GEORGE KOCHUPARAMBIL, PROP. UNITED GRANITES & METALS,THODUPUZHA vs. CENTRAL CIRCLE, KOCHI, KOCHI

O R D E R Per: Beena Pillai, JM The present appeal is filed by the assessee against the order dated 12.10.2021 passed by the Pr. CIT (Central), Kochi under Section 263 of the Income Tax Act, 1961 (the Act) for AY 2017- 18 on the following grounds of appeal: - “1. The learnt Pr, Commissioner of Income-Tax went wrong in setting aside the assessment by holding that the order passed under section 143(3) on 30/12/2019 by the ACIT Circle-1 Aluva is erroneous for the reason of the failure on the part of the assessing officer to examine the admissibility of deduction of Rs 24,15,860 claimed in respect of the amount paid to local authority for the welfare of the local society. He ought to have appreciated that - (i) such payment is a pre-requisite to conduct the business of quarry in the State of Kerala; (ii) had the payment not made it would not have been possible to derive an income to the tune of Rs 4.13 crores and to pay tax of Rs 1.46 crores during the year; (iii) as such, the expenditure is incurred wholly and exclusively for the purposes of the business carried on; (iv) the amount of annual payment of Rs 30 lakhs mentioned in the SEIAA-Environmental Clearance was agreed to be paid after the close of the previous year relevant to the assessment year 2017-18 and, as such payment of a lesser amount in A.Y 2017-18 cannot be considered as a reason for holding that it was not expended wholly and exclusively for the purposes of the business carried on; and (v) that the expenditure incurred was not in respect of activities relating to Corporate Social Responsibility referred to in section 135 of the Companies Act, 2013 and, therefore, the Explanation - 2 below section 37(1) has no application in this case and, as such is allowable under section 37(1) of the I. T Act, 1961.”

2. The brief facts of the case are that the assessee is an individual and filed his original return of income on 25.01.2018 declaring total income of Rs.4,12,82,340/- and a net agricultural income of Rs.9,24,880/-. The case was selected for scrutiny for the following reasons: - (i) Large agricultural income shown in the ITR and large cash deposits during the demonetisation period; (ii) Mismatch in expenditure of personal nature reported in the audit report; (iii) Opening written down value of fixed assets as per ITR of the current year is greater than the closing written down value of fixed assets as per ITR of the preceding year.

3. The learned A.R. submitted that the assessee filed various details in respect of the issues on which 143(2) notices were issued.

3.1 The learned AO then passed the assessment order after making addition to the total income which amounted to Rs.4,63,68,773/-. The AO also reduced the net agricultural income to Rs.3,00,000/- vide order dated 30.12.2019. 3.2 The learned PCIT thereafter issued notice under Section 263 of the Act for the reason that the deduction claimed by the assessee for society welfare expenses amounting to Rs. 24,15,860/- under Section 37 of the Act was not an allowable expenditure. The assessee, in response to the same, filed reply on 19.03.2021 and 05.10.2021. He submitted that the AO has called for details and on verification had made disallowance under Section 37 of the Act amounting to Rs.41,41,053/- in the original assessment proceedings. He submitted that initiation of proceedings under Section 263 of the Act is uncalled for as all the necessary details were furnished by the assessee to the AO based on which the assessment order has been passed. He placed reliance on the decision of the Hon'ble Bombay Court in the case of PCT vs. Sumatichand Tolamal Gouti reported in (2019) 111 taxmann.com 287 (Bom) 4. On the contrary, the learned D.R. submitted that though notice under Section 143(2) has been issued to the assessee there is lack of enquiry by the AO and therefore initiation of proceedings under Section 263 of the Act was rightly done.