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Income Tax Appellate Tribunal, VIRTUAL COURT
Before: SHRI MAHAVIR SINGH, HONBLE & SHRI S. RIFAUR RAHMAN, HONBLEShri Rajeev Waglay Shri Rahul Raman
O R D E R PER S. RIFAUR RAHMAN (AM)
This appeal is filed by the assessee against order of the Learned Principal Commissioner of Income Tax, Mumbai-2 [hereinafter in short “Pr.CIT”] dated 31.03.2021 for the A.Y.2016-17.
Brief facts of the case are that, Ld. Pr.CIT, Mumbai-2 observed from the assessment record of the assessee that assessee has filed return of (A.Y: 2016-17) M/s. Naik Seafoods Pvt. Ltd., income for the A.Y. 2016-17 declaring total income of ₹.4,25,77,260/- under normal provisions of the Income-tax Act, 1961 (in short “Act”) and ₹.97,33,677/- u/s. 115JB of the Act. The assessment u/s.143(3) was completed on 24.12.2018 assessing the total income at ₹.4,30,98,221/- under normal provisions of the Act and ₹.97,33,677/- u/s.115JB of the Act. He observed that the assessment order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the revenue and requires revision. Accordingly, a show because notice was issued and served on the assessee with the following observations: - “(i) On examination of records it is seen that assessee has claimed CSR expenses of Rs 2.80 lakhs and the same is added in computation but assessee has claimed u/s 80-G deduction of Rs 1.40 lakhs on the same. CSR expenses is assessee’s responsibility as per the companies Act and if it is spent through other trusts then also it is spent on behalf of assessee as per Rule 4(2) of CSR Rules. Therefore, assessee cannot give donation of CSR expenses even if it is given to Trust eligible for 80- G deduction. Hence the same is not allowable. Failure of the assessing officer to consider the CSR expense as disallowable expense has rendered the assessment order dated 24.12.2018 as erroneous in so far as it is prejudicial to the interests of the revenue.
ii) Assessee has claimed bad debts of Rs 376.40 lakhs during the year and on examination of records it is seen that no such claim has been made by the assessee company in earlier years. Since assessee is mainly exporting its sales, claim of bad debts should have been examined by the assessing officer. Failure to examine the same has rendered the assessment order dated 24.12.2018 as erroneous in so far as it is prejudicial to the interests of the revenue. iii) Assessee has claimed fish purchases of Rs 197.94 crores which is 95% of the sale of fish. Since sale of fish is mainly exports, sale is verifiable. However, since purchase is ultimately from unorganized sector and assessee has mainly done purchases through intermediaries, who also claims 90-95% cost as fish purchase, they need to be verified.
(A.Y: 2016-17) M/s. Naik Seafoods Pvt. Ltd., Further, payments to most suppliers are irregular and on lumpsum basis, which requires examination of some major suppliers to ascertain the genuineness of the intermediaries. Also to know the correct price of fish purchased, verification of documents relating to movement of fish could be relevant to establish the genuineness of purchases from these_ intermediaries. Assessing Officer has not examined the genuineness of purchases by examining suppliers since this constitutes 95% of the cost.Net profit is not even 1.5% even after taking into account substantial export incentives which raises suspicion that purchases might have been inflated. Failure of the Assessing Officer to examine these aspects has rendered the assessment order dated 24.12.2018 as erroneous in so far as it is prejudicial to the interests of the revenue.”
In response to the notices assessee filed a detailed submission to the above said notice and Ld. Pr.CIT has reproduced the same in his order at Para No.
However, assessee filed written submissions on 02.03.2021, for the sake of clarity it is reproduced below: - “With reference to the above and further to our reply dated 15.4.2019, we would most humbly like to submit as under:
1. 1. Our point wise reply dated 15.4.2019 is already on the record of your honour. - 2. As for the bad debts, the details of the same were duly tendered before the Assessing Officer vide our letter dated 18.12.2018. The details are enclosed herewith. And as stated in our reply dated 15.4.2019, from A. Y. 2018-19 once the bad debts are written off in the books, they have to be allowed and cannot be question by the department. This is because, if in future recovered, it is made liable to tax.
3. As for the purchases, your honour have observed that lower net profit of 1.5 % raises suspicion that purchases might have been inflated. Thus, your honour has not come to any conclusion that purchases were inflated. This amounts to nothing but rowing inquiry and not covered by revision U/s. 263.
4. During the course of scrutiny assessment, the assessing officer had called for numerous details and same were duly tendered by us vide (A.Y: 2016-17) M/s. Naik Seafoods Pvt. Ltd., our letters dated 12.12.2018 / 14.12.2018 / 18.12.2018 (copies enclosed). And as can be seen, all the details asked for were tendered 5. including details of purchases of fish. The balance sheets of major fish suppliers were tendered (letter dated 18.12.2018) Details of creditors of more than Rs.2 Lakhs were tendered (Letter dated 14.12.2018). Also ledger of fish purchases with confirmations from fish suppliers were tendered (letter dated 12.12.2018).
And after going through all the above details, the assessing officer passed the order dated 24.12.2018. As such, it cannot be said that the assessing officer did not apply his mind or did not verify the authenticity of purchases. And hence, the observation made by your honour that the assessing officer did not examine various aspects is not in keeping with the facts.
We are giving herein below the figures of sales, purchases, gross profit and net profit from A. Y. 2012-13 to A. Y. 2016-17. Gross Gross Net Net AY Turnover profit profit% Profit Profit % 2016-17 25871744024 268078051 10.36 48819145 1.89 2015-16 3590369214 221634209 6.17 41126649 1.15 2014-15 3394136750 240563777 7.09 75955421 2.24 2013-14 2313911207 212868794 9.98 49904110 2.34 2012-13 1663735034 158534748 9.53 41810806 2.51 8. And as can be seen, the net profit of the company always ranged between 1.15% to 2.51%. Further inspite of gross profit margin being higher in the A. Y. 2016-17, the net profit margin was lower at 1.89% on account of bad debts written off. The copy of the profit and loss account with the schedules is enclosed. These details were duly tendered before the Assessing officer.
In the circumstances, the assessment order dated 24.12.2018 passed by the assessing officer cannot be said to be erroneous and prejudicial to the interest of revenue. As such, the proceedings initiated u/s. 263 deserve to be dropped in toto.”
(A.Y: 2016-17) M/s. Naik Seafoods Pvt. Ltd., 4. After considering the submissions of the assessee, Ld. Pr.CIT rejected the various submissions made by the assessee. With regard to first issue of assessee’s claim of Corporate Social Responsibility (in short CSR) expenses and claim of such expenditure u/s. 80G of the Act. He rejected the contention of the assessee with the following observations: - “In the instant case, the assessee had added back an amount of Rs.2.80 lakhs which mas debited in the P&L A/c towards CSR expenses. However, these CSR expenses were claimed by the assessee under section 80G of the Act to the extent of Rs.1.40 lakhs. Thus, the total CSR expenditure of Rs.2.80 lakhs, which was originally disallowed as CSR expenses was again claimed through the route of 80G deductions. As per Computation of income, the assessee himself declared that, they have claimed deduction u/s 80G for the CSR expenses. The assessing officer allowed deduction u/s 80G in the computation of Income in the assessment made. Since both CSR expense and 80G donations are two different mode of ensuring fund for public welfare, treating the same expense under two different heads would defeat the very purpose of it. As mentioned above in the budget memorandum as well, the legislative intention was to ensure that companies with certain strong financials make the expenditure towards this purpose and by allowing deduction, the Government would be subsidizing one third of it by way of revenue foregone thereon and hence the same was required to be disallowed in the assessment. Omission to do so by the assessing officer resulted into underassessment to the same extent with consequential short levy of tax and interest. Failure of the assessing officer to examine the CSR expense as disallowable expense and to examine disallowance of deduction u/s.80G for CSR spending in light of the above stated legal position has rendered the assessment order dated 24.12.2018 as erroneous in so far as it is prejudicial to the interests of the revenue. Therefore the assessment order passed u/s.143(3) of the I.T. Act., 1961 dated 24.12.2018 without verification of this aspect is erroneous. Since the enquiries with regard to correctness of claim have not been made, the order passed u/s.143(3) of the I.T. Act., 1961 dated 24.12.2018 is prejudicial to the interest of revenue. Thus both the conditions specified u/s.263 of the Act are satisfied in this case and it is a fit case to invoke (A.Y: 2016-17) M/s. Naik Seafoods Pvt. Ltd., provisions of the said section. Therefore the order passed u/s.143(3) of the I.T. Act., 1961 dated 24.12.2018 in assessee’s case for A.Y. 2016- 17 is set aside within the meaning of the provisions of section 263 of the Act with a direction to the A.O to examine the above stated aspects with regard to allowability of deduction claimed u/s.80G of the Act as per law and frame a fresh assessment after affording an opportunity to the assessee of being heard.”
With regard to second and third issue also Ld. Pr.CIT rejected the contention of the assessee with the following observations: - “6.2 The second issue on which notice issued u/s.263 relates is Assessing Officer's action in allowing the claim of Bad debts of Rs.376.40 lakhs without examining the same. Assessee has claimed bad debts of Rs 376.40 lakhs during the year and on examination of records, it is seen that no such claim has been made by the assessee company in earlier years. Since assessee is mainly exporting its sales, claim of bad debts should have been examined by the assessing officer. The Assessing Officer has failed to examine the same and also genuineness and nature of debts resulting into Bad Debts during the year by making independent enquiry with the party concerned. No specific query has been raised by the assessing officer regarding the genuineness of debts claimed as bad debts. Failure to examine the same has rendered the assessment order dated 24.12.2018 as erroneous in so far as it is prejudicial to the interests of the revenue. Thus both the conditions specified u/s.263 of the Act are satisfied in this case and it is a fit case to invoke provisions of the said section. Therefore the order passed u/s.143(3) of the I.T. Act., 1961 dated 24.12.2018 in assessee’s case for A.Y. 2016-17 is set aside within the meaning of the provisions of section 263 of the Act with a direction to the A.O to examine the above stated aspects with regard to claim of bad debts per law and frame a fresh assessment after affording an opportunity to the assessee of being heard. 6.3 The third issue on which notice issued u/s.263 relates is Assessing Officer's non-examination of genuineness of fish purchases which are done mainly through intermediaries. The Assessing Officer has not raised any specific query regarding genuineness of fish purchases even though purchase is ultimately from unorganized sector and assessee has done purchases mainly (A.Y: 2016-17) M/s. Naik Seafoods Pvt. Ltd., through intermediaries. Since fish purchases of Rs 197.94 crores constitute 95% of the sale of fish, the assessing officer should have made proper examination of purchases and genuineness of purchases by examining major suppliers, Further, payments to most suppliers are irregular and on lump sum basis, which required examination of some major suppliers to ascertain the genuineness of the intermediaries. Also to know the correct price of fish purchased, verification of documents relating to movement of fish should have been made to establish the genuineness of purchases from these intermediaries. It is seen from the record that the assessing Officer has failed to examine these aspects. From the submissions made by the assessee during the course of current proceedings u/s 263, it is crystal clear that fish purchases were not properly enquired into by the assessing officer during the assessment proceedings. Failure to examine the same has rendered the assessment order dated 24.12.2018 as erroneous in so far as it is prejudicial to the interests of the revenue. Thus both the conditions specified u/s.263 of the Act are satisfied in this case and it is a fit case to invoke provisions of the said section. Therefore the order passed u/s.143(3) of the I.T. Act., 1961 dated 24.12.2018 in assessee’s case for A.Y. 2016-17 is set aside within the meaning of the provisions of section 263 of the Act with a direction to the A.O to examine the above stated aspects with regard to fish purchases as per law and frame a fresh assessment after affording an opportunity to the assessee of being heard.”
6. With the above observations, Ld. Pr.CIT set aside the Assessment Order passed u/s. 143(3) of the Act and directed the Assessing Officer to examine the submissions of the assessee and reframe the assessment afresh after giving proper opportunity to the assessee.
7. Aggrieved assessee is in appeal before us raising following grounds in its appeal: -
(A.Y: 2016-17) M/s. Naik Seafoods Pvt. Ltd., “i. passing the order dated 31.3.2021 u/s. 263 of I. T Act, 1961 in respect of total amount of Rs. 5,75,74,000 ii. passing the above order without considering the written submissions dated 2.3.2021 filed with him which explained as to why revision u/s. 263 was uncalled for. iii. giving directions to the AO to examine the deduction of Rs. 1,40,000 u/s. 80G of I. T. Act, 1961 on the ground that an amount of Rs 2,80,000 was paid towards CSR expenses which were disallowed by the assesse itself while computing the total income but claimed by way of deduction to the extent of Rs. 1,40,000 U/s. 80G of I.T. Act, 1961 and that such deduction should not have been allowed for the reasons mentioned by the Pr. CIT in para 6.1 of his order dated 31.3.2021. iv. giving directions as mentioned in para (iii) above when the deduction granted by the AO u/s. 80G was in accordance with I. T. Act, 1961 and Pr. CIT was of different view as mentioned in para 6.1 of his order dated 31.3.2021. Thus imposing his own views on the assessing officer. v. giving directions to the AO to examine the deduction of Rs.376.40 lakhs u/s. 36(1)(vii) of I. T. Act, 1961 on account of bad debts on the ground that the AO had failed to examine the genuineness and nature of bad debts by making independent enquiry. vi. giving directions as mentioned in para (v) above when the deduction granted by the AO u/s. 36(1)(vii) was in accordance with I. T. Act, 1961 in that the said section does not require the assessee to prove the genuineness of the bad debts and what is required is writing it off in the books of accounts and nothing more. And the said view was duly supported by the Supreme Court judgments and Pr. CIT was of different view as mentioned in para 6.2 of his order dated 31.3.2021. Thus, imposing his own views on the assessing officer. vii. giving directions to the AO to examine the fish purchases of Rs. 197.95 Crores to see the genuineness of the purchases by examining the major suppliers and verification of documents on the ground that the AO had failed to do so.
(A.Y: 2016-17) M/s. Naik Seafoods Pvt. Ltd., viii. giving directions as mentioned in para (vii) above when all the details called for by the AO were duly tendered by the assessee vide its letters dated 12.12.2018/14.12.2018/18.12.2018 and they included the details of purchase of fish, balance sheet of major fish suppliers, details of creditors of Rs. 2 Lakhs as also ledger of fish purchases with confirmations of fish suppliers & the deduction was granted by the AO after going thru all the details and all these correspondence was duly placed on the record of the PR Commissioner. Thus, giving directions to the AO to redo the things since PR CIT felt so and thus, imposing his own views on the assessing Officer. & hence, the order dated 31.3.2021 passed by the PR. CIT, Mumbai - 2 w/s. 263 of I. T. Act, 1961 needs to be set aside in toto by holding that the assessment order dated 24.12.2018 passed by the AO did not call for revision u/s. 263 since it was not erroneous and prejudicial to the interest of revenue.”
Before us, Ld. AR submitted that Ld. Pr.CIT invoked the provisions of Explanation 2 to section 263 of the Act and set aside the Assessment Order on the issue on which Assessing Officer has made substantial verification and examined the records submitted before him. In support of his contention of the assessee he relied on the decision of the Bank of India v. JCIT [210 TTJ 626 (Mum – Tribunal)].
9. With regard to merits on this case he submitted that as for the deduction of ₹.1,40,000 under S.80G of the Act, the Pr.CIT has dealt with the same in para 6.1 of his order dated 31.3.2021 by observing that an amount of ₹.2,80,000 was paid by the Assessee towards CSR expenses which were disallowed by the assessee itself while computing the total
(A.Y: 2016-17) M/s. Naik Seafoods Pvt. Ltd., income but claimed by way of deduction to the extent of ₹.1,40,000 under S.80G. The Ld. Pr.CIT has referred to S.135 of the Companies Act, 2013 w.e.f. 1.4.2013 as also explanation 2 under section 37 of IT Act, 1961 which bars the deduction of any expenditure towards CSR expenses under that section. In the Subsequent internal paras, the Ld. Pr.CIT observed that CSR expenses and 80G donations were two different modes of ensuring fund for public welfare and creating the same under two heads would defeat the very purpose of it. In the assessee submission the observations made by the Pr.CIT are not at all in accordance with the law. The explanation 2 under section 37 is restricted to S.37 only and nothing more and since the explanation has been inserted below S.37, it can be invoked only when the expenditures is claimed as deduction being for the purpose of business under S.37 of I.T. Act, 1961. But as can be seen in the present case, the assessee had not claimed the said expenditure under S.37 of the Act but had claimed it by way of deduction under S.80G. The Income Tax Act, 1961 nowhere states that expenditure disallowed in terms of explanation to S.37 cannot be allowed by way of deduction in terms of S.80G. As such, the deduction under S.80G was rightly allowed by the Assessing Officer and the view held by the Ld. Pr.CIT is patently baseless. In support of his contentions Ld. AR relied on the following case laws: -
(A.Y: 2016-17) M/s. Naik Seafoods Pvt. Ltd., (i). M/s. FNF India Pvt. Ltd., v. ACIT in ITA.No. 1565/Bang/2019 dated 05.01.2021. (ii). M/s. Goldman Sachs Services Pvt. Ltd., v. JCIT in IT(TP)A No. 2355/Bang/2019.
With regard to grounds of appeal no. (v) & (vi) with respect to the bad debts of ₹.3,76.40,000/- claimed by the assessee during the year, Pr.CIT has dealt with the same in para 6.2 of his order dated 31.3.2021 by observing that no such claim was made by the Assessee in earlier years and that claim of bad debts should have been examined by the assessing officer by making independent inquiry and no specific query was raised by the assessing officer in this regard. In the assessee’s submission, the claim of the bad debts was rightly allowed by the Assessing Officer in terms of S.36(1)(vii) of the Act, which does not require the assessee to prove anything. The only condition is that the said debt should have been written off as irrecoverable in the accounts of the assessee. [P.10] Further the said debt should have been taken into account in computing the income of the assessee of the previous year in which the bad debt is written off or any earlier previous year. [S.36 (2)] and further, if the debt or any part of it is subsequently recovered, the same shall be profit and gain in terms of S.41 (4) of the Act. This has been so held by the Hon'ble Supreme Court in TRF Ltd. v CIT [320 ITR 397]. The assessee would like to submit that the said bad debt pertained to one company by the name Keres Trading from France [P._11] and in the (A.Y: 2016-17) M/s. Naik Seafoods Pvt. Ltd., subsequent year an amount of ₹.1,14,00,000 was received in respect of the same from ECGC and the same was duly shown as income in the Profit and Loss Account for the year ended 31% March, 2017. [P.12]. In the light of the above, it can be seen that the observations made by LD. Pr.CIT were not in accordance with the law and the Assessing Officer had rightly allowed the said deduction.
Coming to Grounds of appeal No. (vii) & (viii) in respect to the fish purchases of ₹.197.95 crores, the Ld. Pr.CIT has dealt with the same in para 6.3 of his order dated 31.3.2021 by observing that the Assessing Officer did not raise any specific query regarding genuineness of fish purchases and he should have examined the major suppliers for the price etc. The assessee humble submission, the observations made by the Ld. Pr.CIT are totally baseless. Most of the records were checked by the Assessing Officer. The Assessing Officer had called for numerous details and the same were duly tendered by the Assessee vide their letters dated 12.12.18, 14.12.18 and 18.12.18. Further, as can be seen, all the details asked for were tendered. The Balance sheet of major fish suppliers were tendered [letter dt.18.12.18] [P. 13], details of creditors of more than Rs. 2 lakhs were tendered [letter dt.14.12.18] [P. 14], also ledger of fish purchases with confirmations from fish suppliers were tendered [Letter dt.12.12.18] [P. 15-21] and it is only
(A.Y: 2016-17) M/s. Naik Seafoods Pvt. Ltd., after going through these details that the Assessing Officer passed his order dated 24.12.2018. As such, it could not be said that the Assessing Officer had not enquired properly with respect to the fish purchases. Further, the Assessee would like to state that the above said suppliers have been supplying their material to the Assessee for last more than 10 years or so and it is not that they were the new suppliers. Going by the conclusion drawn by the PR.CIT, it would be saying that the Assessee had been inflating its purchases for last 10 years or so and had never presented its true picture and hence requested that the order dated 31.3.2021 passed by the Ld. Pr.CIT U/s. .263 of I. T. Act, 1961 deserves to be set aside in Toto.
On the other hand, Ld. DR submitted that assessee in order to claim CSR benefit assessee resorted to route these transactions as donation. It is important to note that section 37(1) is amended and assessee cannot claim expenses relating CSR. Assessee cannot resort indirectly to claim benefit u/s. 80G of the Act and he supported the findings of the Ld. Pr.CIT. With regard to reliance of ITAT order by the Ld. AR he submitted that department is not in agreement with the findings of the Hon'ble ITAT. With regard to bad debts he submitted that assessee itself recovered substantial amount in the subsequent assessment year for which assessee has claimed bad debt during this assessment year. Therefore, this clearly shows that the claim of (A.Y: 2016-17) M/s. Naik Seafoods Pvt. Ltd., bad debts itself is not proper. He supported the findings of the Ld. Pr.CIT and submitted that Assessing Officer has not made any enquiry before allowing these expenditures.
13. With regard to fish purchases, Ld. Pr.CIT has only directed the Assessing Officer to verify the purchases of fish which is 95% of the expenditure claimed by the assessee and record shows that Assessing Officer has not verified thoroughly before giving the benefit to the assessee. Even the Assessment Order does not whisper anything on the fact that Assessing Officer has carried out any verification. He vehemently argued and supported the finding of the Ld. Pr.CIT.
14. In rejoinder Ld. AR submitted that the recovery of bad debts in the subsequent assessment year is not from the party but from the insurance company, therefore, Ld. DR cannot question the quality of the bad debts claimed by the assessee.
15. Considered the rival submissions and material placed on record, we observe from the record that Ld. Pr.CIT while examining the records of the assessment observed that the Assessing Officer has not verified the expenses claimed by the assessee and allowed by the Assessing Officer (A.Y: 2016-17) M/s. Naik Seafoods Pvt. Ltd., without making the proper verification and purchases which is 95% of the sale declared by the assessee and again Assessing Officer allowed the same without making proper verification. After considering the submissions of both the parties we observe from the record that with regard to section 80G deduction we observed that the Coordinate Bench of ITAT Bangalore Bench decided the issue of deduction u/s. 80G relating to donations which is part of Corporate Social Responsibility in the case of M/s. FNF India Pvt. Ltd., v. ACIT (supra). The relevant findings of the Bangalore Bench are reproduced below: - “9. After hearing both the parties, we find that similar issue came up for consideration before this Tribunal in in the case of Allegis Services (India) Pvt. Ltd. v. ACIT. The Tribunal by its order dated 29.4.2020 held as under:- “10. Section 135 of Companies Act, 2013 requires companies with CSR obligations, with effect from 01/04/2014. Finance (No.2) Act, 2014 inserted new Explanation 2 to sub- section (1) of section 37, so as to clarify that for purposes of sub-section (1) of section 37, any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession.
11. This amendment will take effect from 1/04/2015 and will, accordingly, apply to assessment year 2015-16 and subsequent years.
12. Thus, CSR expenditure is to be disallowed by new Explanation 2 to section 37(1), while computing Income under the Head ‘Income form Business and Profession’. Further, clarification regarding impact of Explanation 2 to section 37(1)
(A.Y: 2016-17) M/s. Naik Seafoods Pvt. Ltd., of the Income Tax Act in Explanatory Memorandum to The Finance (No.2) Bill, 2014 is as under: "The existing provisions of section 37(1) of the Act provide that deduction for any expenditure, which is not mentioned specifically in section 30 to section 36 of the Act, shall be allowed if the same is incurred wholly and exclusively for the purposes of carrying on business or profession. As the CSR expenditure (being an application of income) is not incurred for the purposes of carrying on business, such expenditure cannot be allowed under the existing provisions of section 37 of the Income-tax Act. Therefore, in order to provide certainty on this issue, it is proposed to clarify that for the purposes of section 37(1) any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to have been incurred for the purpose of business and, hence, shall not be allowed as deduction under section 37. However, the CSR expenditure which is of the nature described in section 30 to section 36 of the Act shall be allowed deduction under those sections subject to fulfilment of conditions, if any, specified therein."
From the above it is clear that under Income tax Act, certain provisions explicitly state that deductions for expenditure would be allowed while computing income under the head, ‘Income from Business and Profession” to those, who pursue corporate social responsibility projects under following sections. Section 30 provides deduction on repairs, municipal tax and insurance premiums. Section 31, provides deduction on repairs and insurance of plant, machinery and furniture Section 32 provides for depreciation on tangible assets like building, machinery, plant, furniture and also on intangible assets like know-how, patents, trademarks, licenses. Section 33 allows development rebate on machinery, plants and ships.
(A.Y: 2016-17) M/s. Naik Seafoods Pvt. Ltd., Section 34 states conditions for depreciation and development rebate. Section 35 grants deduction on expenditure for scientific research and knowledge extension in natural and applied sciences under agriculture, animal husbandry and fisheries. Payment to approved universities/research institutions or company also qualifies for deduction. In-house R&D is eligible for deduction, under this section. • Section 35CCD provides deduction for skill development projects, which constitute the flagship mission of the present Government. • Section 36 provides deduction regarding insurance premium on stock, health of employees, loans or commission for employees, interest on borrowed capital, employer contribution to provident fund, gratuity and payment of security transaction tax. Income Tax Act, under section 80G, forming part of Chapter VIA, provides for deductions for computing taxable income as under: Section 80G(2) provides for sums expended by an assessee as donations against which deduction is available. a) Certain donations, give 100% deduction, without any qualifying limit like Prime Minister's National Relief Fund, National Defence Fund, National Illness Assistance Fund etc., specified under section 80G(1)(i) b) Donations with 50% deduction are also available under Section 80G for all those sums that do not fall under section 80G(1)(i). Under Section 80G(2) (iiihk) and (iiihl) there are specific exclusion of certain payments, that are part of CSR responsibility, not eligible for deduction u/s80G.
In our view, expenditure incurred under section 30 to 36 are claimed while computing income under the head, ‘Income form Business and Profession”, where as monies spent under section 80G are claimed while computing “Total (A.Y: 2016-17) M/s. Naik Seafoods Pvt. Ltd., Taxable income” in the hands of assessee. The point of claim under these provisions are different.
Further, intention of legislature is very clear and unambiguous, since expenditure incurred under section 30 to 36 are excluded from Explanation 2 to section 37(1) of the Act, they are specifically excluded in clarification issued. There is no restriction on an expenditure being claimed under above sections to be exempt, as long as it satisfies necessary conditions under section 30 to 36 of the Act, for computing income under the head, “Income from Business and Profession”.
16. For claiming benefit under section 80G, deductions are considered at the stage of computing “Total taxable income”. Even if any payments under section 80G forms part of CSR payments(keeping in mind ineligible deduction expressly provided u/s.80G), the same would already stand excluded while computing, Income under the head, “Income form Business and Profession”. The effect of such disallowance would lead to increase in Business income. Thereafter benefit accruing to assessee under Chapter VIA for computing “Total Taxable Income” cannot be denied to assessee, subject to fulfillment of necessary conditions therein.
We therefore do not agree with arguments advanced by Ld.Sr.DR.
18. In present facts of case, Ld.AR submitted that all payments forming part of CSR does not form part of profit and loss account for computing Income under the head, “Income from Business and Profession”. It has been submitted that some payments forming part of CSR were claimed as deduction under section 80G of the Act, for computing “Total taxable income”, which has been disallowed by authorities below. In our view, assessee cannot be denied the benefit of claim under Chapter VI A, which is considered for computing ‘Total Taxable Income”. If assessee is denied this benefit, merely because such payment forms part of CSR, would lead to double disallowance, which is not the intention of Legislature.
(A.Y: 2016-17) M/s. Naik Seafoods Pvt. Ltd., 19. On the basis of above discussion, in our view, authorities below have erred in denying claim of assessee under section 80G of the Act. We also note that authorities below have not verified nature of payments qualifying exemption under section 80G of the Act and quantum of eligibility as per section 80G(1) of the Act.
Under such circumstances, we are remitting the issue back to Ld.AO for verifying conditions necessary to claim deduction under section 80G of the Act. Assessee is directed to file all requisite details in order to substantiate its claim before Ld.AO. Ld.AO is then directed to grant deduction to the extent of eligibility. Accordingly grounds raised
by assessee stands allowed for statistical purposes.”
10. Since the facts and circumstances in the present case is similar to that of the Coordinate Bench in the case of Allegis Services (India) Ltd. (supra), taking a consistent view, we remit the issue back to the file of the Assessing Officer with similar directions as contained in the aforesaid order of the Tribunal and for decision afresh in accordance with law.”
Respectfully following the said decision, the Bangalore Bench has remitted the issue to the Assessing Officer to verify the additions necessary to claim the deduction u/s. 80G of the Act with a clear direction to the Assessing Officer. In the given case the Assessing Officer himself allowed the deduction u/s. 80G of the Act as claimed by the assessee and the issue itself is a debatable issue and Assessing Officer has taken one of the possible view. Therefore, Ld.Pr.CIT cannot invoke provisions of section 263 of the Act in order to bring on record his possible view.
(A.Y: 2016-17) M/s. Naik Seafoods Pvt. Ltd., 17. We observe from the record that on merit assessee has a valid point to claim the deduction u/s. 80G of the Act and we observe that nowhere assessee has claimed deduction u/s. 37 of the Act. It is clear that the restriction given in section 37 of the Act is restricted to CSR expenses but similar restrictions are not given in section 80G of the Act.
With regard to other expenses to invoke the provisions of section 263 of the Act on bad debts and fish purchases, we observe from the record that all the informations relating to these expenses were very much available and submitted before the Assessing Officer. Even Assessing Officer asked the details of these expenditure and assessee has submitted the relevant information in the letter dated 18.12.2018 and explained before the Assessing Officer. Assessee has submitted various ledgers relating to fish purchases and supplier’s confirmations before the Assessing Officer, all these informations clearly shows that Assessing Officer has verified these expenditures before allowing the same. From the record, we observed that Assessing Officer has asked for certain informations on these expenditures and assessee has also submitted the informations with supporting documents, it can be inferred that the Assessing Officer has made certain enquiries and Ld. Pr.CIT can invoke the provisions of Explanation 2 to section 263 of the Act only when there is absolutely no verification is carried out by (A.Y: 2016-17) M/s. Naik Seafoods Pvt. Ltd., the Assessing Officer. This is not the case in the present impugned Assessment Order. Therefore, in our considered view the order passed by the Ld. Pr.CIT is not proper and accordingly set aside.
In the result, appeal filed by the assessee is allowed.
Order pronounced on 26.11.2021 as per Rule 34(4) of ITAT Rules by placing the pronouncement list in the notice board.