
iii) ICDS compliance and adjustment and (iv) Deduction on account of donation
for scientific research.
Subsequently the assessing officer has issued notice under Section 143(2)
&U/sec 142(1) of the Income-tax Act, 1961 along with the questionnaire. In
compliance to the notice, the assessee company has submitted the details and
information through ITBA portal. The assessing officer(A.O.) on perusal of
financial statements found that the assessee has debited a sum of ₹
4 Agappe Diagnostics Ltd. ITA NO.1870/MUM/2022.
20,52,044/- under the CSR expenditure in the Profit &loss Account. Further,
the assessee has disallowed a sum of ₹ 18,42,830/- in the computation of
income. The A.O. required the clarification for claiming ₹ 2,90,214/- as
deduction, and in compliance the assessee has submitted the details on
07.02.2021 dealt at page 2 Para 5.2 of the order explaining the reasons and
nature of expenditure incurred for business activities. whereas, the A.O. was
not satisfied with the submissions and is of the view that the assessee has not
incurred the expenditure wholly and exclusively for the purpose of carrying on
the business or profession and disallowed ₹ 2,90,214/- as incurred in relation
to CSR disallowance under section 37(1) of the Act. Further the A.O has
disallowed education cess claimed of ₹ 14,00,871/- and finally assessed the
total income of ₹ 14,63,91,798/- and passed the order u/s.143(3) read with
section 143(3A) and 143(3B) of the income tax act dated 06.03.21.
Aggrieved by the A.O. order, the assessee has filed an appeal with the
CIT (A). Whereas, the appellate authority has considered the grounds of
appeal, submissions of the assessee, findings of the scrutiny assessment and
concurred with the action of the assessing officer and dismissed the assessee
appeal. Aggrieved by the CIT(A) order the assessee has filed an appeal before
the Hon'ble Tribunal.
5 Agappe Diagnostics Ltd. ITA NO.1870/MUM/2022.
At the time of hearing, the Ld. AR of the assessee submitted that the
CIT(A) has erred in confirming in addition of claim of expenditure overlooking
the fact that the expenditure was incurred over and above the CSR
expenditure and doesn’t qualified for claim under CSR and form part of
business expenditure incurred wholly and exclusively for the business. The Ld.
AR explained that an amount of ₹ 2,09,214/- was claimed as deduction in the
return of income filed. The Ld. AR further emphasized that the assessee has
made detailed submissions before the lower authorities explaining the nature
of expenditure and substantiated the submissions with the factual paper book
and judicial decisions and prayed for allowing appeal. Contra, the Ld. DR
supported the order of the CIT(A).
We have heard the rival submissions and perused the material on
record. The sole matrix of the disputed issue envisaged by the Ld. AR that the
CIT(A) has overlooked the various factors, nature of the business operations of
the assessee and assumed that the expenditure claimed is part of the CSR
expenditure. The Ld. AR has emphatically submitted that the claim was
incurred considering the welfare measures of the company employees at the
manufacturing facilities and the social and economic facilities in the locality
around the units and business activities. Further as per section 135 of the
6 Agappe Diagnostics Ltd. ITA NO.1870/MUM/2022.
companies Act 2013, the assessee company is mandatorily required to spend
at least 2% of the average net profits of the company made during three
immediately preceding financial years in pursuance to its corporate social
responsibility (CSR policy) and the assessee has mandatorily spent ₹
18,43,813/- and was disallowed in the computation of income. whereas the
remaining amount of ₹ 2,09,214/- is spent voluntarily and was claimed as
deduction of business expenditure in the return of income tax filed which was
incurred wholly and exclusively for the purpose of business. The Ld. AR
demonstrated that the expenses are duly supported with the information at
page 27 to 32 of the paper book. We find Hon'ble ITAT Raipur Bench in the
case on ACIT Vs. Jindal Power Ltd. (179 TTJ 736) has held in terms of
explanation 2 to Section 37(1) of the Act, the disallowance is restricted to
expenses incurred by assessee under the statutory obligation u/s.135 of the
companies Act 2013 and it doesn’t apply to the expenditure incurred in
discharge of corporate social responsibility(CSR) on voluntarily basis. We
considering the facts, submissions, provisions of the Act and the judicial
decisions relied by the Ld. AR find the action of the assessee incurring the
expenditure voluntarily to maintain harmony at the vicinity of the factory area
and is not a personal expenditure, further the assessing officer has not
doubted genuineness of the expenditure but only on the nature of the
7 Agappe Diagnostics Ltd. ITA NO.1870/MUM/2022.
expenditure was not incurred for the purpose of business. The assessee has
filed the details of CSR expenditure which cannot be overlooked and the AO
has accepted such claim and the assessee has made a voluntarily disallowance
of CSR expenditure under section 37(1) of the Act in restricting expenses under
the statutory obligations of CSR policy. Accordingly, we set-aside the order of
the CIT(A) on this disputed issue and direct the Assessing officer to delete the
addition and allow this ground of appeal in favour of the assessee.
The assessee has also raised ground of appeal on disallowance of claim
under 80JJAA of the Act. We found that this ground of appeal does not
emanates from the order of the assessing officer u/s.143(3) of the Act.
Whereas the CIT(A) findings are that the disallowance was under 143 (1)of
the Act and the assessee has filed a separate appeal and the order was passed
on 26.08.2021. Therefore, these grounds of appeal raised by the assessee are
dismissed.
In the result, the appeal filed by the assessee is partly allowed.
Order pronounced in the open court on the 19th day of September, 2022.
Sd/- Sd/- (GAGAN GOYAL) (PAVAN KUMAR GADALE) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated 19/09/2022
8 Agappe Diagnostics Ltd. ITA NO.1870/MUM/2022.
M.Sonavane opy of the Order forwarded to : 1. The Appellant , 2. The Respondent. 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file.
BY ORDER, //True Copy// (Dy./Asstt.Registrar)ITAT, Mumbai