DCIT, CIRCLE - 10(1), KOLKATA, KOLKATA vs. M/S. JAYSHREE CHEMICALS LTD., KOLKATA

Smt. Ranu Biswas, Addl. CIT-DR अपीलाथ� क� ओर से/By Appellant Shri Arvinid Agarwal, Advocate ��यथ� क� ओर से/By Respondent 18-09-2019 सुनवाई क� तार�ख/Date of Hearing 13-12-2019 घोषणा क� तार�ख/Date of Pronouncement आदेश /O R D E R PER S.S.Godara, Judicial Member:- This Revenue’s appeal for assessment year 2011-12 arises against the Commissioner of Income Tax (Appeals)-4, Kolkata’s order dated 09.04.2018 passed in case No.868/CIT(A)-4/14-15, involving proceedings u/s 143(3) of the Income Tax Act, 1961; in short ‘the Act’. Heard both the parties. Case file(s) perused.

Assessment Year 2011-12 DCIT, Cir-10(1), Kol. Vs M/s Jayshree Chemicals Ltd. Page 2 3. The Revenue’s first and foremost grievance canvassed in the instant appeal challenges correctness of CIT(A)’s action reversing assessment findings disallowing assessee’s foreign tour expenses amounting to ₹1,34,683/- vide following detailed discussion:- “I have perused the order of the AO and have carefully considered the submission made by the ld. A/R. I find that out of the total expenses of Rs.1,81,161/-, sum of Rs.87,941/- was incurred for the foreign tour of the MD Shri V. Bangur. The AO has not given any reason whatsoever in his order in disallowing the same. I further find from record that during the year the appellant had installed and had a tie-up with Uhde Gmbh of German for its state-of-the-art Membrane Cell Technology which was commissioned during the year. I find reason in the submission of the ld. A/R that the Chairman and the Managing Director’s tour to Europe was directly connected with the visit to Germany for its business exigency. Accordingly, I direct the ld. A.O to delete the addition of Rs.46,742/- for foreign tour of Shri S.K. Bangur, Chairman and Rs.87,941/- for the foreign tour of MD Shri V. Bangur. With regard to the addition made by the AO of Rs.46,778/- on the tour of the wife of the Managing Director Smt. Bharti Bangur, I do not find much reasoning as made by the ld. A/R in his submission. The ld. A/R could not produce any Board resolution and any plausible reason for the visit of the wife of the Chairman. Accordingly, I uphold the addition of Rs.46,478/- for the expenditure made on the foreign tour of the wife of the Chairman.” Accordingly this ground is partly allowed.”

and statement of facts and the submission made by the ld. A/R and the paper book submitted which are on record. I have found from the Annual Report and the Audited Accounts of the appellant that the manufacturing activity of the appellant is situated at Ganjam, Odisha. From the detail of the expenses under the head Corporate Social Responsibility (CSR) submitted during the course of assessment proceedings before the AO the expenditures are on account of local contribution for cricket tournaments, drama, various pujas, plantation expenditure, school running expenses, expenditure on account of maintenance of temples and Gurdwaras and running of Homeo Clinic at Ganjam. The AO has not doubted the genuineness of the expenditure and he has accepted that the expenditure as incurred at Ganjam and the village surrounding Ganjam in Odisha were the factory of the appellant is situated, and form the photographic evidence and the Directors report which is at paper book page 15 to 17 and from the Annual Report which is at Paper book page 40 to 41, I find that the appellant has incurred the expenditure for its organization and benefit of its employees for health, education, environment management, water conservation and social activity. I have considered the ratio of the judgement cited by the AO and I find that the same are distinguishable and are not applicable in the appellant case. The ld. A/R in his written submission has relied upon the ratio of the judgement of the High Courts and also filed copy of the judgements which are at paper book page 159 to 204. I have considered the ratio of the judgement relied upon the appellant, copies have been placed on record. The Hon'ble Supreme Court in the case of Chandulal Keshavlal reported in 38 ITR 601 has held that, ‘A sum of money expended not with a necessity and with a view to direct and immediate benefit to the trade, but voluntarily and on the grounds of commercial expediency and in order to indirectly facilitate, carrying on of business may yet to be expended wholly and exclusively for the purpose of the trade.’ The Hon'ble Bombay High Court in the case of Hindustan Petroleum Corpn. Ltd. vs. DCIT (2015) 96 ITD page 186, where it was held that the expenditure incurred on CSR are required to be treated as business expenditure eligible for deduction u/s 37(1) of the I.T Act, 1961. Considering the facts and material on record and the ratio of the judgement of the various High Courts and the Tribunals, and coming to a finding that the expenditure incurred at the Ganjam factory of the appellant was for thebenefit of its workers and employees, I hold that the entire expenditure was wholly and exclusively for the Assessment Year 2011-12 DCIT, Cir-10(1), Kol. Vs M/s Jayshree Chemicals Ltd. Page 4 purpose of business and accordingly allowable u/s. 37(1) of the I.T. Act 1961, I direct the AO to delete the addition of Rs.10,56,564/-. This ground of appeal of the appellant is allowed.”

6. We have given our thoughtful considerations to rival contentions. There is hardly any dispute between the parties that the expenses amounting to ₹10,56,564/- comprise of local contributions in cricket tournament, drama, various pujas, plantation expenditure, school running expenses, expenditure on account of maintenance of temples and gurdwards running of homeo clinics at Ganjam having corresponding figure(s) of ₹2,56,988/-,₹82,170/-, ₹5,28,159/-, ₹98,829/- and ₹60,408; respectively. The Assessing Officer was very fair that the same amounted to CSR in the nature of donations. We hold that the relevant explanation to this effect of sec. 37(1)(2) inserted vide the Finance Act, 2014 is applicable with effect from 01.04.2015 than the impugned assessment year 2011-12 only. Coupled with, there is no dispute on genuineness of the impugned claim since the assessee had already placed on record all the corresponding details forming part of case record. We therefore find no reason to interfere with the CIT(A)’s action under challenge deleting the impugned disallowance. The Revenue fails in its instant second substantive grievance as well.

7. Lastly comes the third issue of additional depreciation disallowance amounting to ₹1,99,40,000/- in the course of assessment and reversed in lower appellate discussion as under:- “I have carefully perused the assessment order and I have gone through the contention of the AO. I have considered the written submission as placed by the ld. A/R during the course of hearing. From records, I find that the expenditure incurred for the services rendered by Udhe India Pvt. Ltd. for supply and commissioning and installation has been capitalized by the appellant in its Books of A/c. The ld. A/R has placed on record the Tax Audit Report and the Depreciation Schedule being Block of Assets for the year ended 31st March 2011 from where it is substantiated that the entire expenditure towards the cost and expenditure towards the services for installation and commissioning has been capitalized. I have carefully considered and perused the certificate of Udhe India Pvt. Ltd. which was filed by the ld. A/R which is at Paper Book page 28 & 29. Udhe India has Assessment Year 2011-12 DCIT, Cir-10(1), Kol. Vs M/s Jayshree Chemicals Ltd. Page 5 certified that they have supplied the environment friendly membrance cell technology for the production of the plant for caustic soda, chlorine, hydrochloric acid and sodium hypo-chlorite which has started from the end of December 2010 onward. They have also certified that the supply of the plant and machinery and its services are essentially required for erection and commissioning of the membrance cell plant and the said membrance cell plant has been installed to achieve the targeted production scheme. They have also done the procurement/inspection and have provided expediting services ad supervision services for the unit to come into working condition. Accordingly to the sub-clause (iia) to sub-section (1) of section 32 of the Income Tax Act 1961, additional depreciation of 20% of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii) where the plant and machinery has been acquired and installed by the assessee engaged in the business of manufacture or production of article or things. I find from record that the essential services rendered by Udhe India Pvt. Learned. For the supply and commissioning and installation has been capitalized and is a part of the actual cost of machinery or plant. In the given facts and circumstances of the case after considering the provision of law and the submission as made by the ld. A/R and respectfully following the ratio of the judgement of Hon'ble Supreme Court in the case of Challapalli Sugars Ltd. (supra), I direct the AO to allow additional des as claimed by the appellant as per the block of assets being part of the tax audit report on record. This ground of the appellant is allowed.”

8. Ms. Biswas strongly supports the Assessing Officer’s twin reasoning that the impugned additional depreciation claim is not allowable since same pertains to service provided by under M/s Udhe India Pvt. Ltd. regarding procurement / installation and not for direct manufacture. And that the relevant statutory provision i.e. sec. 332(1)(iia) does not permit such relief to a manufacturer or purchaser which turns out to be more than a cost of its plant and machinery. We find no merit in Revenue’s instant last grievance as well. It emerges during the course of hearing and as noticed in CIT(A) detailed discussion in light of assessee’s detailed supportive evidence that the cost of services rendered by M/s Udhe India Pvt. Ltd.; for supply commissioning and installation has been capitalized and made part of the actual cost of machinery or plant (supra). The assessee has therefore claimed its additional depreciation in question on aggregate corresponding amount only. We hold in these facts that the CIT(A) has