The National Small Industries Corp Ltd., New Delhi V. DCIT, New Delhi

ITA 1367/DEL/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 3478 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 11 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-02-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Assessment Year: 2012-2013
• Appeal Filed On: 11-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MITHUN SHETE
• Keywords: Business income
• Section: 142(1); 37(1); 80G; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: B , NEW DELHI BEFORE SHRI N.K.BILLAIYA, ACCOUNTANT MEMBER AND SMT. BEENA A PILLAI, JUDICIAL MEMBER ITA NO. 1367 /DEL/201 6 AY: 20 12 - 13 THE NATIONAL SMALL INDUSTRIES CORP LTD. NSIC BHAWAN OKHLA INDUSTRIAL ESTATE PHASE III NEW DELHI 110 020 PAN: AAACT0686N VS . DY.CIT CIRCLE 25(1) NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY : : SH . ALOK GUPTA, FCA DEPARTMENT BY : SH. MITHUN SHETE, SR. D.R. DATE OF HEARING : 14/02/2019 DATE OF PRONOUNCEMENT : 25 /02/2019 ORDER PER BEENA A PILLAI, JUDICIAL MEMBER P RESENT APPEAL HAS BEEN FILED BY ASSESSEE AGAINST ORDER DATED 2 ND DECEMBER 2015 PASSED BY LD. CIT (A) - 9, NEW DELHI FOR ASSESSMENT YEAR 2012 - 13 ON FOLLOWING GROUNDS OF APPEAL: 1.1. THE LEARNED CIT HAS ERRED IN CONFIRMING THE DISALLOWANCE OF CORPORATE SOCIAL RESPONSIBILITY (CSR FOR SHORT) EXPENSES OF RS 89.74 ITA NO. 1367/DEL/1 6 AY:2012 - 13 THE NATIONAL SMALL INDUSTRIES CORP. LTD. 2 LACS - INCURRED UNDER THE DIRECTIONS OF DPE GOVT, OF INDIA REQUIRING COMPANIES TO SPEND A PRESCRIBED PERCENTAGE OF ITS PROFITS ON CSR - AND NOW ALSO MADE MANDATORY UNDER THE COMPANIES ACT. 1.2. THE LEARNED CIT HAS ERRED IN CONFIRMING THE NON CONSIDERATION OF ALTERNATE CLAIM UNDER SECTIONS 35AC, 80G AND OTHER APPLICABLE PROVISIONS OF THE INCOME TAX ACT. 1.3. THE AUTHORITIES BELOW HAVE BEEN INFLUENCED BY EXPLANATIONS U/S 37 OF THE ACT INSERTED WITH REGARD TO COMPANIES ACT 2013. 2. THAT THE TAX DEMANDED IS WRONG. 3. THAT THE ABOVE GROUNDS ARE INDEPENDENT AND WITHOUT PREJUDICE TO EACH OTHER. 4. THAT THE APPELLANT SEEKS LEAVE TO ADD , AMEND, ALTER OR ABANDON ANY OF THE ABOVE GROUNDS AT THE TIME OF HEARING OF THE APPEAL. 2. BRIEF FACTS OF THE CASE ARE AS UNDER . A SSESSEE FILED ITS RETURN OF INCOME ON 28 /09/2 012 , DECLARING TOTAL INCOME OF RS.56,48,78,670/ - . THE CASE WAS SELECTED FO R SCRUTINY AND NOTICE UNDER SECTION 143(2) OF THE INCOME TAX ACT, 1961 (THE A CT ) WAS ISSUED. A QUESTIONNAIRE ALONG WITH NOTICE UNDER SECTION 142(1) WAS ALSO SENT SUBSEQUENTLY TO ASSESSEE. IN RESPONSE TO THE STATUTORY NOTICES, REPRESENTATIVES OF ASSESSEE APPEARED BEFORE LD. AO AND FILED REQUISITE DETAILS AS CALLED FOR. 2.1 . DURING C OURSE OF ASSESSMENT PROCEEDINGS , LD.AO OBSERVED THAT ASSESSEE INCURRED EXPENSES OF RS.89,74,085/ - UNDER HEAD C ORPORATE S OCIAL R ESPONSIBILITIES AND CLAIMED SUCH EXPENSES IN RETURN FILED. ASSESSEE WAS CALLED UPON TO JUSTIFY THE CLAIM OF SUCH ITA NO. 1367/DEL/1 6 AY:2012 - 13 THE NATIONAL SMALL INDUSTRIES CORP. LTD. 3 EXPENSES . REPLY WAS FILED BY ASSESSEE IN RESPONSE TO QUERY RAISED BY LD.AO ON 13/12/14. LD.AO AFTER CONSIDERING SUBMISSIONS OF ASSESSEE , WAS OF THE OPINION THAT SUCH EXPENSES CLAIMED BY ASSESSEE WERE TOWARDS CSR , CANNOT BE ALLOWED. TH U S HE MADE ADDITION IN THE HANDS OF ASSESSEE AMOUNTING TO RS.89,74,085/ - . 2.2 . AGGRIEVED BY ORDER OF LD.AO, ASSESSEE PREFERRED APPEAL BEFORE LD. CIT (A),WHO UPHELD ADDITION MADE BY LD.AO. 2.3. AGGRIEVED BY ORDER OF LD.CIT (A) ASSESSEE IS IN APPEAL BEFORE US NOW. 3. LD.COUN SEL SUBMITTED THAT ASSESSEE WAS TO INCUR EXPENSES UNDER DIRECTIONS OF GOVERNMENT FOR PUBLIC PROJECTS. HE SUBMITTED THAT ACTIVITIES CARRIED OUT BY ASSESSEE, FALLS WITHIN THE PURVIEW OF SECTION 2 (15) OF THE ACT, WHICH ALSO QUALIFIES FOR DEDUCTION UNDER SECT ION 35 AC AND 80 G OF THE ACT. HE SUBMITTED THAT GUIDELINES PROVIDED THAT CSR BUDGET SHOULD BE 0.5% TO 2% OF NET PROFIT DURING THE YEAR. LD.COUNSEL SUBMITTED THAT EXPENSES INCURRED BY ASESSEE ARE TOWARDS SKILL DEVELOPMENT AND TRAINING OF THESE SECTIONS WH ICH IS ULTIMATE OBJECTIVE OF ASSESSEE. LD.COUNSEL PLACED RELIANCE UPON MANNER IN WHICH SUCH EXPENSES HAS BEEN INCURRED BY ASSESSEE, WHICH WERE DEBITED TO CSR EXPENSES, DETAILS OF WHICH ARE AS UNDER: ITA NO. 1367/DEL/1 6 AY:2012 - 13 THE NATIONAL SMALL INDUSTRIES CORP. LTD. 4 MISSION EDUCATION - PROVIDED EDUCATION AMONG UNDERPRIVILEGED CHILDREN PARTICULARLY IN URBAN SLUM AREAS & HEALTH CARE CAMPS FOR URBAN SLUMS SPECIALLY CHILDREN & WOMEN THROUGH SMILE FOUNDATION, NEW DELHI RS. 30,89,257 SKILL UP - GRADATION FOR UNDER PRIVILEGED GIRLS & WOMEN - THROUGH SHIKSHA BHARATI, HAPUR RS. 17,03,306 PROVIDED MOBILE MEDICARE UNITS FOR AGED PERSONS - THROUGH HELPAGE INDIA RS. 11,78,550 HEALTH CHECKUP CAMPS - THROUGH HELPAGE INDIA RS. 2,00,481 DEMENTIA DAY CARE CENTER - THROUGH HELPAGE INDIA RS. 5,21,011 SOLAR LANTERN ASSEMBLY TRAINING THROUGH RAMAKRISHNA MATH RS. 5,35,000 COMPUTER TRAINING & ENGLISH SPEAKING FOR VISUALLY IMPAIRED STUDENTS THROUGH IDL BANGALORE RS. 506,000 PREVENTION OF CRUELTY TO ANIMALS THROUGH SPCA NOIDA RS. 4,54,330 GEMS & JEWELLERY TRAINING FOR DEAF & DUMB STUDENTS THROUGH - CENTRE FOR DEVELOPMENT OF GEMS & JEWELLERY, JAIPUR RS. 250,000 EDUCATION FOR VISUALLY IMPAIRED STUDENTS THROUGH NATIONAL ASSOCIATION FOR BLIND RS. 36,000 CONTRIBUTION TO CST HUB - TATA INSTITUTE OF SOCIAL SCIENCES, MUMBAI RS. 4,45,000 CSR TRAINING EXPENSES RS. 55,150 TOTAL RS. 89,74,085 ITA NO. 1367/DEL/1 6 AY:2012 - 13 THE NATIONAL SMALL INDUSTRIES CORP. LTD. 5 4. ON THE CONTRARY, THE LD.SR.DR PLACED RELIANCE UPON ORDER OF LD.AO AND SUBMITTED THAT GUIDELINES PROVIDE THAT CSR BUDGET SHOULD BE 0.5% TO 2% OF NET PROFIT DURING THE YEAR , AND HAS TO BE SPENT OUT OF INCOME OF ASSESSEE. HE WAS OF THE OPINION THAT , SCHEME DID NOT ALLOW SUCH EXPENDITURE TO BE DEBITED TO P&L ACCOUNT. HE PLACED RELIANCE UPON INSERTION GIVEN IN FINANCE ACT (NO. 2) 2014 AS EXPLANATION 2 TO SECTION 37 (1) OF THE ACT. HE SUBMITTED THAT THE INSERTION WAS BY WAY OF CLARIFICATION. 5. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN THE LIGHT OF THE RECORDS PLACED BEFORE US 6. A PART FROM ARGUING FOR ALLOWABILITY OF EXPENSES, ASSESSEE BEFORE US RAISED ALTER NATIVE PLEA, THAT THESE EXPENSES MAY BE ALLOWED UNDER SECTION 35 AC AND 80 G OF THE ACT. 6.1 . IT IS OBSERVED THAT ASSESSEE IS A PUBLIC SECTOR UNDERTAKING WHICH WAS ESTABLISHED TO PROMOTE AND DEVELOP SKILL INDIA THROUGH COTTAGE AND SMALL INDUSTRIES. IT H AS BEEN SUBMITTED THAT IN ORDER TO PROMOTE SKILL AMONGST POOR CLASS OF THE SOCIETY, ASSESSEE ESTABLISHED TECHNICAL CENTRES AT VARIOUS PLACES AND ALSO CA RVED OUT PURPOSEFUL TECHNICAL TRAINING PROGRAMMES THROUGH NGOS WHICH WERE INVOLVED IN SUCH ACTIVITIES AT VARIOUS PLACES. ASSESSEE HAS SUBMITTED THAT IT HAS EXPENDED TOWARDS EDUCATION OF CHILDREN OF UNDERPRIVILEGED LABOUR EMPLOYED IN UNORGANISED COTTAGE INDUSTRIES IN SMALL CITIES THROUGH SMILE FOUNDATION , CONTRIBUTED TOWARDS TRAINING AND EDUCATION THROUGH SHIKSHA BHARATI, HAPUR , FOR SKILL UPGRADATION FOR GIRLS AND WOMEN OF UNDERPRIVILEGED SECTION OF SOCIETY, PROVIDED MEDICAL CARE UNITS FOR AGED PERSON S THROUGH ITA NO. 1367/DEL/1 6 AY:2012 - 13 THE NATIONAL SMALL INDUSTRIES CORP. LTD. 6 HELPAGE INDIA , HEALTH CHECKUP CAMPS, DEMENTIA DAYCARE CENTRE THROUGH HELPAGE INDIA , CONDUCTED VOCA TIONAL TRAINING PROGRAMMES FOR SOLAR LANTERN ASSEMBLY THROUGH RAMAKRISHNA M A T H TO DEVELOP SKILLED MANPOWER FOR MICRO, SMALL AND MEDIUM ENTERPRISES AS WELL AS CREATING NEW ENTERPRISE IN MSME SECTOR, CONTRIBUTED TOWARDS COMPUTER TRAINING AND ENGLISH SPEAKING FOR HOLISTIC DEVELOPMENT OF PERSONS WITH PHYSICAL DISABILITIES VISUALLY IMPAIRED STUDENTS THROUGH IDL F OUNDATION, BANGALORE AND THROUGH NATIONAL ASSOCIATION FOR BLIND COVERING DEVELOPMENT ORIENTED ACTIVITIES , ETC. IT IS OBSERVED THAT ALL THESE EXPENSES HA VE BEEN INCURRED VOLUNTARILY. MOST OF THESE EXPENSES ARE IN THE NATURE OF DONATIONS WHICH ARE ELIGIBLE FOR EXEMPTION UNDER SECTION 80 G AND A FEW ARE COVERED UNDER SECTION 35AC OF THE A CT V IDE NOTIFICATION NO. 39/2011 DATED 24/04/11. 6.2 . LD. SR. DR HAS ALLEGED THAT , BY WAY OF AMENDMENT INSERTED BY FINANCE ACT (NO. 2) 2014, NO EXPENSES ARE DEDUCTIBLE INCURRED TOWARDS CSR AGAINST BUSINESS INCOME. HE SAID THAT THESE SHOULD BE TREATED AS CLARIFI CATORY IN NATURE , AND THEREFORE EXPENSES DISCHARGING CORPOR A TE SOCIAL RESPONSIBILITY WERE OUTSIDE THE AMBIT OF EXPENSES DEDUCTIBLE UNDER SECTION 37 (1) , BY VIRTUE OF E XPLANATION 2 INSERTED BY FINANCE ACT (NO. 2) 2014. IT IS OBSERVED THAT LD. AO/CIT (A) PROCEEDED TO MAKE ADDITION ON THE PREMISES THAT E XPLANATION 2 TO SECTION 37(1) WAS APPLICABLE TO THE PRESENT YEAR UNDER CONSIDERATION. 7. WE ARE UNABLE TO AGREE WITH PLEA ADVANCED BY LD.SR.DR. IN OUR OPINION EXPLANATION 2 HAS BEEN INSERTED IN THE SECTION 37 (1) W.E.F. ITA NO. 1367/DEL/1 6 AY:2012 - 13 THE NATIONAL SMALL INDUSTRIES CORP. LTD. 7 01/04/15 AND IS PROSPECTIVE IN NATURE. IN OUR CONSIDERED OPINION AMENDMENT BY WAY OF EXPLANATION 2 TO SEC.37(1) CANNOT BE CONSTRUED AS DISADVANTAGE TO THE ASSESSEE IN THE PERIOD PRIOR TO THE AMENDMENT. IT IS A DISABLING PROVISION, AS SET OUT IN EXPLANATION 2 TO SEC.37(1), AND REFERS TO SUCH CORPO RATE SOCIAL RESPONSIBILITY EXPENSES U/S 135 OF COMPANIES ACT, 2013 AND AS SUCH CANNOT HAVE APPLICATION FOR PERIOD NOT COVERED BY THIS STATUTORY PROVISION WHICH ITSELF CAME INTO EXISTENCE IN 2013. WE DRAW OUR SUPPORT FROM THE DECISION OF HONBLE SUPREME CO URT IN CASE OF CIT VS. VATIKA TOWNSHIPS PVT. LTD. REPORTED IN (2014) 367 ITR 466, WHEREIN HONBLE COURT HELD AS UNDER: OF THE VARIOUS RULES GUIDING HOW LEGISLATION HAS TO BE INTERPRETED, ONE ESTABLISHED RULE IS THAT UNLESS A CONTRARY INTENTION APPEARS, LE GISLATION IS PRESUMED NOT TO BE INTENDED TO HAVE A RETROSPECTIVE OPERATION. THE IDEA BEHIND THE RULE IS THAT A CURRENT LAW SHOULD GOVERN CURRENT ACTIVITIES. LAW PASSED TODAY CANNOT APPLY TO THE EVENTS OF THE PAST. IF WE DO SOMETHING TODAY, WE DO IT KEEP ING IN VIEW THE LAW OF TODAY AND IN FORCE AND NOT TOMORROWS BACKGROUND ADJUSTMENT OF IT. OUR BELIEF IN THE NATURE OF THE LAW IS FOUNDED ON THE BED ROCK THAT EVERY HUMAN BEING IS ENTITLED TO ARRANGE HIS AFFAIRS BY RELYING ON THE EXISTING LAW AND SHOULD NO T FIND THAT HIS PLANS HAVE BEEN RETROSPECTIVELY UPSET. THIS PRINCIPLE OF LAW IS KNOWN AS LEXPROSPICIT NON RESPICIT: LAW LOOKS FORWARD NOT BACKWARD. AS WAS OBSERVED IN PHILLIPS VS. EYRE : A RETROSPECTIVE LEGISLATION IS CONTRARY TO THE GENERAL PRINCIPLE TH AT LEGISLATION BY WHICH THE CONDUCT OF MANKIND IS TO BE REGULATED WHEN INTRODUCED FOR THE FIRST TIME TO DEAL WITH ITA NO. 1367/DEL/1 6 AY:2012 - 13 THE NATIONAL SMALL INDUSTRIES CORP. LTD. 8 FUTURE ACTS OUGHT NOT TO CHANGE THE CHARACTER OF PAST TRANSACTIONS CARRIED ON UPON THE FAITH OF THE THEN EXISTING LAW. THUS WE REJECT THIS A RGUMENT OF LD.SR.DR AND HOLD THAT THIS AMENDMENT WOULD NOT AFFECT ALLOWABILITY OF SUCH EXPENSES FOR THE YEAR UNDER CONSIDERATION, BEING ASSESSMENT YEAR 2012 - 13. IT IS OBSERVED THAT AUTHORITIES BELOW REJECTED CLAIM OF ASSESSEE ONLY ON THE GROUND THAT EXPLAN ATION 2 TO SEC.37(1) IS APPLICABLE TO YEAR UNDER CONSIDERATION. 8. WE THEREFORE ALLOW GROUNDS RAISED BY ASSESSEE. AS WE HAVE ALREADY ALLOWED THE SAID EXPENSES UNDER SECTION 37 (1) FOR THE YEAR UNDER CONSIDERATION , THE ALTERNATE CLAIM RAISED BY ASSESSEE U NDER SECTION 35AC AND 80 G OF THE A CT BECOMES ACADEMIC IN NATURE. 9. IN THE RESULT APPEAL FILED BY ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH FEBRUARY, 2019. SD/ - SD/ - (N.K.BILLAIYA) (BEENA A PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER DT. 25 TH FEBRUARY, 2019 GMV ITA NO. 1367/DEL/1 6 AY:2012 - 13 THE NATIONAL SMALL INDUSTRIES CORP. LTD. 9 COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT - TRUE COPY - BY ORDER, ASSISTANT REGISTRAR ITAT DELHI BENCHES ITA NO. 1367/DEL/1 6 AY:2012 - 13 THE NATIONAL SMALL INDUSTRIES CORP. LTD. 10 DATE DRAFT DICTATED ON 25.02.19 DRAFT PLACED BEFORE AUTHOR 25.02.19 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 25.02.19 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. APPROVED DRAFT COMES TO THE SR.PS/PS KEPT FOR PRONOUNCEMENT ON & ORDER UPLOADED ON : 25.02.19 FILE SENT TO THE BENCH CLERK DATE ON WHICH FILE GOES TO THE AR DATE ON WHICH FILE GOES TO THE HEAD CLERK. DATE OF DISPATCH OF ORDER.