First American (India) Private Limited, Bangalore V. Assistant Commissioner Of Income Tax, Circle-3(1)(1), Bangalore

ITA 1762/BANG/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 2047 (ITAT-BANGALORE)
• Duration Of Justice: 8 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2016-2017
• Appeal Filed On: 09-08-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Set aside; Ineligible deduction
• Section: 32; 37; 271(1)(c); 37(1); 80G; 13; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI. B. R. BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA NO.1762/BANG/2019 ASSESSMENT YEARS : 2016 17 FIRST AMERICAN (INDIA) PVT. LTD., AVEDA META BUILDING, GROUND TO 7 TH FLOOR, OLD MADRAS ROAD, INDIRANAGAR, BANGALORE-560 038. PAN AABCF 3186 E VS. THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-3(1)(1), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SMT. TANMAYEE RAJKUMAR, ADVOCATE RESPONDENT BY : SHRI RAJENDRA CHANDEKAR, JCIT - DR DATE OF HEARING : 11-03-2020 DATE OF PRONOUNCEMENT : 29-04-2020 ORDER PER BEENA PILLAI, JUDICIAL MEMBER PRESENT APPEAL HAS BEEN FILED BY ASSESSEE AGAINST O RDER DATED 11/06/2019 PASSED BY LD.CIT(A)-3, BANGALORE F OR ASSESSMENT YEAR 2016-17 ON FOLLOWING GROUNDS OF APP EAL: 1. THAT THE IMPUGNED ORDER PASSED BY THE COMMISSIO NER OF INCOME- TAX (APPEALS) ('CIT(A)'), IS BAD IN LAW AND IS LIABLE TO BE SET ASIDE. PAGE 2 OF 11 ITA 1762/BANG/2019 A. Y : 2016 17 2.THAT THE ASSESSING OFFICER ('AO')/CIT(A) ERRED IN DENYING THE DEDUCTION OF RS. 90,81,516/- CLAIMED BY THE APPELLA NT UNDER SECTION 80G OF THE INCOME-TAX ACT ('THE ACT'). 3 THAT THE AO/CIT(A) FAILED TO APPRECIATE THE FACT THAT NO RESTRICTION IS IMPOSED ON CLAIMING DEDUCTION UNDER SECTION 80G OF THE ACT PROVIDED THE PAYMENT IS MADE TO ELIGIBLE ENTITIES L ISTED IN SECTION 80G OF THE ACT. 4. THAT THE AO/CIT(A) FAILED TO APPRECIATE THE FACT THAT THE OBLIGATIONS TO INCUR EXPENDITURE ON CSR ACTIVITIES FLOWS FROM THE COMPANIES ACT, 2013 WHICH HAS NO LINKAGE WITH SECTI ON 80G OF THE ACT. 5.THAT THE AO ERRED IN LEVYING INTEREST UNDER SECTI ON 234C OF THE ACT. 6.THAT THE AO ERRED IN INITIATING PENALTY PROCEEDIN GS UNDER SECTION 271(1)(C) OF THE ACT. THE APPELLANT SUBMITS THAT THE ABOVE GROUNDS ARE IN DEPENDENT OF AND WITHOUT PREJUDICE TO ONE ANOTHER. THE APPELLANT CRAVES LEAVE TO ADD TO OR ALTER, BY D ELETION, SUBSTITUTION OR OTHERWISE, THE ABOVE GROUNDS OF APPEAL, AT ANY TIME BEFORE OR DURING THE HEARING OF THE APPEAL. BRIEF FACTS OF THE CASE ARE AS UNDER: 2. ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF BP O OPERATIONS, SOFTWARE SERVICES AND DEVELOPING, DESIG NING AND SELLING OF IT INFRASTRUCTURE. ASSESSEE FILED ITS RE TURN OF INCOME ON 15/10/2016 DECLARING INCOME OF RS.61,10,73,110/-. SUBSEQUENTLY RETURN WAS REVISED ON 30/03/2018 DECLA RING INCOME OF RS.58,67,90,780/-. THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143 (2) AND 142 (1) ALONG WITH QUESTIONNAIRE WAS ISSUED TO ASSESSEE. IN RESPONSE T O STATUTORY NOTICES, REPRESENTATIVE OF ASSESSEE APPEARED BEFORE LD.AO AND FILED REQUISITE DETAILS AS CALLED FOR. 3. LD.AO FROM DETAILS FURNISHED BY ASSESSEE OBSERVED THAT ASSESSEE CLAIMED DEDUCTION AMOUNTING TO RS.90,81,51 6/- UNDER SECTION 80 G OF THE ACT TOWARDS DONATION PAID. LD.A O WAS OF THE PAGE 3 OF 11 ITA 1762/BANG/2019 A. Y : 2016 17 OPINION THAT CLAIM MADE UNDER SECTION 80 G OF THE A CT, WAS NOT ALLOWABLE AS AMOUNT WAS FORMING PART OF CSR EXPENS ES DEBITED TO PROFIT AND LOSS ACCOUNT. LD.AO WAS OF THE OPINIO N THAT DONATION MADE OUTSIDE CSR EXPENSES WAS ONLY ELIGIBL E TO BE CLAIMED UNDER SECTION 80 G OF THE ACT. 4. LD.AO THUS DISALLOWED THE DEDUCTION CLAIMED U/S 80 G OF THE ACT. 5. AGGRIEVED BY ADDITION MADE BY LD.AO, ASSESSEE PREFE RRED APPEAL BEFORE LD.CIT (A). LD.CIT (A) WAS OF THE OPI NION THAT SUM PAID NEED TO BE DONATION FOR THE PURPOSE OF BEING E LIGIBLE FOR DEDUCTION UNDER SECTION 80 G OF THE ACT. HE WAS OF THE OPINION THAT, SUM PAID BY ASSESSEE WAS NOT VOLUNTARY, WHICH IS AN ESSENTIAL ELEMENT TO TREAT THE AMOUNT TO BE DONATIO N. THE DISALLOWANCE MADE BY LD.AO WAS THUS UPHELD. 6. AGGRIEVED BY ORDER OF LD.CIT (A), ASSESSEE IS IN A PPEAL BEFORE US NOW. 7. LD.AR SUBMITTED THAT ALL GROUNDS RAISED ARE IN CON NECTION TO DISALLOWING DONATION UNDER SECTION 80 G OF THE ACT BY HOLDING IT TO BE CSR EXPENSES. 8. SHE SUBMITTED THAT SUM OF RS.1,81,63,031/- IS DEBIT ED TO PROFIT AND LOSS ACCOUNT UNDER SCHEDULE 24, AS EXPEN DITURE TOWARDS CSR RESPONSIBILITY. HE SUBMITTED THAT OUT O F THE TOTAL EXPENDITURE A SUM OF RS.90,81,516/- IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80 G OF THE ACT. SHE SUBMITTED THAT D ONATION ARE IN THE NATURE OF DONATION UNDER SECTION 80G OF THE ACT AND THEREFORE IS ELIGIBLE FOR DEDUCTION UNDER CHAPTER VI-A FOR PU RPOSE OF COMPUTING TAXABLE INCOME IN THE HANDS OF ASSESSEE. PAGE 4 OF 11 ITA 1762/BANG/2019 A. Y : 2016 17 9. REFERRING TO SECTION 80G(2) (IIIHK) AND (IIIHL) SHE SUBMITTED THAT THERE IS SPECIFIC EXCLUSION OF CERTAIN PAYMENTS WHI CH ARE LISTED UNDER SECTION 80G(1) OF THE ACT, THAT ARE PART OF C SR RESPONSIBILITY NOT ELIGIBLE FOR DEDUCTION U/S 80G. SHE SUBMITTED THAT EXCEPT FOR CONTRIBUTION UNDER SECTION 80G TOWA RDS SUCH BHARAT KOSH AND CLEAN GANGA FUND, ALL OTHER PAYMENT S ARE ELIGIBLE FOR 80 G DEDUCTIONS. 10. ON THE CONTRARY, LD.SR.DR SUBMITTED THAT FINANCE B ILL, 2014 INSERTED EXPLANATION 2 IN SECTION 37(1) TO CLARIFY THAT ANY EXPENDITURE INCURRED BY AN ASSESSEE ON ACTIVITIES RELATING TO CSR REFERRED TO IN SECTION 135 OF COMPANIES ACT, 2013 S HALL NOT BE DEEMED TO BE AN EXPENDITURE INCURRED BY ASSESSEE FO R PURPOSE OF BUSINESS OR PROFESSION AND, THEREFORE, NO DEDUCTION WOULD BE ALLOWED FOR SUCH EXPENDITURE. HE SUBMITTED THAT EX PENDITURE INCURRED BY ASSESSEE IS TOWARDS FULFILMENT OF CSR R ESPONSIBILITY AND THEREFORE HAS BEEN RIGHTLY DENIED BY AUTHORITIE S BELOW. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. 11. SECTION 135 OF COMPANIES ACT, 2013 REQUIRES COMPANI ES WITH CSR OBLIGATIONS, WITH EFFECT FROM 01/04/2014. FINANCE (NO.2) ACT, 2014 INSERTED NEW EXPLANATION 2 TO SUB- SECTION (1) OF SECTION 37, SO AS TO CLARIFY THAT FO R PURPOSES OF SUB- SECTION (1) OF SECTION 37, ANY EXPENDITURE INCURRED BY AN ASSESSEE ON THE ACTIVITIES RELATING TO CORPORATE SO CIAL RESPONSIBILITY REFERRED TO IN SECTION 135 OF THE CO MPANIES ACT, 2013 SHALL NOT BE DEEMED TO BE AN EXPENDITURE INCUR RED BY THE ASSESSEE FOR THE PURPOSES OF THE BUSINESS OR PROFES SION. PAGE 5 OF 11 ITA 1762/BANG/2019 A. Y : 2016 17 12. THIS AMENDMENT WILL TAKE EFFECT FROM 1/04/2015 AND WILL, ACCORDINGLY, APPLY TO ASSESSMENT YEAR 2015-16 AND S UBSEQUENT YEARS. 13. THUS, CSR EXPENDITURE IS TO BE DISALLOWED BY NEW EXPLANATION 2 TO SECTION 37(1), WHILE COMPUTING INCOME UNDER THE HEAD INCOME FORM BUSINESS AND PROFESSION . FURTHER, CLARIFICATION REGARDING IMPACT OF EXPLANATION 2 TO SECTION 37(1) OF THE INCOME TAX ACT IN EXPLANATORY MEMORANDUM TO THE FINANCE (NO.2) BILL, 2014 IS AS UNDER: 'THE EXISTING PROVISIONS OF SECTION 37(1) OF THE AC T PROVIDE THAT DEDUCTION FOR ANY EXPENDITURE, WHICH IS NOT MENTIONED SPECIFI CALLY IN SECTION 30 TO SECTION 36 OF THE ACT, SHALL BE ALLOWED IF THE SAME IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF CARRYING ON BUSINES S OR PROFESSION. AS THE CSR EXPENDITURE (BEING AN APPLICATION OF INCOME) IS NOT INCURRED FOR THE PURPOSES OF CARRYING ON BUSINESS, SUCH EXPENDITURE CANNOT BE ALLOWED UNDER THE EXISTING PROVISIONS OF SECTION 37 OF THE INCOME-TAX ACT. THEREFORE, IN ORDER TO PROVIDE CERTAINTY ON THIS IS SUE, IT IS PROPOSED TO CLARIFY THAT FOR THE PURPOSES OF SECTION 37(1) ANY EXPENDITURE INCURRED BY AN ASSESSEE ON THE ACTIVITIES RELATING TO CORPORATE SOCIAL RESPONSIBILITY REFERRED TO IN SECTION 135 OF THE COMPANIES ACT, 20 13 SHALL NOT BE DEEMED TO HAVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS A ND, HENCE, SHALL NOT BE ALLOWED AS DEDUCTION UNDER SECTION 37. HOWEVER, THE CSR EXPENDITURE WHICH IS OF THE NATURE DESCRIBED IN SECTION 30 TO S ECTION 36 OF THE ACT SHALL BE ALLOWED DEDUCTION UNDER THOSE SECTIONS SUBJECT T O FULFILMENT OF CONDITIONS, IF ANY, SPECIFIED THEREIN.' 14. FROM THE ABOVE IT IS CLEAR THAT UNDER INCOME TAX A CT, CERTAIN PROVISIONS EXPLICITLY STATE THAT DEDUCTIONS FOR EXPENDITURE WOULD BE ALLOWED WHILE COMPUTING INCOME UNDER THE H EAD, INCOME FROM BUSINESS AND PROFESSION TO THOSE, WHO PURSUE CORPORATE SOCIAL RESPONSIBILITY PROJECTS UNDER FOLL OWING SECTIONS. SECTION 30 PROVIDES DEDUCTION ON REPAIRS, MUNICIPAL TAX AND INSURANCE PREMIUMS. PAGE 6 OF 11 ITA 1762/BANG/2019 A. Y : 2016 17 SECTION 31, PROVIDES DEDUCTION ON REPAIRS AND INSU RANCE OF PLANT, MACHINERY AND FURNITURE SECTION 32 PROVIDES FOR DEPRECIATION ON TANGIBLE AS SETS LIKE BUILDING, MACHINERY, PLANT, FURNITURE AND ALSO ON I NTANGIBLE ASSETS LIKE KNOW-HOW, PATENTS, TRADEMARKS, LICENSES . SECTION 33 ALLOWS DEVELOPMENT REBATE ON MACHINERY, PLANTS AND SHIPS. SECTION 34 STATES CONDITIONS FOR DEPRECIATION AND DEVELOPMENT REBATE. SECTION 35 GRANTS DEDUCTION ON EXPENDITURE FOR SCIE NTIFIC RESEARCH AND KNOWLEDGE EXTENSION IN NATURAL AND APP LIED SCIENCES UNDER AGRICULTURE, ANIMAL HUSBANDRY AND FI SHERIES. PAYMENT TO APPROVED UNIVERSITIES/RESEARCH INSTITUTI ONS OR COMPANY ALSO QUALIFIES FOR DEDUCTION. IN-HOUSE R&D IS ELIGIBLE FOR DEDUCTION, UNDER THIS SECTION. SECTION 35CCD PROVIDES DEDUCTION FOR SKILL DEVELOP MENT PROJECTS, WHICH CONSTITUTE THE FLAGSHIP MISSION OF THE PRESENT GOVERNMENT. SECTION 36 PROVIDES DEDUCTION REGARDING INSURANCE P REMIUM ON STOCK, HEALTH OF EMPLOYEES, LOANS OR COMMISSION FOR EMPLOYEES, INTEREST ON BORROWED CAPITAL, EMPLOYER CONTRIBUTION TO PROVIDENT FUND, GRATUITY AND PAYMEN T OF SECURITY TRANSACTION TAX. INCOME TAX ACT, UNDER SECTION 80G, FORMING PART OF CHAPTER VIA, PROVIDES FOR DEDUCTIONS FOR COMPUTING TAXABLE INCOM E AS UNDER: SECTION 80G(2) PROVIDES FOR SUMS EXPENDED BY AN ASS ESSEE AS DONATIONS AGAINST WHICH DEDUCTION IS AVAILABLE. PAGE 7 OF 11 ITA 1762/BANG/2019 A. Y : 2016 17 A) CERTAIN DONATIONS, GIVE 100% DEDUCTION, WITHOUT ANY QUALIFYING LIMIT LIKE PRIME MINISTER'S NATIONAL REL IEF FUND, NATIONAL DEFENCE FUND, NATIONAL ILLNESS ASSISTANCE FUND ETC., SPECIFIED UNDER SECTION 80G(1)(I) B) DONATIONS WITH 50% DEDUCTION ARE ALSO AVAILABLE UNDER SECTION 80G FOR ALL THOSE SUMS THAT DO NOT FA LL UNDER SECTION 80G(1)(I). UNDER SECTION 80G(2) (IIIHK) AND (IIIHL) THERE ARE SPECIFIC EXCLUSION OF CERTAIN PAYMENTS, THAT ARE PART OF CSR RESPONSIB ILITY, NOT ELIGIBLE FOR DEDUCTION U/S80G. 15. IN OUR VIEW, EXPENDITURE INCURRED UNDER SECTION 30 TO 36 ARE CLAIMED WHILE COMPUTING INCOME UNDER THE HEAD, INCOME FORM BUSINESS AND PROFESSION , WHERE AS MONIES SPENT UNDER SECTION 80G ARE CLAIMED WHILE COMPUTING TOTAL TAXABLE INCOME IN THE HANDS OF ASSESSEE. THE POINT OF CLAIM UNDER THESE P ROVISIONS ARE DIFFERENT. 16. FURTHER, INTENTION OF LEGISLATURE IS VERY CLEAR AN D UNAMBIGUOUS, SINCE EXPENDITURE INCURRED UNDER SECTI ON 30 TO 36 ARE EXCLUDED FROM EXPLANATION 2 TO SECTION 37(1) OF THE ACT, THEY ARE SPECIFICALLY EXCLUDED IN CLARIFICATION ISSUED. THERE IS NO RESTRICTION ON AN EXPENDITURE BEING CLAIMED UNDER A BOVE SECTIONS TO BE EXEMPT, AS LONG AS IT SATISFIES NECESSARY CON DITIONS UNDER SECTION 30 TO 36 OF THE ACT, FOR COMPUTING INCOME U NDER THE HEAD, INCOME FROM BUSINESS AND PROFESSION. 17. FOR CLAIMING BENEFIT UNDER SECTION 80G, DEDUCTIONS ARE CONSIDERED AT THE STAGE OF COMPUTING TOTAL TAXABLE INCOME . EVEN IF ANY PAYMENTS UNDER SECTION 80G FORMS PART OF CSR PAYMENTS( KEEPING IN MIND INELIGIBLE DEDUCTION EXPRESSLY PROV IDED PAGE 8 OF 11 ITA 1762/BANG/2019 A. Y : 2016 17 U/S.80G), THE SAME WOULD ALREADY STAND EXCLUDED WHI LE COMPUTING, INCOME UNDER THE HEAD, INCOME FORM BUSINESS AND PROFESSION . THE EFFECT OF SUCH DISALLOWANCE WOULD LEAD TO INCREASE IN BUSINESS INCOME. THEREAFTER BENEFIT ACC RUING TO ASSESSEE UNDER CHAPTER VIA FOR COMPUTING TOTAL TAXABLE INCOME CANNOT BE DENIED TO ASSESSEE, SUBJECT TO FULFILLMEN T OF NECESSARY CONDITIONS THEREIN. 18. WE THEREFORE DO NOT AGREE WITH ARGUMENTS ADVANCED BY LD.SR.DR. 19. IN PRESENT FACTS OF CASE, LD.AR SUBMITTED THAT ALL PAYMENTS FORMING PART OF CSR DOES NOT FORM PART OF PROFIT AN D LOSS ACCOUNT FOR COMPUTING INCOME UNDER THE HEAD, INCOME FROM BUSINESS AND PROFESSION . IT HAS BEEN SUBMITTED THAT SOME PAYMENTS FORMING PART OF CSR WERE CLAIMED AS DEDUCTION UNDER SECTION 80G OF THE ACT, FOR COMPUTING TOTAL TAXABLE INCOME, WHICH HAS BEEN DISALLOWED BY AUTHORITIES BELOW. IN OUR VIEW, ASSESSEE CANNOT BE DENIED THE BENEFIT OF CLAIM UNDER CHAPTER VI A, WHICH IS CONSIDERED FOR COMPUTING TOTAL TAXABLE INCOME . IF ASSESSEE IS DENIED THIS BENEFIT, MERELY BECAUSE SUCH PAYMENT FO RMS PART OF CSR, WOULD LEAD TO DOUBLE DISALLOWANCE, WHICH IS NO T THE INTENTION OF LEGISLATURE. 20. ON THE BASIS OF ABOVE DISCUSSION, IN OUR VIEW, AUT HORITIES BELOW HAVE ERRED IN DENYING CLAIM OF ASSESSEE UNDER SECTION 80G OF THE ACT. WE ALSO NOTE THAT AUTHORITIES BELOW HA VE NOT VERIFIED NATURE OF PAYMENTS QUALIFYING EXEMPTION UNDER SECTI ON 80G OF THE ACT AND QUANTUM OF ELIGIBILITY AS PER SECTION 8 0G(1) OF THE ACT. PAGE 9 OF 11 ITA 1762/BANG/2019 A. Y : 2016 17 21. UNDER SUCH CIRCUMSTANCES, WE ARE REMITTING THE ISS UE BACK TO LD.AO FOR VERIFYING CONDITIONS NECESSARY TO CLAI M DEDUCTION UNDER SECTION 80G OF THE ACT. ASSESSEE IS DIRECTED TO FILE ALL REQUISITE DETAILS IN ORDER TO SUBSTANTIATE ITS CALI M BEFORE LD.AO. LD.AO IS THEN DIRECTED TO GRANT DEDUCTION TO THE EX TENT OF ELIGIBILITY. ACCORDINGLY GROUNDS RAISED BY ASSESSEE STANDS ALLOW ED FOR STATISTICAL PURPOSES. IN THE RESULT, APPEAL BY ASSESSEE STANDS ALLOWED FO R STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH APRIL, 2020. SD/- SD/- (B. R. BASKARAN) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL ME MBER BANGALORE, DATED, THE 29 TH APRIL, 2020 /VMS/ PAGE 10 OF 11 ITA 1762/BANG/2019 A. Y : 2016 17 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME-TAX APPELLATE TRIBUNAL. BANGALORE