DY. C.I.T.1(1), BILASPUR(CG) vs. JSPL,, RAIGARH(C.G)

IN THE INCOME TAX APPELLATE TRIBUNAL RAIPUR BENCH, RAIPUR BEFORE : SHRI N.S.SAINI, ACCOUNTANT MEMBER AND SHRI PAVAN KUMAR GADALE, JUDICAL MEMBER ITA No.210/RPR/2014 (Assessment Year :2009-2010) DCIT-1(1), Bilaspur- vs JSPL, 495004 Kharsia Road, Raighagh(CG) PAN No. : AABCJ 4683 J (Appellant) .. tsednepseR Revenue by : Shri Sanjay Kumar, DR Assessee by : Shri Mayank Jain, AR Date of Hearing : 12/01/2018 Date of Pronouncement 15/01/2018 आदेश / O R D E R Per Shri N.S.Saini, AM: This is an appeal filed by the Revenue against the order of the CIT(A), Bilaspur, dated 31.03.2014 for the assessment year 2009-2010. 2. The sole grievance of the Revenue is that the CIT(A) erred in deleting the amount to the extent of Rs.2,10,89,707/- out of disallowance of Rs.3,36,18,098/- made by the AO under the head Corporate Social Responsibility expenses. 3. Brief facts of the case are that the assessee is a domestic company, a subsidiary of Jindal Steel &.Power Limited (JSPL). It derives income from power generation and mining. The company has commenced the commercial generation of thermal power from its first of the four units of 250MW each from 08.12.2007. The assessee company filed its income tax return for the year under consideration declaring

2 ITA No.210/RPR/2014 income of Rs. 95,29,85,465/-. The AO assessed the income at Rs. 98;66,03,568/-. The only addition made to the returned income is Rs.3,36:18,098/- out of disallowance of expenses under the head "Corporate Social Responsibility". The assessee company submitted before the AO that the expenses relate to construction of school building, devsthan/temple, drainage, barbed wire fencing, roads and culverts, distribution of cloths, educational schemes, etc. voluntarily. But, the AO observed that no material has been placed on record to substantiate the claim that the entire expense was incurred on purposes shown in the written reply. Particulars of villages and communities where - development activities were earned out and nature of each and every activity with the quantum of expenditure incurred thereon also has not been furnished. No material whatsoever has been placed in support of existence of such facts. Further, the AO observed that the South Eastern Coalfields Limited deals with the mining and extraction of coal only whereas the appellant mines the coal as well as produces the power. Similar nature of claim made by South Eastern Coalfields Limited, the government controlled company has not been allowed for last several years by the Department. The Patna Bench of the Tribunal by consolidated order in the case of Central Coalfields Ltd., Ranchi, a subsidiary of Coal India Limited, for the A.Y. 1983-84 to 1986-87, dated 18-10-2000 had confirmed the order of the CIT(Appeals) confirming the disallowance made by the AO for those years. On similar issue considering the expenses being in the nature of charity and though laudable, the AO held that the expenses cannot be

3 ITA No.210/RPR/2014 said to have been incurred for the purpose of business. Thus, the amount of Rs.3,36,18,098/- stated to have been incurred for corporate social responsibility has been disallowed by the AO and added to the returned income. 4. The assessee carried the matter before the CIT(A) and submitted his submissions on 10.12.2012, 30.04.2013 and 28.03.2014 and relied on the decisions of Nagpur Bench of the Tribunal in the case of SECL, 85 ITD 608 (Nag.) and the decision of Hon’ble Karnataka High Court in the case of Mysore Kirloskar Ltd. Vs. CIT, (1987) 166 ITR 836 (Kar) and submitted that the disallowance made by the AO should be deleted. 5. Thereafter the CIT(A) after considering the submissions filed by the AR of the assessee on the above dates, forwarded to the AO along with bills and vouchers for his report. The AO in his remand report submitted that though the claim of the assessee regarding corporate social responsibility expenses is genuine, however as per the decision of Hon’ble Karnataka High Court in the case of Wipro Ltd., the claim of the assessee is not allowable u/s.37(1) of the Act. 6. In the rejoinder, the assessee submitted that the expenses incurred by the assessee company on education activity which is related to CSR activity and should be allowed as an expenditure u/s.37 of the Act being CSR expenditure. 7. The CIT(A) after considering the submissions of the assessee and remand report from the AO, restricted the disallowance to

4 ITA No.210/RPR/2014 Rs.1,46,00,000/- and vacated the disallowance to the extent of Rs.2,10,89,707/-. 8. Against the order of CIT(A), the Revenue is in appeal before us. 9. The AR of the assessee has filed adjournment petition. Since the reason for seeking adjournment was not found plausible one, the adjournment petition filed by the assessee is rejected and the appeal was heard ex-parte qua the respondent-assessee. 10. Ld. DR relied on the order of Assessing Officer. 11. We have heard rival submissions, perused the orders of lower authorities and materials available on record. In the instant case, the AO disallowed Rs.3,36,18,098/- being expenses incurred by the assessee under the head Corporate Social Responsibility expenses. 12. On appeal, the CIT(A) restricted the disallowance to Rs.1,46,00,000/- and vacated the disallowance to the extent of Rs.2,10,89,707/-. While doing so, the CIT(A) held as under :- “ Decision - Submission of the Ld. AR. report of the AO and rejoinder to the report of the AO were considered carefully. Corporate social responsibility, also called corporate conscience, corporate citizenship, social performance, or sustainable responsible business/ Responsible Business is a form of corporate self-regulation integrated into a business model. CSR policy functions as a built-in, self-regulating mechanism whereby a business monitors and ensures its active compliance with the spirit of the law, ethical standards, and international norms. The goal of CSR is to embrace responsibility for the company's actions and encourage a positive impact through its activities on the environment, consumers, employees, communities, stakeholders and all other members of the public sphere who may also be

5 ITA No.210/RPR/2014 considered as stakeholders. CSR is titled to aid an organization's mission as well as a guide to what the company stands for and will uphold to its consumers. Development business ethics is one of the forms of applied ethics that examines ethical principles and moral or ethical problems that can arise in a business environment. Government of India has been trying to make it mandatory to spend at least 2% of net profit on CSR, though some corporates vehemently oppose its mandatory nature, made the spending voluntary. But the debate continues. CSR is not philanthropy and CSR activities are purely voluntary. To provide companies with guidance in dealing with the above mentioned expectations, while working closely within the framework of national aspirations and policies, voluntary guidelines for CSR and their implementation have been developed. While the guidelines have been prepared for the Indian context, enterprises that have a trans-national presence would benefit from using these guidelines for their overseas operations as well. Since the guidelines are voluntary and not prepared in the nature of a prescriptive road-map, they are not intended for regulatory or contractual use. However, as per the New Companies Act, 2013 vide section 135 the Corporate Social Responsibility (CSR) has been made mandatory for companies having net worth of Rs. 500 crores or more OR having turnover of Rs. 1000 crore or more OR having net profit of Rs. 5 crores or more during any financial year, such company has to expend minimum 2% of net profit in CSR activities.

The CSR policy of the appellant company includes adoption of more than 42 villages for overall up-gradation, 10+2 co-educational O.P. Jindal School, O.P. Jindal Institute of Technology having state-of-the-art infrastructure, spread over 25 acres and AJCTE affiliated, O.P. Jindal Institute of Power Technology - CEA affiliated, diploma courses to be started from September 2008. Other initiatives include adoption of various government run ITIs in Chhattisgarh. Multi-specialty O.P. Jindal Hospital & Research Centre. The expenses incurred on water supply for perennial

6 ITA No.210/RPR/2014 availability of portable water, roads and culverts, toilets and others, water tanks, other community works, temple renovation, school building renovation etc. in the villages for up-gradation are part of implementation of CSR policies of the company. The expenses were made for the welfare of the employees as well. Similar expenses on community development and welfare 'of employees were allowed as admissible expenses by the Hon'ble ITAT Nagpur Bench, Nagpur in the case of SECL [Reported in 85 IT'D 608 (Nag.)]. The expenditure on construction of school building, contribution to school, etc. have been held as admissible business expenditure in the case of C1T Vs. Travencore Cochine Chemicals Ltd 243 1TR 284 (Ker.), Palani Andavar Mills Vs. CIT 110 ITR 284 (Ker.), Mysore Kirloskar Ltd. Vs. CIT 166 ITR 836 (Mad), CIT Vs. Rajasthan Spinning & Weaving Mills Ltd. 281 ITR 408 (Raj.), Bhatar Heavy Electrical Ltd. Vs. DCIT 98 TTJ 565 (Del), Simbholi Sugar Mills Ltd. Vs. CIT 45 ITR 125, etc.. Similarly, construction of roads and culverts for providing easier access for its workman and movement of goods are admissible expenditure u/s 37 of the Act. [Relied on CIT Vs. Coats Viyella India Ltd. (2002) 253 ITR 667 (Mad.), Sugar Factory & Oil Mills Pvt. Ltd. Vs. CIT (1980) 125ITR 293 (SC), etc.}. The expenditure under the above heads incurred by the appellant company as a good corporate citizen and as measure of gaining goodwill of the people living in and around its industries through the aforesaid activities are admissible expenditures as held in CIT Vs. Madras Ref' '.2004) 266 ITR 170 (Mad.) and other judicial pronouncement relied upon by the Ld. AR.

In view of the above, legal propositions, guidelines and stipulation put forth by various government agencies like pollution board and local administration, the expenses under the head CSR booked in the P&L A/c was examined by the undersigned and observation made are enumerated hereunder:

(a) As per the ledger account of CSR, the total expenses is Rs.3,36,18,098/-. Out of the total expense, the appellant has made

7 ITA No.210/RPR/2014 the following payments to O.P. Jindal Samaj Kalyan Samiti on following dates:

Sl.No. Date Amount 1. 09-04-2008 10,00,000 2. 12-05-2008 10,00,000 19-06-2008 5,00,000 04-07-2008 10,00,000 21-07-2008 6,00,000 01-08-2008 15,00,000 02-09-2008 5,00,000 11-09-2008 5,00,000 26-09-2008 10,00,000 11-10-2008 5,00,000 22-10-2008 5,00,000 11-11-2008 10,00,000 19-11-2008 10,00,000 09-01-2009 10,00,000 04-02-2009 10,00,000 10-02-2009 5,00,000 02-03-2009 10,00,000 17-03-2009 5,00,000 Total 1,46,00,000

(b) Thus, out of Rs. 3,36,18,098/- under CSR, the appellant paid Rs.1,46,00,000/- to O.P. Jrndal Samaj Kalyan Samiti and balance of Rs.1,90,18,098/-was expended directly by the appellant company towards CSR. Following items debited to CSR A/c are found to be not in the nature of CSR and hence, found to be not admissible u/s 37(1) of the Act.

S.NO. Date Description Amount 1. 12-01-2009 Amount paid to Dyananjay Singh towards 5,000 Sashastra Sena Flag Day dated 07-12-2005 2. 30-01-2009 Amount paid to Triloktoma Toppo towards 20,000 Tirath Yatra at Tirupati Balaji Temple 3. 30-01-2009 Amount paid to Lalit Guupta towards Tirath 20,000 Yatra at Tirupati Balaji Temple 4. 30-01-2009 Amount paid to Girdhari Sidar towards Tirath Yatra at Tirupati Balaji Temple 20,000

8 ITA No.210/RPR/2014

(c) The appellant company has made contribution to the trust, but it has maintained details of expenses made by the trust in its books of account and claimed the expenses under CSR. It is stated that expenses can be broadly classified into two categories i.e. CSR details like borewell works, boundary wall, construction of building, community stage, drinking water facility, road and school building construction, etc. given in Annexure A to R of the written submission totaling to Rs. 2,12,34,669/- and CSR details relating to O.P. Jindal Samaj Kalyaa Samiti in Annexure 1 to 15 of the written submission totaling to Rs.1,23,83,429/-. The summary of expenses under CSR through O.P. Jindal Sarnaj Kalyan Samiti is given hereunder:

9 ITA No.210/RPR/2014

INDEX M/S JINDAL POWER LTD. AT.:- TAMNAR, POST:- TAMNAR. DISTT. RAIGARH (CG.) (DETAILS OF CSR EXPENDITURE FOR THE F-.Y. 2008-09) Sr. Nature of Programme Amount TDS Annexure No. No. 1. Scholarship & Stipend 523,600 N.A 1 2 School Teachers remuneration 742,052 N.A 2 3 Welfare Camp & Function 387,254 N.A 3 4 Remuneration Charges 13,500 N.A 4 5 Training Self help Group 157,100 N.A 5 6 Training Lac Cultivation 73,000 N.A 6 7 Training Fishery 682,284 N.A 7 8 Training Tailoring 33,873 N.A 8 9 Construction of 40,905 N.A 9 Borewell/Ringwell 10 Health CAMP-Operation Camp 77,118 N.A 10 11 Salary & Wages-Staff 5,091,072 186720 11 12 Salary & Wages-School 2,103,765 57045 12 13 Financial assistance Health 260,000 N.A. 13 14 Financial assistance social 2,121,943 15407 14 activities 15 Medical Camp Family Planning 75,963 N.A. 15 Total 12,383,429 259,172 d) In this context, it is pertinent to reproduce the Income and Expenditure A/c of O.P.Jindal Samaj Kalyan Samiti for AY.2009-10. O.P. JINDAL SAJAM KALYAN SAMITI AT/PO TAMNAR, DISTRICT, RAIGARH (C.G.) INCOME & EXPENDITURE ACCOUNT FOR THE YEAR ENDED ON 31-03-2009 EXPENDITURE AMOUNT (In INCOME AMOUNT(I Rs.) n Rs.) Welfare Expenses Contribution Education Activity Contribution received –JPL 3225733.00 14600000.00 Health Activity 563232.00 Member’s Contribution 36000.00 Sports Promotion Activity 3250.00 Women's Empowerment 916788.00 Activity Social Welfare Activity Interest Received from Bank 1276159.00 39001.00 Sanitation Activity 48985.00 Community Development- 569148.00 Infrastructure Financial Assistance Activity 2254525.00 Stipend to Social Worker 5090596.00 Functions & Celebration 420951.00 Fooding Exp. 2999.00 Printing Stationery 320.00 Conveyar.ee & Travelling Exp. 69566.00 Telephone Expenses 7429.00 Staff Recruitment Expenses 7429.00 Insurance Expenses 5205.00 Bank Charges 4565.00 Audit Fees 5000.00 Fees & Taxes 2300.00 Miscellaneous Expenses 67958.00 Surplus (Excess of Income Over Expenses) Transferred to Balance Sheet 119692.00 Total 14,675,001.00 Total 14,675.00

10 ITA No.210/RPR/2014 (e) Out of total receipts of Rs.1,46,75,001/-, the trust received Rs.1,46,00,000/- as contribution from the appellant company. Shri Naveeu Jindal, Director and shareholder of the appellant company is one of the authors/founders of the trust in the name of father late O.P. Jindal. The trust applied Rs.1,45,55,309/- for charitable purposes. Perusal of expenses of the trust in its bocks of account and expenses of the trust recorded in the books of account of the appellant company, it appears that even the head of expenses are different, leaving aside difference in total expenditure booked by the trust and expenditure booked by the appellant company under CSR. The difference could nor "be reconciled in any proceedings under the Act. Facts available on record indicate that the trust is owned and controlled by the appellant company. The purpose of contribution to the trust appears to be not more than for altruistic consideration, apart from reducing the tax liability. A donation made to a charitable trust may make the appellant company entitled to relief u/s 80G of the Act, subject to fulfillment of requirements of said section, but it cannot get deduction u/s 37(1) without proving any direct nexus or business expediency as onus in this respect lies on it. In view of the above facts and circumstances of the case, it is held that the expenses under CSR incurred by the appellant company as per the details given in Annexure A to R is admissible u/s.37(1) of the Act to the extent of Rs.2,10,89,707/- [Rs.2,12,34,669 – Rs.1,44,962] and other part of the CSR expenses i.e. Rs.1,23,83,429/- being not direct expenses but part of contribution of Rs.1,46,00,000/- made to the trust, it is held as inadmissible u/s.37 of the Act. 3. In the result, the appeal is partly allowed.”

11 ITA No.210/RPR/2014 Rs.2,10,89,707/-. Hence, we find no good reason to interfere with the order of CIT(A), which is confirmed and the ground of appeal of Revenue is dismissed. 14. In the result, appeal filed by Revenue is dismissed. Order pronounced in the open court on this 15/01/2018. Sd/- Sd/- (PAVAN KUMAR GADALE) (N. S. SAINI) न्याययक सदस्य / JUDICIAL MEMBER ऱेखा सदस्य / ACCOUNTANT MEMBER Raipur; ददन ांक Dated 15/01/2018 प्र.कु.मि/PKM, Senior Private Secretary आदेश की प्रयिलऱपि अग्रेपिि/Copy of the Order forwarded to : अऩीऱ थी / The Appellant- 1. प्रत्यथी / The Respondent- 2. आयकर आयुक्त(अऩीऱ) / The CIT(A), 3. आयकर आयुक्त / CIT 4. 5. विभ गीय प्रतततनधध, आयकर अऩीऱीय अधधकरण, Raipur / DR, ITAT, Raipur 6. ग र्ड प ईऱ / Guard file. सत्य वऩत प्रतत //True Copy// आदेशानुसार/ BY ORDER, (Senior Private Secretary) Income Tax Appellate Tribunal, Raipur