Bengal NRI Complex Limited, Kolkata V. DCIT, Circle - 6(1), Kolkata, Kolkata

ITA 2231/KOL/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 1092 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 1 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 24-10-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ROBIN CHOUDHUR Y
• Assessee Lawyers: AMITAVA BOSE
• Keywords: Retrospective amendment
• Section: 37(1)

Judgement Text

1 ITA NO.2231/KOL/2017 BENGAL NRI COMPLEX LTD. AY 2014-15 , B , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOL KATA ( ) BEFORE . , /AND . . , ) [BEFORE SHRI J. SUDHAKAR REDDY, AM & SHRI A. T. VA RKEY, JM] I.T.A. NO. 2231/KOL/2017 ASSESSMENT YEAR: 2014-15 BENGAL NRI COMPLEX LTD. (PAN: AABCB8119M) VS. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-6(1), KOLKATA. APPELLANT RESPONDENT DATE OF HEARING 14.11.2018 DATE OF PRONOUNCEMENT 30.11.2018 FOR THE APPELLANT SHRI AMITAVA BOSE, ADVOCATE FOR THE RESPONDENT SHRI ROBIN CHOUDHURY, ADDL. CIT , SR. DR ORDER PER SHRI A.T.VARKEY, JM THIS APPEAL PREFERRED BY THE ASSESSEE IS AGAINST TH E ORDER OF THE LD. CIT(A)-2, KOLKATA DATED 25.08.2017 FOR AY 2014-15. 2. THE SOLE ISSUE OF ASSESSEES APPEAL IS AGAINST T HE ACTION OF THE LD. CIT(A) IN CONFIRMING THE DISALLOWANCE OF EXPENDITURE CLAIMED BY THE ASSESSEE COMPANY AS CSR U/S. 37(1) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFE RRED TO AS THE ACT) TO THE TUNE OF RS.39,06,724/-. 3. BRIEFLY STATED FACTS ARE THAT ON PERUSAL OF ACCO UNTS SUBMITTED BY THE ASSESSEE, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO OBSERV ED THAT AN AMOUNT OF RS 39,06,724/- HAVE BEEN DEBITED UNDER THE HEAD 'CORPORATE SOCIAL RESPONSIBILITY' (CSR). ON A SPECIFIC QUERY RAISED BY AO ON IT, THE ASSESSEE IN ITS SUBMI SSION DATED 24.08.2016, SUBMITTED THAT ' IT MAY BE NOTED THAT THESE EXPENSES WERE INCURRED FOR THE PURPOSE OF BUSINESS AS WELL AS SOCIAL RESPONSIBILITY OF THE COMPANY. IT IS AN ALLOWABLE B USINESS EXPENSES U/S 37(1) OF THE ACT IN AS 2 ITA NO.2231/KOL/2017 BENGAL NRI COMPLEX LTD. AY 2014-15 MUCH AS EXPLANATION 2 TO THE SECTION 36(1) OF THE A CT HAS BEEN ADDED W.E.F 01.04.2015, I.E. W.E.F FROM A.Y 2015-16 .' FROM THE LEDGER SUBMITTED BY THE ASSESSEE, THE A O OBSERVED THAT THE PAYMENTS UNDER THIS HEAD WERE MADE PRIMARILY TO AN INSTITUTE FOR THE PURPOSE OF VOCATIONAL TRAINING PROVIDED TO SOME INDIVIDUALS WH O ARE NEITHER RELATED NOR IN THE PAYROLL OF THE ASSESSEE COMPANY. ACCORDING TO AO, SECTION 3 7(1) OF THE ACT PROVIDES THAT THE DEDUCTION SHALL BE ALLOWED FOR THE EXPENSES WHICH A RE 'WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ASSESSEE'S BUSINESS '. AND SINCE THE ASSESSEE IS IN THE BUSINESS OF DEV ELOPMENT OF HOUSING PROJECTS, ACCORDING TO AO, THE VOCATIONAL T RAINING EXPENSES CANNOT BE SAID TO BE INCURRED FOR THE PURPOSE OF ASSESSEE'S BUSINESS AND THE AO OBSERVED THAT THE ASSESSEE COULD NOT SUBSTANTIATE THE COMMERCIAL BENEFITS DERIVED BY INCURRING THESE EXPENSES. THEREAFTER, THE AO, WAS OF THE OPINION THAT THE CSR EXPENDITURE I S NOT ALLOWABLE AS DEDUCTION U/S 37(1) OF THE ACT. THE AO FURTHER OBSERVED THAT EXPLANATIO N 2 TO SECTION 37(1) OF THE ACT IS APPLICABLE FROM AY 2015-16 ONWARDS IN RESPECT OF CS R EXPENDITURE MADE BY THE ASSESSEE AS PER SECTION 135 OF COMPANIES ACT, 2013. ACCORDIN G TO AO, HOWEVER, IN THE PRESENT CASE, SINCE THE VOCATIONAL TRAINING EXPENSES PAID TO INST ITUTE IS NOT INCURRED 'WHOLLY AND EXCLUSIVELY' FOR THE PURPOSE OF ASSESSEE'S BUSINESS , IT CANNOT BE ALLOWED AS DEDUCTION U/S 37(1) OF THE ACT. IN VIEW OF ABOVE, RS 39,06,724/ - HAVE BEEN DISALLOWED AND ADDED BACK BY THE AO TO THE TOTAL INCOME OF THE ASSESSEE. AGGRIE VED, ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) WHO CONFIRMED THE ACTION OF AO AND D ISMISSED THE APPEAL OF ASSESSEE. AGGRIEVED, ASSESSEE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE NOTE THAT THE AO AFTER TAKING NOTE THAT T HE ASSESSEE HAD DEBITED UNDER THE HEAD CSR AN AMOUNT OF RS.39,06,724/-, ASKED THE ASSESS EE AS TO WHY THE AMOUNT SHOULD NOT BE DISALLOWED BECAUSE, ACCORDING TO HIM, THIS EXPENDIT URE IS NOT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE ASSESSEES BUSINESS. PURSUANT TO TH IS QUERY OF THE AO, THE ASSESSEE EXPLAINED THAT THE PAYMENTS UNDER THE HEAD CSR WERE MADE PR IMARILY TO AN INSTITUTE FOR THE PURPOSE OF VOCATIONAL TRAINING PROVIDED TO SOME INDIVIDUALS WHO ARE NEITHER RELATED NOR IN THE PAYROLL OF THE ASSESSEE COMPANY AND THE EXPENDITURE WAS PART OF THE CSR EXPENDITURE AS ENVISAGED U/S. 135 OF THE COMPANIES ACT, 2013. HOW EVER, THE AO DID NOT AGREE TO THE 3 ITA NO.2231/KOL/2017 BENGAL NRI COMPLEX LTD. AY 2014-15 CLAIM OF EXPENDITURE AND DISALLOWED THE SAME. ON A PPEAL, THE LD. CIT(A) ALSO CONCURRED WITH THE AO. WE NOTE THAT THE GENUINENESS OF THE E XPENDITURE MADE BY ASSESSEE ON ACCOUNT OF CSR WHICH IS MANDATORY AS PER SEC. 135 OF THE COMPANIES ACT, 2013 WAS NOT DOUBTED BY THE AO/LD. CIT(A). HOWEVER, THE CLAIM WAS DISAL LOWED ONLY ON THE GROUND THAT THE EXPENDITURE IS NOT WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF THE BUSINESS THE EXPENDITURE. THE LD. AR DREW OUR ATTENTION TO THE C OORDINATE BENCH DECISION IN ACIT VS. JINDAL POWER LTD. (ITAT RAIPUR) IN ITA NO.99/BLPR/2 012 FOR AY 2008-09 DATED 23.06.2016 WHEREIN ON SIMILAR FACTS AND LAW, THE TR IBUNAL WHILE ALLOWING THE EXPENDITURE UNDER CSR HELD AS UNDER: II) THE CONCEPT OF BUSINESS IS NOT STATIC. IT HAS EVOLVED OVER A PERIOD OF TIME TO INCLUDE WITHIN ITS FOLD THE CONCRETE EXPRESSION OF CARE AND CONCER N FOR THE SOCIETY AT LARGE AND THE LOCALITY IN WHICH BUSINESS IS LOCATED IN PARTICULAR. BEING A GO OD CORPORATE CITIZEN BRINGS GOODWILL OF THE LOCAL COMMUNITY AS ALSO WITH THE REGULATORY AGENCIE S AND SOCIETY AT LARGE, THEREBY CREATING AN ATMOSPHERE IN WHICH THE BUSINESS CAN SUCCEED IN A G REATER MEASURE WITH THE AID OF SUCH GOODWILL (CIT V. MADRAS REFINERIES LTD. [2004]266 I TR 170, SRI VENKATA SATYANARAYNA RICE MILL CONTRACTORS CO. V. CIT [1997] 223 ITR 101, HIN DUSTAN PETROLEUM CORPORATION LTD VS DCIT [(2005) 96 ITO 186 (BOM)] (III) THE AMENDMENT IN THE SCHEME OF SECTION 37(1), WHICH HAS BEEN INTRODUCED WITH EFFECT FROM 1ST APRIL 2015, CANNOT BE CONSTRUED AS TO DISA DVANTAGE TO THE ASSESSEE IN THE PERIOD PRIOR TO THIS AMENDMENT. THIS DISABLING PROVISION, AS SET OUT IN EXPLANATION 2 TO SECTION 37(1), REFERS ONLY TO SUCH CORPORATE SOCIAL RESPONSIBILITY EXPENSES AS UNDER SECTION 135 OF THE COMPANIES ACT, 2013, AND, AS SUCH, IT CANNOT HAVE A NY APPLICATION FOR THE PERIOD NOT COVERED BY THIS 'STATUTORY PROVISION WHICH ITSELF CAME INTO EXISTENCE IN 2013. EXPLANATION 2 TO SECTION 37(1) IS, THEREFORE, INHERENTLY INCAPABLE OF RETROS PECTIVE APPLICATION ANY FURTHER. IN ANY EVENT, AS HELD BY HON'BLE SUPREME COURT'S FIVE JUDGE CONST ITUTIONAL BENCH'S LANDMARK JUDGMENT, IN THE CASE OF CIT VS VATIKA TOWNSHIPS PVT LTD [(2014) 367 ITR 466 (SC)], THE LEGAL POSITION IN THIS REGARD HAS BEEN VERY SUCCINCTLY SUMMED UP BY O BSERVING THAT 'OF THE VARIOUS RULES GUIDING HOW LEGISLATION HAS TO BE INTERPRETED, ONE ESTABLISHED RULE IS THAT UNLESS A CONTRARY INTENTION APPEARS, LEGISLATION IS PRESUMED NOT TO B E INTENDED TO HAVE A RETROSPECTIVE OPERATION. THE IDEA BEHIND THE RULE IS THAT A CURRE NT LAW SHOULD GOVERN CURRENT ACTIVITIES. LAW PASSED TODAY CANNOT APPLY TO THE EVENTS OF THE PAST . IF WE DO SOMETHING TODAY, WE DO IT KEEPING IN VIEW THE LAW OF TODAY AND IN FORCE AND NOT TOMOR ROW'S BACKWARD 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 RELY ON THE EXISTING LAW AND SHOULD NOT FIND THAT HIS PLANS HAVE BEEN RETROSPECTIVELY UPSET. THIS PRINCIPLE OF LAW IS KNO WN AS LEX PROSPICIT NON RESPICIT: LAW LOOKS FORWARD NOT BACKWARD (IV) IT MAY APPEAR TO BE SOME KIND OF A DICHOTOMY I N THE TAX LEGISLATION BUT THE WELL SETTLED LEGAL POSITION IS THAT WHEN A LEGISLATION CONFERS A BENEFIT ON THE TAXPAYER BY RELAXING THE RIGOUR OF PRE-AMENDMENT LAW, AND WHEN SUCH A BENEFI T APPEARS TO HAVE BEEN THE OBJECTIVE PURSUED BY THE LEGISLATURE, IT WOULD A PURPOSIVE IN TERPRETATION GIVING IT A RETROSPECTIVE EFFECT BUT WHEN A TAX LEGISLATION IMPOSES A LIABILITY OR A BURDEN, THE EFFECT OF SUCH A LEGISLATIVE PROVISION CAN ONLY BE PROSPECTIVE. WE HAVE ALSO NOT ED THAT THE AMENDMENT IN THE SCHEME OF SECTION 37(1) IS NOT SPECIFICALLY STATED TO BE RETR OSPECTIVE AND THE SAID EXPLANATION IS INSERTED ONLY WITH EFFECT FROM 1ST APRIL 2015. IN THIS VIEW OF THE MATTER ALSO, THERE IS NO REASON TO HOLD 4 ITA NO.2231/KOL/2017 BENGAL NRI COMPLEX LTD. AY 2014-15 THIS PROVISION TO BE RETROSPECTIVE IN APPLICATION. AS A MATTER OF FACT, THE AMENDMENT IN LAW, WHICH WAS ACCOMPANIED BY THE STATUTORY REQUIREMENT WITH REGARD TO DISCHARGING THE CORPORATE SOCIAL RESPONSIBILITY, IS A DISABLING PRO VISION WHICH PUTS AN ADDITIONAL TAX BURDEN ON THE ASSESSEE IN THE SENSE THAT THE EXPENSES THAT THE ASSESSEE IS REQUIRED TO INCUR, UNDER A STATUTORY OBLIGATION, IN THE COURSE OF HIS BUSINESS ARE NOT ALLOWED DEDUCTION IN THE COMPUTATION OF INCOME. THIS DISALLOWANCE IS RESTRIC TED TO THE EXPENSES INCURRED BY THE ASSESSEE UNDER A STATUTORY OBLIGATION UNDER SECTION 135 OF COMPANIES ACT 2013, AND THERE IS THUS NOW A LINE OF DEMARCATION BETWEEN THE EXPENSES INCURRED BY THE ASSESSEE ON DISCHARGING CORPORATE SOCIAL RESPONSIBILITY UNDER SUCH A STATUT ORY OBLIGATION, AND UNDER A VOLUNTARY ASSUMPTION OF RESPONSIBILITY. AS FOR THE FORMER, TH E DISALLOWANCE UNDER EXPLANATION 2 TO SECTION 37(1) COMES INTO PLAY, BUT, AS FOR LATTER, THERE IS NO SUCH DISABLING PROVISION AS LONG AS THE EXPENSES, EVEN IN DISCHARGE OF CORPORATE SOCIAL RESPONSIBILITY ON VOLUNTARY BASIS, CAN BE SAID TO BE 'WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS'. THERE IS NO DISPUTE THAT THE EXPENSES IN QUESTION ARE NOT INCURRED UNDER THE AFO RESAID STATUTORY OBLIGATION. FOR THIS REASON ALSO, AS ALSO FOR THE BASIC REASON THAT THE EXPLANA TION 2 TO SECTION 37(1) COMES INTO PLAY WITH EFFECT FROM 1ST APRIL 2015, WE HOLD THAT THE DISABL ING PROVISION OF EXPLANATION 2 TO SECTION 37(1) DOES NOT APPLY ON THE FACTS OF THIS CASE. 5. RESPECTFULLY FOLLOWING THE RATIO LAID BY THE COO RDINATE BENCH OF THIS TRIBUNAL, WE NOTE THAT SINCE THE CSR EXPENSES ARE MANDATORY FO R COMPANIES INCORPORATED AS PER THE COMPANIES ACT, 2013 AND THE EXPENDITURE HAVE BEEN I NCURRED BY THE ASSESSEE AS ENVISAGED UNDER THE COMPANIES ACT, 2013. SO WE ARE OF THE OPI NION THAT IT HAS TO BE ALLOWED AND WE TAKE NOTE THAT THE TRIBUNAL IN JINDAL POWER LTD., ( SUPRA), HAS ALREADY HELD THAT THE INTRODUCTION OF EXPLANATION 2 TO SEC. 37(1) OF THE ACT W.E.F. FROM 1 ST AUGUST, 2015 CANNOT BE HELD TO BE RETROSPECTIVE IN OPERATION. THEREFORE, THE EXPENDITURE INCURRED BY ASSESSEE ON ACCOUNT OF CSR AS ENVISAGED U/S. 135 OF THE COMPA NIES ACT, 2013 NEED TO BE ALLOWED AS DEDUCTION. THEREFORE, THE CSR EXPENDITURE WHICH THE ASSESSEE COMPANY WAS OBLIGED TO DISCHARGE BECAUSE IT WAS A STATUTORY OBLIGATION UPO N THE ASSESSEE COMPANY SO, THE DEDUCTION SHOULD HAVE BEEN ALLOWED AS PER THE LAW IN FORCE FO R THIS ASSESSMENT YEAR AND WE DIRECT THE AO TO ALLOW THE EXPENDITURE. THEREFORE, THE APPEAL OF ASSESSEE IS ALLOWED. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 30/11/201 8 SD/- ` SD/- (J. SUDHAKAR REDDY) (A. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 30TH NOVEMBER, 2018 JD.(SR.P.S.) 5 ITA NO.2231/KOL/2017 BENGAL NRI COMPLEX LTD. AY 2014-15 COPY OF THE ORDER FORWARDED TO: 1 APPELLANT BENGAL NRI COMPLEX LTD., 783, ANANDAPUR , EAST KOLKATA TOWNS, HIP PROJECT, KOLKATA-700107 2 RESPONDENT DCIT, CIRCLE-6(1), KOLKATA. 3 4 5 CIT(A)-2, KOLKATA. (SENT THROUGH E-MAIL) CIT , KOLKATA DR, KOLKATA BENCHES, KOLKATA (SENT THROUGH E-MAIL) / TRUE COPY, BY ORDER, SR. PVT. SECRETARY