Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, RAIPUR BENCH, RAIPUR
Before: S/SHRI N.S SAINI & PAVAN KUMAR GADALE
IN THE INCOME TAX APPELLATE TRIBUNAL, RAIPUR BENCH, RAIPUR
BEFORE S/SHRI N.S SAINI, ACCOUNTANT MEMBER AND PAVAN KUMAR GADALE, JUDICIAL MEMBER
ITA No.362/Rpr/2014 Assessment Year : 2010-2011
DCIT, 1(2), Aayakar Vs. Hira Industries ltd., 557A, Bhavan, Central Revenue Urla Industrial Area, Raipur Building, Civil Lines, Raipur. PAN/GIR No.AABCH 2868 P (Appellant) .. ( Respondent)
Assessee by : None Revenue by : Shri R.M. Mujumdar, DR
Date of Hearing : 16/01/ 2018 Date of Pronouncement : 17 /01/ 2018
O R D E R Per Pavan Kumar Gadale, JM This is an appeal filed by the revenue against the order of the CIT(A)-
Raipur, dated 26.9.2014 for the assessment year 2010-2011.
The revenue has raised the following grounds of appeal:
“1. Whether in law and facts & circumstances of the case, the CIT(A) has erred in restricting the disallowance of Rs.51,165/- on account of CSR/donation expenses thereby giving relief of Rs.76,50,000/-. 2. Whether in law and on facts & circumstances of the case, the CIT(A) has erred in deleting the disallowance of Rs.50,77,701/- u/s.14A of the I.T.Act, 1961.”
2 ITA No.362/Rpr/2014 Assessment Year : 2010-2011
The respondent-assessee has filed an adjournment petition to adjourn
the appeal on the ground that the ld counsel for the assessee engaged to
represent the case on behalf of the assessee will proceed to Mumbai for
attending the part heard matters in Mumbai Benches and will not be
available to argue the case. We find that the reason for adjournment is not
plausible one, hence the adjournment petition is rejected and the matter is
heard and disposed of on the basis of materials available on record and after
hering ld D.R.
Apropos Ground No.1 of appeal, the facts are that the Assessing
Officer found that the assessee has debited a sum of Rs.94,51,165/- to the
profit and loss account under the head “Corporate Social Responsibility
expenses”. The Assessing Officer required the assessee to justify the claim.
The assessee submitted that the amounts were donated to Akandsha Lions
School for mentally handicapped, Mikki Memorial Trust, a charitable institute
for eye treatment, Sitapur Shiksha Sanstan, an institute for education of
poor and needy children. The Assessing officer observed that Akandsha
Lions School for mentally handicapped is not registered with the Income Tax
Department, therefore, he disallowed Rs.59,00,000/-. As regards to
donation to Mikki Memorial Trust of Rs.25,00,000/-, a charitable institute for
eye treatment, and Rs.10,00,000/- to Sitapur Shiksha Sanstan, the
3 ITA No.362/Rpr/2014 Assessment Year : 2010-2011
Assessing officer observed that both these institutions are registered u/s.
80G, therefore, he allowed 50% of the donation and disallowed balance 50%
of the donation. As regards to donation of Rs.36,165/- and Rs.15,000/- paid
to Ganesh Puja, Durga Puja, Cricket tournament, etc, the Assessing officer
disallowed the same. Hence, in sum and substance, he disallowed
Rs.77,01,165/- out of total expenses claimed by the assessee.
On appeal, the CIT(A) allowed part relief to the assessee by allowing
Rs.76,50,000/- and disallowed Rs.51,165/-.
Ld D.R. submitted that the CIT(A) has erred in restricting the addition
on account of donation of Rs.51,165/- and allowing substantial relief to the
assessee. Ld D.R. emphasized that the decisions relied on by the CIT(A) are
not relevant to the facts of the assessee’s case. The expenses claimed by
the assessee cannot be allowed as the same are not wholly and exclusively
incurred for the business purposes of the assessee. Ld D.R. submitted that
the assessee has not complied with the requisite conditions u/s.37(1) of the
Act to claim the deduction. He also submitted that the assessee has not
shown any nexus between the current benefit and figure benefit for the
assessee in making such huge donations in the institutions.
We have heard ld D.R, perused the orders of lower authorities and
materials available on record. We find the assessee has made donations to
4 ITA No.362/Rpr/2014 Assessment Year : 2010-2011
the respective institutes, such as Akanksha Lions School for mentally
handicapped, Mikki Memorial Trust, a charitable institute for eye treatment,
Sitapur Shiksha Sanstan, an institute for education of poor and needy
children. It is not in dispute that the assessee has not made donations to
the above said institutions. The expenses are incurred for welfare of
community, which ultimately improves the corporate image and enhance
goodwill in public. Schedule VII of the Companies Act prescribes activities
towards which CSR expenditure should be incurred like slum development,
eradicating poverty, promoting health care, gender equality ,taking
education initiatives, One of the main things that come to fore is what is the
effect of CSR commitments from tax deductibility perspective. The general
norm has been to allow a deduction for donations, contributions, etc., made
for charitable purposes under Section 80G of the Income-tax Act, 1961. The
corporate houses were expecting relief under section 37 (1) of the Income-
tax Act, 1961. It is a residuary section in the Act to allow business
expenditure which is done in the normal course of business and profession.
The requirement is that it should have a nexus with business objectives and
should not be of a personal nature. In the instant case, the assessee has
donated the amounts to the institutions, which are engaged in medical
treatment; school for mentally handicapped and education for poor and
needy children. These itself prove that the expenditure incurred by the
5 ITA No.362/Rpr/2014 Assessment Year : 2010-2011
assessee are for charitable purposes. Hence, the deduction under section 37
of the Income-tax Act, 1961 is to be allowed.
We also find that the CIT(A) has relied on the decision of Hon’ble
Karnataka High Court in the case of CIT vs. Infosys Technologies Ltd., 360
ITR 714 (Kar) has held that the expenditure incurred on social responsibility
was laid out or expended wholly and exclusively for purposes of business.
The CIT(A) has referred to the amendment made in Finance Act (No.2)
2014 w.e.f. 1.4.2015 in Section 37, wherein, it is declared that for the
purposes of sub-section(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 be an expenditure
incurred by the assessee for the purposes of the business or profession.
The CIT(A) has held that there was no such embargo for the preceding
years. In view of above, the CIT(A) held that the disallowance cannot be
sustained. We are of the considered opinion that the CIT(A) has rightly
considered the decision and deleted the addition made by the Assessing
Officer and Ground No.1 of appeal of the revenue is dismissed.
The next issue relates to deletion of Rs.50,77,701/- u/s.14A of the Act.
6 ITA No.362/Rpr/2014 Assessment Year : 2010-2011
The Assessing Officer noticed that the assessee has made investment
of Rs.1,96,52,176/- in the shares of Hira Ferro Alloys Ltd., a group company.
As on 31.3.2010, the total investment made by the assessee company in
share stood at Rs.18,39,22,128/-. In response to Assessing Officer’s query,
the assessee has submitted that the assessee company has earned cash
profit of Rs.1.30 crores and has not incurred any direct or indirect
expenditure for making such investment, therefore, provisions of section
14A of the Act are not applicable. The Assessing Officer observed that
dividend income from the investment is exempt from tax and, therefore, the
corresponding interest out of interest expenditure claimed on borrowed
funds is not allowable u/s.14A of the Act. Therefore, he disallowed
Rs.50,77,701/-.
On appeal, it was submitted that the assessee has earned dividend
income of Rs.46.86 lakhs on the investments made by the company in its
associate companies Hira Ferro Alloys Ltd., in which the assessee is holding
almost 40% of shares. The investment in the company is out of borrowed
fund from Hira Steels Ltd., and Jagdamba Power and Alloys Ltd., and the
interest amounting to Rs.1,96,52,371/- attributable to the amount of
investment of Rs.16.37 crores has been added to the cost of improvement,
thereby interest on borrowed fund of Rs.1,96,52,371/- was not debited to
7 ITA No.362/Rpr/2014 Assessment Year : 2010-2011
profit and loss account. It was also submitted that by adding interest
expenditure of Rs.1,96,52,371/- to the cost of investment means reducing
the interest expenditure by that amount resulting overall increase of the
total income of the assessee, therefore, further disallowance on account of
interest of Rs.50,77,644/- is not correct.
The CIT(A) observed that interest on borrowed funds which is
attributable to the investment in the share capital of associated companies
has been added to the cost of investment and as such the total interest
debited to the profit and loss account has been reduced to that extent.
Therefore, disallowance u/s.14A does not arise at the entire interest
expenses attributable to the investment made in the associated companies.
Therefore, he deleted the addition made by the Assessing Officer.
The contention of ld D.R. is that the assessee has made investment in
shares and has been receiving dividend income and claimed exempt from
tax. The assessee has been utilizing borrowed funds for investment and,
therefore, the interest component to the extent of exempt income cannot be
allowed. He submitted that the CIT(A) has erred in allowing the claim of the
assessee without considering all these facts.
8 ITA No.362/Rpr/2014 Assessment Year : 2010-2011
After hearing ld D.R. and perusing the materials available on record,
we find that the Assessing Officer has made addition applying section 14A
r.w. 8D of the Act in respect of investment made by the assessee in the
group companies and the investment was for making profit and for future
benefit of the assessee company. The Assessing Officer noticed that the
assessee has incurred certain expenditure towards interest and also these
investments were made out of borrowed funds in the group companies and,
therefore, applying the provisions of section 14A r.w.s 8D, the Assessing
Officer made disallowance. Whereas, the CIT(A) found that the assessee
has made investment in the sister concern out of its non-interest bearing
funds, which is not disputed by ld D.R. and also the investments have been
made with profit motive. In these circumstances, the CIT(A) found that the
disallowance is not in order Considering the facts of the case, we are
inclined to uphold the order of the CIT(A) and reject the ground of appeal of
the revenue.
In the result, appeal filed by the revenue is dismissed.
Order pronounced on 17 /01/2018. Sd/- sd/- (N.S Saini) (Pavan Kumar Gadale) ACCOUNTANT MEMBER JUDICIALMEMBER Raipur; Dated 17 /01/2018
9 ITA No.362/Rpr/2014 Assessment Year : 2010-2011
B.K.Parida, SPS Copy of the Order forwarded to : 1. The Appellant : DCIT, 1(2), Aayakar Bhavan, Central Revenue Building, Civil Lines, Raipur 2. The Respondent. Hira Industries ltd., 557A, Urla Industrial Area, Raipur 3. The CIT(A)- Raipur 4. Pr.CIT- Raipur 5. DR, ITAT, Raipur 6. Guard file. //True Copy//
BY ORDER,
SR.PRIVATE SECRETARY ITAT, Raipur