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Facts
The revenue filed an appeal against the CIT(A)'s order deleting disallowances related to additional depreciation on plant and machinery and CSR expenses claimed as deduction under Section 80G. The assessee claimed additional depreciation for plant and machinery used for less than 180 days, and also claimed 50% of CSR expenses as a deduction under Section 80G.
Held
The Tribunal held that the amendment to Section 32(1)(iia) by the Finance Act, 2015, which allowed additional depreciation for assets used less than 180 days, was curative in nature and should be applied retrospectively. The Tribunal also held that CSR expenses are voluntary in nature and eligible for deduction under Section 80G, as there is no correlation between its disallowance under Section 37(1) and Section 80G.
Key Issues
Whether additional depreciation on plant and machinery used for less than 180 days is allowable, and whether CSR expenses are eligible for deduction under Section 80G.
Sections Cited
250, 147, 144B, 32(1)(iia), 32, 37, 80G, 135, 37(1), 80G(2)(a), 30, 36
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Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI
Before: SHRI B.R. BASKARAN & SHRI ANIKESH BANERJEE
Instant appeal of the revenue was filed against the order of the National Faceless Appeal Centre (NFAC), Delhi *for brevity, ‘Ld.CIT(A)’) passed under section 250 of the Income-tax Act, 1961 (for brevity, ‘the Act’), date of order 19/09/2024 for A.Y. 2016-17. The impugned order was emanated from the order of the Assessment Unit, Income-tax Department, passed under section 147 read with section 144B of the Act, date of order 29/03/2022.
The revenue has taken the following grounds:- "i. Whether on the facts and in the circumstances of the case and in law, the Id. CITIA) was right in deleting the disallowance made by AO in respect of additional depreciation of Rs. 2,23,91,990/- claimed by the assessee for AY 2016- 17 ignoring the fact that the plant and machinery was put to use in FY 2014-15 which is relevant for AY 2015-16?"
"ii. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was right in deleting the disallowance made by AO in respect of donation claimed by the assessee both in CSR expense as well as 80G amounting to Rs.87, 16,724/-?”
The brief facts of the case are that the assessee is engaged in business of manufacturing and sale of chemical adhesives for automotive and industrial lubricants for treatment of fuels. The assessee company provides advance chemical formulas designing to meet the specific needs of transportation and industrial market. During the impugned assessment year, the assessee claimed the additional depreciation under section 32(1)(iia) amount to Rs.2,23,91,990/- which pertained to the plant & machinery put to use for F.Y. 2014-15 for less than 180 days. The assessee company had purchased machinery of Rs.15,45,70,133/- from October, 2013 to March, 2014 on which depreciation was claimed @15% as per section 32 of the Act. In relation to section 32(1)(iia) of the act, the assessee has claimed depreciation in AY 2014-15 @20% of aforesaid machinery of Rs.15,45,70,133/- which comes to Rs.3,09,14,026/-. Considering the Second Proviso to section 32(1)(iia) of the act, the new machinery or plant acquired during the previous year is put to use for period less than 180 days, the depreciation on such asset is restricted to 50% of eligible amount. Since the machines were acquired by the assessee for the period October, 2013 to March, 2014; so only the 10% of the depreciation which comes to Rs.1,54,57,031/- was claimed for A.Y. 2014-15. So, the balance 50% amount to Rs.1,54,57,031/- was claimed in succeeding year, i.e. A.Y. 2015-16. But during the impugned assessment year, the assessee had more machinery and claimed the additional depreciation amount to Rs.2,23,91,990/- which were put to use for less than 180 days in F.Y. 2014-15. The Ld.AO, by considering the Finance Act, 2015 with effect from 01/04/2016 disallowed the claim of the assessee related to A.Y. 2016-17 for additional depreciation amount to Rs.2,23,91,990/-. Further, the assessee claimed CSR expenses amount to Rs.1,.74,33,448/- U/s 37 of the Act and which was disallowed in the return of income. But the assessee claimed 50% of the expenses which comes to Rs.87,16,724/- under section 80G of the Act. But the Ld.AO had co-related the disallowance of expenses claimed under section 37 of the Act and claim of 50% expenses under section 80G of the Act and the said claim amount to Rs.87,16,724/- was duly disallowed. The aggrieved assessee challenged the issue both on legal ground as well as on merit before the Ld. CIT(A). The Ld.CIT(A) rejected the legal ground related to invoking of jurisdiction under section 147 of the Act. But on merit, the Ld.CIT(A) allowed the appeal of the assessee. Aggrieved against the appeal order, the revenue filed an appeal and the assessee filed the Cross Objection before us.
Related to disallowance of expenses and the additional depreciation claimed under section 32(1)(iia), the Ld. DR fully relied on the order of the Ld.AO and argued vehemently.
The Ld.AR submitted that the Ld.AO rejected the depreciation only on the ground that the third Proviso to section 32(1)(ii) was amended in Finance Act, 2015 which is effective from 01/04/2016. So the plant and machinery which is put to use for F.Y. 2014-15 is not eligible for additional depreciation under section 32(1)(iia) on account of ordinary depreciation. The Ld.AR relied on the relevant paragraph of the appeal order, which is as under:- “In view of the above discussion and sincerely following the Hon’ble Supreme Court and other judiciary decision, in my considered opinion, the amendment introduced by Finance Act 2015 effective from 1st April 2016, based on the aforesaid discussion, it is submitted that the proviso to section 32(1)(ii) is curative in nature and was introduced to overcome the hardship faced by the appellant who used the asset for less than 180 days during the year. The proviso should therefore have retrospective effect and hence the claim of additional depreciation amounting to Rs. 2,23,91,990/- made by the appellant ought to be allowed. It is a well settled position by a number of judicial precedents that if the use of plant and machinery is for a period of less than 180 days, and the entire amount of additional depreciation cannot be claimed in the subject assessment year, the balance unclaimed amount can be claimed in the subsequent assessment year. Hence, the appeal is allowed.”
Related to argument on disallowance of claim under section 80G, the Ld.DR fully relied on the order of the Ld.AO.
The Ld.AR argued that the assessee disallowed the donation in nature Corporate Social Responsibility (CSR) expenses amount to Rs.1,74,33,448/- during filing of return, but claimed 50% of this expenditure under section 80G of the Act. The Ld.AO disallowed the said claim on the ground that original claim was debited in the P&L Account under section 37 of the Act. So, he co-related the said expenses with claim of deduction under section 80G and rejected the assessee’s claim amount to Rs.87,16,724/-. The Ld.AR relied on the order of the Ld.CIT(A). The relevant paragraphs are reproduced as below:- “However, it is also noted from the recent judgment held by the ITAT, Delhi in the case of Interglobe Technology Quotient Private Limited [TS-364-ITAT-2024(DEL)] dated 28.05.2024 and relevant decision as under: Delhi ITAT holds that the donations made as part of CSR expenditure are eligible for deduction under Section 80G, thereby rejecting Revenue's argument that CSR expenditure is mandatory in nature and hence not eligible for such deduction; Tribunal goes on to observe that the 'voluntary' character of CSR expense/donation is evident from the fact that the donation is not on the basis of any 'reciprocal promise' of donee; ITAT quips "... CSR expenditures are also without any reciprocal commitment from beneficiary being philanthropic in nature... The Act permits deduction of donations as per Section 80G, even though, Assessee is not gaining any benefit out of any reciprocity from donee. Similar is the case of CSR expenditure"; Hence holding CSR expenditures as 'voluntary' in nature, ITAT rules that the disallowance of CSR expenditure under Section 80G is not justified; Tribunal also holds that there is no correlation between suo-moto disallowance under section 37(1) and claim of deduction under section 80G. In view of the above discussion and sincerely following the Hon’ble ITAT and other judiciary decision, in my considered opinion, the disallowance of CSR expenditure under Section 80G is not justified; Tribunal also holds that there is no correlation between suo-moto disallowance under section 37(1) and claim of deduction under section 80G. Hence, the appeal is allowed.”
After considering the arguments presented by both parties and reviewing the documents on record, we observe that Section 32(1)(iia) of the Act is as follows: “32(1)(iia): In the case of any new machinery or plant (excluding ships and aircraft) acquired and installed after March 31, 2005, by an assessee engaged in the business of manufacturing or production of any article or thing [or in the business of generation, transmission, or distribution of power], an additional deduction equal to 20% of the actual cost of such machinery or plant shall be allowed under clause (ii).”
We note that this provision was duly amended by the Finance Act, 2015, effective from 01/04/2016. However, the amendment was curative in nature, as upheld by the ITAT Kolkata Bench in the case of DCIT vs. National Engineering Industries Ltd, (2002) 135 taxmann.com 193. Considering the ruling of the ITAT, it is evident that the amendment introduced by the Finance Act, 2015 was aimed at promoting investment and should, therefore, be considered a welfare measure. Consequently, this beneficial provision should be interpreted liberally in favor of the assessee. Furthermore, the amendment under the Finance Act, 2015, effective from 1/04/2016, was introduced to alleviate hardships faced by assessee who had used assets for less than 180 days in a financial year. Given its clarificatory nature, the proviso under Section 32(1)(iia) should be applied retrospectively. We rely on the ruling in DCIT vs. Cosmo Film Ltd, 13 ITR (T) 340 (Delhi ITAT), which held that there is no legal restriction preventing the balance additional depreciation from being carried forward to the subsequent year. Since additional depreciation is a beneficial provision, it must be interpreted in a manner that maximizes its intended benefit. Restricting the deduction to only 50% in the first year would contradict the very purpose and intent of the law. The language used in Section 32(1)(iia) states that the benefit "shall be allowed," which indicates that once an assessee has acquired and installed new machinery or plant, the full deduction is earned. The limitation in the first year is solely due to the period of usage, and consequently, the remaining depreciation should be carried forward to the following year.Thus, we find no infirmity in the impugned appeal order. Accordingly, the ground (i) raised by the revenue is dismissed.
Regarding ground (ii), we find that the Ld. CIT(A) has adequately addressed the issue. However, the Ld. AO attempted to establish a correlation between the disallowance of expenses claimed under Section 37 of the Act and the claim for deduction under Section 80G of the Act.This matter is directly covered by the ruling in Interglobe Technology Quotient Pvt. Ltd. [(TS)-364-ITAT-2024 (DEL), dated 28/05/2024], where the coordinate bench of Delhi ITAT held that CSR expenditure, being voluntary in nature, has no correlation with the claim under Section 80G. The Tribunal further clarified that the claim under Section 80G is independent, and the assessee is entitled to a 50% deduction of the eligible contribution. During appeal hearing, the Ld. AR respectfully relied on the decision of the Mumbai ITAT Coordinate Bench-A in the case of AluboundDacs India (P.) Ltd. vs. Deputy Commissioner of Income-tax [2024] 163 taxmann.com 536 (Mumbai - Trib.), which supports the same proposition. The relevant paragraph-11 is reproduced as below: - “11. We have heard the rival submissions and perused the materials available on record. The only moot question to be decided here is whether the expenditure towards CSR activities are an allowable deduction u/s. 80G of the Act. The CSR expenses are governed by section 135 of the Companies Act, 2013, Schedule VII of the Act and Companies (CSR) Policy Rules, 2014 where companies having net worth of Rs.500 crores or more or turnover of Rs.1000 crores or more or net profit of Rs.5 crores or more have to mandatorily comply with the CSR provisions specified u/s. 135(1) of the Companies Act, 2013. The above mentioned companies are liable to spend atleast 2% of its average net profit for the immediately preceding three financial years on CSR activities. In the present case, the assessee has contributed Rs.30 lacs to various educational and charitable trust for which the assessee has claimed 50% of the total donation paid as deduction u/s. 80G of the Act. Prior to the Finance (No.2) Act, 2014, the said expenditure was claimed as 'business expenditure' u/s. 37(1) of the Act where after the insertion of Explanation 2 to section 37(1) of the Act, the CSR expenses referred to in section 135 of the Companies Act, 2013 shall not be deemed to be an expenditure incurred by the assessee for the purpose of business or profession. It is observed that the said expenses pertaining to CSR has been claimed as deduction u/s. 80G of the Act which claim was perennially rejected by the Revenue for the reason that only donations which are voluntary in nature will come under the purview of section 80G of the Act and donation towards CSR was merely a statutory obligation on companies as per section 135 of the Companies Act, 2013. It is pertinent to point out that the intention of the legislature was clear when the same was clarified by the Finance (No.2) Act, 2014 that CSR expenses will not fall under the business expenditure and also there has been an express bar specified in sub clause (iiihk) and (iiihl) of section 80G(2)(a) of the Act that any sum paid by the assessee as donation to Swatch Bharat Kosh and Clean Ganga Fund will not come under the purview of deduction u/s. 80G of the Act subject to certain conditions. This justifies the fact that the other donations specified u/s. 80G of the Act would be entitled to deduction provided the conditions stipulated u/s. 80G of the Act are satisfied. In the present case in hand, the contributions made by the assessee would not fall under the two exceptions specified above which clearly mandates that the assessee is entitled to claim deduction for the donations contributed during the year under consideration u/s.80G of the Act. The decision relied upon by the ld. A.O. in the case of PVG Raju, Raja of Vizianaram (supra) is distinguishable on the facts of the present case where there is no requirement of proving the voluntariness of the donation contributed by the assessee for claiming deduction u/s. 80G of the Act. The amendment brought about by Finance Act, 2015 to section 80G of the Act which had inserted the sub clauses (iiihk) and (iiihl) to be the exception for qualifying a donation for claiming u/s. 80G of the Act could also be an evidencing factor to substantiate that CSR expenditures which falls under the nature specified in section 30 to 36 of the Act are an allowable deduction u/s. 80G of the Act.”
We also observe that both the revenue authorities have not verified the deduction claimed under Section 80G of the Act. Therefore, we direct the Ld. AO to allow the assessee’s claim under Section 80G, subject to fulfillment of the necessary conditions as prescribed under the section. Accordingly, ground (ii) raised by the revenue is dismissed.
As the grounds of the revenue are dismissed, the cross objection of the assessee is infructuous and dismissed.