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Income Tax Appellate Tribunal, DELHI BENCH “E” NEW DELHI
Before: SHRI AMIT SHUKLA & SHRI O.P. KANT
O R D E R PER AMIT SHUKLA, JM
The aforesaid appeal has been filed by the assessee against the impugned order dated 14.06.2017, passed by Ld. Commissioner of Income Tax (Appeals)-VI, Delhi for the quantum of assessment passed u/s.143(3) for the Assessment Year 2014-15. The only effective ground raised by the assessee reads as under: “2(i) On the facts and circumstances of the case, the order passed by learned CIT(A) is bad both in the eye of law and on facts.
(ii) That the above said expenditure was disallowed despite the same having been incurred wholly and exclusively for the purposes of business only.”
At the outset, the ld. counsel submitted that the ld. CIT(A) while confirming the addition has relied upon the decision of ld. CIT(A) for Assessment Year 2013-14 which was subsequently deleted by the Tribunal in vide order dated 20.01.2020. The facts in brief are that the assessee-company is a wholly owned subsidiary company of NTPC Ltd., a government undertaking with the objective to make foray in supply and distribution of electricity. It was entrusted with rural electrification work under the scheme of Central Government. The assessee had debited sum of Rs.6,24,035/- on account of community development and welfare expenses. In response to show cause notice, the assessee has submitted and stated as under: “Assessee Company has incurred an expenditure of Rs. 6,24,035/- towards community development and welfare expenses during the F. Y. 2013-14 (A. Y. 2014-15) and the same has been charged to P&L A/c. Such expenditure has been incurred wholly and exclusively for the purpose of the company's business and is thus allowable u/s 37(1) of the Income Tax Act. Some of the reasons which support NESCL's contention are given below: a. This expenditure has been incurred to comply with the requirements of Department of Public Enterprises (DPE) guidelines, issued vide OM dated 09-04-2010 which provide that all CPSEs are required to necessarily spend 0.5% to 5% of their Net Profits of previous year on CSR activities. Therefore as this expenditure is incurred to comply with the regulations framed by the Central government, the expenditure should be disallowed. b. Expenditure on CSR results in improvement of environment in which the business operates. Therefore, such expenditure provides indirect benefits to the business. c. Such expenditure is incurred as a good corporate citizen to earn goodwill and create an atmosphere in which business can succeed in a greater measure. d. Following the above guidelines, NESCL has incurred expenditure for an amount of Rs. 6,24,035/- on CSR activities during the F.Y. 2013-14(A.Y. 2014-15) e. ….. f. NESCL incurs expenditure mainly in the areas of basic infrastructure development in far flung areas where the projects are taken for electrifying the villages for an amount of Rs. 6,24,035/-. g. It is evident from the above explanation that the CSR expenses are allowable legitimate business for the year under construction.”
Ld. Assessing Officer had disallowed the said expenditure on the ground that same is not wholly and exclusively for the purpose of business u/s.37(1). Further, the assessee has incurred his expenditure as per guidelines issued by Department of Public Enterprises that company who spend certain percentage of profits to discharge their corporate social responsibility. Accordingly, he made a disallowance.
Ld. CIT (A) has confirmed that said addition, following the order of the ld. CIT(A) for Assessment Year 2013-14 holding that it is not wholly and exclusively for the purpose of business.
After considering the submissions made by the parties and on perusal of the relevant finding given in the impugned order, it is seen that the Assessing Officer has made the disallowance by treating it to be expenditure in nature of CSR. It would be pertinent to note that Explanation-2 to Section 37(1) has been brought in the statute to prohibit expenditure on CSR for claiming u/s.37(1) by the Finance Act 2 of 2014 w.e.f. 01.04.2015, i.e., applicable from Assessment Year 2015-16. Here in this case, the Assessment Year involved in 2014-15, and therefore, Explanation 2 to Section 37(1) could not be applicable. This precise issue has been decided by the Tribunal in assessee’s own case for the Assessment Years 2012-13 and 2013-14 wherein it held that the expenditure on community development and welfare development is allowable because prior to the amendment the said explanation would be applicable. Accordingly, ground raised
by the assessee is allowed.