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Income Tax Appellate Tribunal, DELHI BENCH ‘F’ : NEW DELHI
Before: SHRI N.K. BILLAIYA & SHRI KULDIP SINGH
Date of Hearing : 17.12.2020 Date of Order : 12.01.2021 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER :
Aforesaid appeals filed by the Revenue and cross objection filed by the assessee are being disposed off by way of composite order to avoid repetition of discussion.
Appellant, Addl. CIT, Spl. Range 7, New Delhi (hereinafter referred to as ‘the Revenue’) by filing the present appeals sought to set aside the impugned orders both dated 31.07.2017 passed by the Commissioner of Income-tax (Appeals)-38, Delhi qua the assessment years 2013-14 & 2014-15 on the identical grounds, except the difference in amount, inter alia that :-
“1. On the facts and in the circumstances of the case, the Ld. CIT (A) has erred in deleting disallowance u/s 14A (amounting to Rs.1,15,21,250/- & Rs.13,21,75,000/- for AYs 2013-14 & 2014-15 respectively) without going into the merit of the case that assessee has furnished in accurate particulars.
2. On the facts and in the circumstances of the case, the Ld. CIT (A) has erred in deleting addition on account of claim of CSR (amounting to Rs.6,44,00,000/- & Rs.5,32,92,063 for AYs 2013-14 & 2014-15 respectively) without going into the merit of the case that assessee has furnished in accurate particulars.”
The Objector, M/s. Rites Ltd., by filing the present cross objections challenged the impugned order dated 31.07.2017 passed by the Commissioner of Income-tax (Appeals)-38, Delhi qua the assessment year 2013-14 on the grounds inter alia that :- ./2017 ITA No.6448/Del./2017 CO No.78/Del.2019 “1(i) That on facts and circumstances of the case, the Ld. CIT(A) was not justified in upholding disallowance of Rs.77,18,481/- being claim of sustainable development expenses even though same is incurred for the purpose of business and allowable u/s 37 of the Income Tax Act, 1961.
(ii) That there being no dispute with regards to genuineness of the expenses and same having direct nexus with business activities of the assessee, the impugned disallowance is misconceived and without any basis.
(iii) That in any case, the expenses towards sustainable development having been incurred in accordance with mandatory guidelines issued by Department of Public Enterprise, Ministry of heavy industries, the same are allowable U/S 37 of the Income Tax Act, 1961.
(iv) That even otherwise, the Ld. CIT(A) having deleted disallowance of CSR expenses, there was not ground or justification for upholding impugned disallowance of Sustainable development expenses particularly when the nature of these expenses is same.
2. That orders of the lower authorities are not justified on facts and same are bad in law.”
At the very outset, ld. AR for the assessee submitted that there is a delay of 49 days in filing the cross objection before the Tribunal and sought to condone the delay. Keeping in view the reasonable cause given in the condonation application, the delay of 49 days in filing the present cross objection is hereby condoned.
Briefly stated the facts necessary for adjudication of the controversy at hand are : Assessing Officer (AO) disallowed an provisions contained u/s 14A of the Income-tax Act, 1961 (for short ‘the Act’) for Assessment Years 2013-14 & 2014-15 respectively. AO also made addition of Rs.7,21,34,499/- & Rs.5,32,92,063/- by way of disallowance of claim made by the assessee on account of expenditure of Corporate Social Responsibility (CSR) for AYs 2013-14 & 2014-15 respectively.
Assessee carried the matter before the ld. CIT (A) by way of filing the appeals who has partly allowed the appeal for Assessment Year 2013-14 and deleted the additions by dismissing the appeal for AY 2014-15. Feeling aggrieved by the order passed by the ld. CIT (A), the Revenue has come up before the Tribunal by way of filing the present appeals for AYs 2013-14 & 2014-15. The assessee has also come up before the Tribunal by way of filing cross objection for AY 2013-14 challenging the confirmation by the ld. CIT (A) of disallowance of Rs.77,18,481/- made by the AO being the claim of sustainable development expenses.
We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
5 ITA No.6447/Del./2017 ITA No.6448/Del./2017 CO No.78/Del.2019 GROUND NO.1 OF REVENUE’S APPEALS IN (AY 2013-14) (AY 2013-14) 8. Undisputedly, the assessee is a Government undertaking and its substantial investments in specified Government securities are coming from earlier years. It is also not in dispute that during the years under assessment, assessee earned dividend income to the tune of Rs.12,08,26,704/- & Rs.14,83,49,435/- in AYs 2013-14 & 2014-15 respectively.
Assessee has come up with specific plea that for earning exempt dividend income, it has not incurred any expenditure, hence no suo motu disallowance has been made. When we examine the order passed by the AO we find that he has proceeded on the premise that since the assessee has earned huge dividend income, some expenditure would have been incurred for earning the same.
AO has accepted the audited books of account maintained by the assessee company which is a Government undertaking. When it is undisputed fact on record that assessee company being a Government undertaking has made investment in specific Government securities and moreover substantial portion of investments is coming from earlier years, no question arises to contained u/s 14A read with Rule 8D(2)(iii), the AO is mandatorily required to record his dissatisfaction that claim of the assessee as to not incurring any expenses is not correct. So, without recording proper satisfaction, disallowance under Rule 8D is not sustainable.
AO without bringing on record an iota of evidence if assessee has incurred expenses to earn the dividend income proceeded to invoke the provisions contained under section14A r/w Rule 8D(2)(iii) mechanically which is not permissible. Ld. CIT (A) decided this issue in favour of the assessee by relying upon the decisions rendered by Hon’ble Delhi High Court in cases of Pradeep Khanna vs. ACIT in ITA 953/2015 order dated 11.08.2016, CIT vs. Taikisha Engineering Private Limited 370 ITR 338 (Del.) and Maxopp Investment (P) Ltd. s. CIT 347 ITR 272 (Del.). 12. Identical issue has been decided in favour of the assessee by the coordinate Bench of the Tribunal in assessee’s own case in & ITA No.3026/Del/2014 order dated 24.04.2017. In the appeal at hand, it is admitted fact that substantial portion of the investments are made in the earlier years. the deletion made by the ld. CIT (A) under section 14A for AYs 2013-14 & 2014-15, Ground No.1 in both the appeals filed by the Revenue is determined against the Revenue.
GROUND NO.2 OF REVENUE’S APPEALS IN (AY 2013-14) (AY 2013-14)
Undisputedly, assessee company in order to provide the best possible solutions for sustainable development of society executed projects during the years under assessment as under :-
(i) Construction of a youth facility house (residential) for SOS children’s villages of India near Anangpur Village, Faridabad, Haryana. (ii) Construction of Age Day Care and Wellness Centre – Residential Facility, Village Rongla, Patiala, Punjab (Phase B). (iii) Construction of Kalyan Mandap for Central University of Karnataka. (iv) Construction of School Complex at Village Wazirpur, Manesar. (v) Girls Residential School Complex, Khanpur Ghati. (vi) Construction of Building of Asia Institute of Transport Development (AITD) at Dwarka, New Delhi. (vii) Maintenance of Media Verge, C.R. Avenue, Kolkata.
Perusal of the assessment orders goes to prove that AO has mechanically disallowed the claim of expenditure made by the and sustainable development without analyzing the fact that assessee company being a Government undertaking is required to incur such expenses as per guidelines issued by the Department of Public Enterprises by undertaking social welfare activities under the social security scheme. Assessee company has however claimed these expenses as business expenditure permissible under the Act.
It is contended by the ld. AR for the assessee that identical claim of CSR expenses has been duly accepted by the Revenue in the earlier years and there is no change in the facts and circumstances of case. Neither AO nor ld. DR for the Revenue has controverted this fact.
AO has disallowed claim of the assessee company qua CSR expenditure by misinterpreting the provisions contained under section 37(1) of the Act by observing that since CSR expenditure is not incurred for the purpose of carrying on the business, such expenditure cannot be allowed under the existing provisions of section 37 of the Act. Even Explanation 2 to section 37(1) of the Act is prospective in nature to be effective from 01.04.2015 and is applicable to the expenses incurred with reference to section 135 of (2) to section 37(1) of the Act is not applicable to the present case also. Moreover, expenses claimed by the assessee company have been incurred as per guidelines of the Ministry concerned with approval of the Board to the best business interest of the assessee company. So AO, without examining the nature of the expenses, disallowed the claim mechanically even by ignoring the rule of consistency.
Moreover, CSR expenses have been incurred by the assessee on the direction of the Government of India and identical issue has been decided by the coordinate Bench of the Tribunal in case of M/s. HLL Lifecare Ltd. vs. ACIT in for AY 2012-13 order dated 11.06.2018 by returning following findings :-
“9.5 The CSR expenses has been incurred as per the directions of Government of India. The Hon'ble Kerala High Court in the case of Travancore Titanium Products Ltd. (supra) had held that a Government Undertaking is duty bound to comply with Governmental orders. The relevant findings of the Hon'ble jurisdictional High Court reads as follows :- "Being a company under the control of the Government, it is bound to comply with all the Government orders and the Board of Directors itself is constituted with the Government secretaries and other nominees as members. Therefore, the claim of deduction has to be considered with reference to the peculiar circumstances of the company which has no discretion in regard to the payment of the service charges to the government as it is ./2017 ITA No.6448/Del./2017 CO No.78/Del.2019 bound to comply with the government orders. So much so, we are of the view that the parameters applicable in the case of a private company that too with respect to the claim for business expenditure, are exactly not applicable in the case of Public Sector Company whether it is under the control of the State Government or Central Government. In fact, many public sector companies are not formed just to make profit alone but are supposed to achieve larger objectives for the society and the State. By making payment of service charge, the respondent company has discharged only the obligation under Government orders. It cannot carryon business by violating Government orders and remain as a defaulter to the Government. 9.6 The ITAT Mumbai bench in the case of Hindustan Petroleum Corporation Ltd. (96 ITD 186) had held CSR expenditure incurred by Government Undertaking is an allowable deduction. The relevant finding of the ITAT Mumbai Benches reads as follows:- "Expenditure incurred by assessee, a company owned by the Government of India and working under its control and directions, towards implementation of 20 point programme as per specific directions of the Government though voluntary in nature and not forced by any statutory obligation, is allowable as business expenditure. Merely because an expenditure is in the nature of donation, it does not cease to be an expenditure deductible under s. 37(1)." 9.7 The Commissioner of Income tax had mentioned in his order that "the Apex Court (313 ITR 334 SC) CIT Vs Madras Refineries Ltd., while hearing the allowability of CSR expenses observed that neither the High Court nor the Tribunal concerned had given specific finding to the effect that the said CSR expenditure is allowable as business expenditure ". In the above mentioned case, the Apex court has not given any decision on merits of the case. It had only given an observation and remitted the issue back to the Tribunal to give specific finding to the effect that the said CSR expenditure is allowable as business expenditure. ./2017 ITA No.6448/Del./2017 CO No.78/Del.2019 9.8 Since, the assessee had incurred CSR expenses to comply with the directions of Govt. of India, following the above observations made by High Court of Kerala and ITAT, Mumbai Bench, the expenditure incurred is incidental to the assessee's business and ought to be allowed as deduction u/s 37 of the I.T.Act.”
Identical issue has also been decided by the coordinate Bench of the Tribunal in Hindustan Petroleum Corporation Ltd. vs. DCIT (2005) 96 ITD 186 (Mum.) by returning following findings:-
“It had been held by the Karnataka High Court in the case of Mysore Kirloskar Ltd. v. CIT [1987J 166 ITR 836/ 30 Taxman 467. that while 'the basic requirements for invoking sections 37(/) and 80G are quite different', but nonetheless the two sections are not mutually exclusive. Thus, there are overlapping areas between the donations given by the assessee and the business expenditure incurred by the assessee. In other words, there can be certain amounts. though in the nature of donations, and nonetheless, these amounts may be deductible under section 37(1) as well. Therefore, merely because the expenditure in question was in the nature of donation, or, as per the words of the Commissioner (Appeals), 'prompted by altruistic motives', it did not cease to be an expenditure deductible under section 37(1). In the case of Mysore Kirloskar Ltd. (supra), the High Court had observed that even if the contribution by the assessee is in the form of donations, but if it could be termed as expenditure of the category falling in section 37(/), then the right of the assessee to claim the whole of it as a deduction under section 37(1) cannot be declined. What is material in this context is whether the expenditure in question was necessitated by business considerations or not. Once it is found that the expenditure was dictated by commercial expediencies, the deduction under section 37(1) cannot be declined. [Para 7]
In the instant case, the expenditure on 20-Point Programme was incurred in view of specific directions of the Government of India. It could not but be in the business interest of the assessee to abide by the directions of the Government of India which also owned the assessee.
./2017 ITA No.6448/Del./2017 CO No.78/Del.2019 Further, the expenditure incurred for the implementation of 20-Point Programme was solely for the welfare of the oppressed classes of society, for which even the Constitution of India sanctions positive discrimination and for contribution to all around development of villages, which has always been the central theme of Government's development initiatives. An expenditure of such a nature cannot but be, 'a concrete expression of care and concern for the society at large and an expenditure to discharge the responsibilities of a 'good corporate citizen which brings goodwill of with the regulatory agencies and society at large, thereby creating an atmosphere in which the business can succeed in a greater measure with the aid of such goodwill'. [Para 9] Just because the expenditure was voluntary in nature and was not forced on the assessee by a statutory obligation, it could not cease to be a business expenditure. Therefore, the authorities below indeed erred in law in declining deduction of the expenditure incurred on 20-Point Programme which was, beyond dispute or controversy, at the instance of the Government, and was to discharge the assessee s obligations towards society as a responsible corporate citizen. [Para 10]”
So, we find no illegality or perversity in the findings returned by the ld. CIT (A) in deleting the addition made by the AO on account of disallowance of CSR expenditure for AYs 2013- 14 & 2014-15. Ground No.2 of both the appeals filed by the Revenue are determined against the Revenue.
GROUND NO.1(i), (ii), (iii) & (iv) OF CO NO.78/Del./2019 (AY 2013-14) FILED BY THE ASSESSEE
Ld. CIT (A) has upheld the disallowance of Rs.77,18,481/- made by the AO on account of disallowance of claim of sustainable these expenses were incurred exclusively for the purpose of business and is allowable u/s 37 of the Act. It is further contended by the ld. AR for the assessee that during the earlier year, this claim of the assessee company has been duly accepted.
Ld. CIT (A) has upheld the disallowance of Rs.77,18,481/- being claim of sustainable development expenses by simply recording the fact that “assessee has not adduced any cogent argument for deleting the sustainable development expenses”, without going into the fact that in the earlier years, sustainable development expenses are being allowed by the Revenue itself. Revenue is required to follow the rule of consistency. So, this issue is set aside to the AO to delete the expenses claimed on account of sustainable development expenses by the assessee company by following earlier years orders if facts are not distinguishable. Consequently, ground no.1(i), (ii), (iii) & (iv) is allowed for statistical purposes.
GROUND NO.2 OF CO NO.78/Del./2019 (AY 2013-14) FILED BY THE ASSESSEE 23. Ground No.2 of the cross objection filed by the assessee is general in nature, hence does not require any specific adjudication.
Nos.6447/Del/2017 & 6448/Del/2017 are dismissed and the cross objection No.78/Del/2019 filed by the assessee is allowed for statistical purposes. Order pronounced in open court on this 12th day of January, 2021.