DY. C.I.T.1(2), RAIPUR (CG) vs. M/S HIRA INDUSTRIES LTD., RAIPUR (CG)

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.

“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.”

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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.

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.

Rs.76,50,000/- and disallowed Rs.51,165/-.

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.

materials available on record. We find the assessee has made donations to

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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

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assessee are for charitable purposes. Hence, the deduction under section 37

of the Income-tax Act, 1961 is to be allowed.

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.

6 ITA No.362/Rpr/2014 Assessment Year : 2010-2011

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/-.

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.

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.

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.

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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.

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