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January 25, 2023

Providing the assessee filed the return within the deadline, Section 234A interest was not assessed

by CA Shivam Jaiswal in Income Tax

Providing the assessee filed the return within the deadline, Section 234A interest was not assessed

Fact and issue of the case

These appeals filed by the assessee is directed against the order dated 22.02.2019 of the Ld. CIT(A), New Delhi, relating to Assessment Years 2014-15 & 2015-16.

The grounds of appeal raised by the assessee read as under:-

The Learned CIT(A) has erred in confirming disallowance of Corporate Social Responsibility (CSR for short) expenses of Rs. 95.10 Lakhs-incurred under the directions of DPE Govt. of India requiring Companies to spend a prescribed percentage of its profits on CSR-and also made mandatory under the Companies Act 2013.

The learned CIT(A) has erred in confirming disallowance of CSR expenses of Rs. 95.10 lakhs- in utter disregard to the appellate decisions holding that Explanation 2 to section 37(1) of the Act is not applicable to years till A.Y. 2015-16. Ground nos.2 & 3 are general in nature.

Learned counsel of the assessee submitted a copy of the Tribunal order dated 25.02.2020 in ITA No. 3647/Del/2017 for A.Y 2013-14 in assessee’s own case and submitted that under identical facts and circumstances, identical issue has been decided in favour of the assessee by observing that the Explanation 2 to section 37(1) of the Act is applicable from A.Y. 2015-16 and onwards and not prior to the amendment, therefore the identical ground of the assessee for A.Y. 2013-14 has been decided in favour of the assessee. Replying to the above the Ld. Senior Departmental Representative although strongly supported the orders of the authorities below. However, in all fairness, he did not controvert that the identical has been decided in favour of the assessee. In assessee’s own appeal for A.Y. 2013-14 by the coordinate bench of the Tribunal by the order dated 25.02.2020.

Observation of the court

We find it appropriate and necessary to reproduced the relevant part of the Tribunal for A.Y. 2013-14 which read as follows:-

CIT(A) in so far as disallowance of CSR expenses is concern held that though these expenditure may incur as per the guidelines issued from Bureau of Public Enterprises, but there were no commercial expediency and after invoking Explanation 2 to Section 37(1) and held that Assessing Officer was justified in making the disallowance. Similarly, he has confirmed the disallowance of interest on TDS default.

Before us, Id. counsel for the assessee submitted that first of all, Explanation 2 to Section 37 has been brought in the statute from 01.04.2015, that is, from the assessment year 2015-16 and hence such an expense cannot be disallowed for prior assessment years. He further submitted that, various Tribunals have held that these expenses are allowable expenses. In support, Id. counsel placed reliance upon the decision of Delhi Bench in the case of The National Small Industries Corporation Ltd. in ITA No. 1367/Del/2016 and NTPC-SAIL Power Company Pvt. Ltd. vs. ACIT in ITA No.5687 and 6501/Del/2014.

Regarding interest u/s. 201(1A), the Id. counsel submitted that, assessee has not claimed the TDS and in fact already fresh form 26AS has been issued which has been rectified and no default has been found. In support, he drew our attention to the revised form 26AS placed at the paper book from pages 67 to 69. Thus, no interest should be charged when there is no default.

On the other hand, Id. DR has strongly relied upon the order of the Ld. CIT (A) and submitted that CS expenses cannot be held to be for the purpose of business and they have specifically prohibited in view of Explanation-2 to Section 37(1).

After considering the rival submissions and on perusal of the relevant findings given in the impugned orders and material placed on record, we find that assessee is a public sector undertaking and being a PSU, Government of India has directed that certain specified percentage of annual profit should be spent for achieving the national objectives / goals as their social responsibilities. The Bureau of Public Enterprises, Government of India, which is authorized to direct the PSUs had issued direction to spent specified percentage of the profit for CSR. Assessee, being a PSU, has to follow instruction and carry out such responsibilities. Incurring of such expenditure has been allowed as revenue expenditure by following various

High Court judgments:-

(i) CIT vs. Madras Refineries Ltd., (2004), 266 IT 170 (Mad.)

(ii) CIT vs. Kamal & Co., (1993) 203 ITR 1038 (Raj.)

Further, there are various decisions of ITAT that such expenditure are allowable as business expenditure and it has been held that Explanation 2 to Section 37(1) is applicable from Assessment Year 2015-16 and not prior to amendment. Thus, we hold that such an expenditure in the Assessment Year 2013­14 cannot be disallowed by invoking the Explanation 2 to Section 37(1) as has been held by the Ld. CIT(A), and therefore, the addition made by the Assessing Officer is directed to be deleted.

Respectfully following the order of coordinate bench of ITAT Delhi for A.Y. 2013-14 (supra). We hold that the Explanation 2 to section 37(1) of the Act is applicable from A.Y. 2015-16 and onwards and not prior to the amendment including A.Y. 2014-15, therefore ground no. 1.1 & 1.2 are allowed.

Read the full order from here

Bokaro-Power-Supply-Co.-Pvt-Vs-Addl.-CIT-Special-RangeITAT-Delhi

Conclusion

The tribunal has ruled in favour of the assessee and dismiss the appeal.

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