Steel Authority of India Ltd., , New Delhi V. Addl. CIT, Special Range-8, New Delhi

ITA 271/DEL/2019

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 1239 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 8 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 03-10-2022
• Assessment Year: 2014-2015
• Appeal Filed On: 14-01-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Earning of tax free income; Revised return; Rule 8D
• Section: 2; 143(3); 14A; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH ‘G’ : NEW DELHI) BEFORE SH. ANIL CHATURVEDI, ACCOUNTANT MEMBER AND SH. ANUBHAV SHARMA, JUDICIAL MEMBER ITA No.271/Del/2019 (Assessment Year : 2014-15) Steel Authority of India Ltd., 4 th Floor, Ispat Bhavan, Lodi Road, New Delhi 110003 PAN : AAACS7062F Vs. ACIT, Special Range 8, New Delhi-110002 Appellant Respondent Assessee by Sh. M.P.Rastogi, Adv. Revenue by Sh. Abhishek Kumar, Sr. DR Date of hearing: 04.10.2022 Date of Pronouncement: 11.10.2022 ORDER Per Anubhav Sharma, JM : The appeal has been filed by the Assessee against order dated 03.10.2018 in appeal no. 287/2016-17, New Delhi in assessment year 2014-15 passed by Commissioner of Income Tax (Appeals)-43, New Delhi (hereinafter referred to as the First Appellate Authority in short ‘Ld. F.A.A.’) in regard to the appeal before it arising out of assessment order dated 27/12/2016 u/s 143(3) of the Income Tax Act, 1961 passed by ACIT, New Delhi (hereinafter referred to as the Assessing Officer ‘AO’). 271/Del/2019 Steel Authority of India 2 2. The facts in brief are the assessee company is engaged in the manufacture, process, sale and export of iron and steel of various grades and for the purpose, it is also engaged in the fields of mining, generation and distribution (for sale) of electricity- through thermal power stations, Processing of coal into coke- which generates by-products like tar coal, phenol, etc. Manufacture of refractories, fertilizers and chemicals like calcium nitrate etc. Assessee had filed return of income declaring an income of 2,52,76,42,000/-. Subsequently, revised return was filed declaring income of 2,51,18,18,000/- followed by another revised return of income 2,39,50,91,000/-. Assessment was taken up u/s 143(3) of the Act and apart from re-computation of capital gains, addition was made on other grounds including disallowance of CSR expenses of Rs. 6206.00 lakhs and disallowance u/s 14A r.w.r. 8D of 354.26 (lakhs). 3. Ld. CIT(A) had sustained the additions for which the assessee has approached this Tribunal raising following grounds :- “1. The learned CIT[A] has erred in confirming the disallowance the Corporate Social Responsibility (CSR for short) expenses of Rs 6206.00 lakhs -incurred under the directions of DPE, Govt. of India requiring Companies to spend a prescribed percentage of its profits on CSR. 2. The learned CIT[A] has erred confirming the disallowance made by AO u/s 14A as per clause (iii) of Rule 8 D without recording any cogent reasons for rejecting the suo-motto disallowance u/s 14A made in accordance to the decisions of jurisdictional High Courts and also in the past assessments in appeal effect orders 3.1 The learned CIT [A] has erred in up-holding that the whole of the amount of mining rights is Capital in nature and allowing depreciation as Intangible assets and not giving any reasons for not considering at-least the afforestation charges paid as Revenue in nature despite a number of judicial decisions cited in this regard. 271/Del/2019 Steel Authority of India 3 3.2 That the learned CIT [A] has erred in not considering the directions on mining rights given by the ITAT in AY 2000-01 to 2002-03 in the company’s own case. 4 The CIT [A] has erred in confirming the disallowance of pro- rata depreciation of Rs. 1939.58 lakhs on account of downward Revaluation of assets [by reduction] in A.Y. 2000-01. 5.The above grounds are independent and without prejudice to each other 6.That the appellant seeks leave to add, amend, alter or abandon any of the above grounds at the time of hearing of the appeal.” 4. Heard and perused the record. 5. At the time of final arguments, Ld. Counsel for the assessee / appellant Sh. M.P.Rastogi, Adv. made an endorsement on the appeal memo for not pressing ground no. 3.1, 3.2 and 4 and for remaining it was submitted that same are covered in favour of assessee by order of Tribunal for AY 2013-14. Ld DR however, defended the findings of Ld Tax Authorites below. 6. Taking into consideration the argument submitted on behalf of the appellant and revenue it comes up that in assessee’s own case for assessment year 2013-14 vide ITA no. 4856/Del/2018 the question of allowability of CSR expenses have been considered and decided in favour of the assessee with following findings : “8. We have considered rival submissions and perused the materials on record. Undisputedly, the departmental authorities have disallowed the CSR expenses, firstly, on the reasoning that it is of capital nature, and secondly, it is not incurred wholly and exclusively for the purpose of business. As per section 135 of the Companies Act, 2013, every company having net worth of Rs. 500/- crores or more, or turnover of Rs. 1000/- crores or more, or a net profit of Rs. 5 crores or more during the immediately preceding financial year has to spent a certain percentage out of their profit towards CSR activities. Prior to amendment to section 37(1) of the Act by the Finance Act, 2014 by insertion of Explanation – 2, CSR expenses were allowed as deduction 271/Del/2019 Steel Authority of India 4 under section 37(1) of the Act, as, there was no specific bar either under section 37(1) of the Act or under any other provision for claiming deduction for CSR expenses. There are number of judicial precedents which have expressed the aforesaid view, some of these decisions have been cited before us by learned counsel for the assessee. Thus, prior to insertion of Explanation – 2 to section 37(1) of the Act, w.e.f., 01.04.2014, as per settled legal position, it is an allowable expenditure under Section 37(1). A specific bar for allowing such expenditure under section 37(1) of the Act was brought to the statue by Finance Act, 2014 effective from 01.04.2014. Therefore, the amendment, no doubt, will apply prospectively. Thus, following the various judicial precedents cited before us, we hold that CSR expenses incurred by the assessee are allowable as deduction under section 37(1) of the Act. This ground is allowed.” 7. Ld. CIT-DR could not point out any reason on distinction of facts or law. Accordingly, following the verdict in favour of the assessee from Co-ordinate Bench, the CSR expenses incurred by the assessee are held to be allowable as deduction u/s 37(1) of the Act for the relevant assessment year also. Accordingly, ground no. 1 is decided in favour of the assessee. 8. In regard to ground no. 2 it can be observed that for the assessment year 2013-14, the issues have been restored to Assessing Officer to examine the revised computation of disallowance submitted by the assessee as per Section 14A r.w.r. 8D and if it is found similar to the methodology adopted by assessee in assessment year 2008-09 and 2009-10 then the claim of assessee be accepted. As for the present assessment year, assessee has computed the disallowance u/s 14A at Rs. 5.38 lakhs on the basis of cost of proportionate fund Management Group and relevant findings of Ld AO are reproduced as below :- “8.5 The method of disallowance u/s 14A adopted by assesse is not based on industry practice and neither prescribed by Income Tax Rules, Assessee has contended that no interest expenditure has been incurred in relation to such income. From the records, no direct expenditure is seem to have been incurred by the 271/Del/2019 Steel Authority of India 5 assessee in relation to the assets which can yield exempt income. Further, from the details of interest expenses submitted vide submission dated 29/02/2016 as well as the facts of the assessee has adequate amount of own funds for investments in mutual funds including the profit of the current year, it is acceptable that no borrowed funds have been invested in the mutual funds. Accordingly, no disallowance is being made as per provision of Rule 8D(2)(i) &. Rule 8D(2)(ii), However, it Is obvious that certain expenditure of the nature of administrative and other expenditures are bound to have been incurred by the assessee simply for the reason that the assessee is maintaining such assets which can yield incomes which does not form part of total income. It cannot be denied that some expenditures such as those incurred on man-hours spent on maintenance of accounts of such investments, man-hours spent on reconciliation of such investments, documentation, stationery, computer resources, accounting softwares etc. are attributable to the fact that the assessee is having such assets in its balance sheet. On the same note, it can also be said that the expenditure incurred by the assessee towards the audit of such investments and representation before the Authorities/Agencies in respect of such investments are also expenses incurred towards maintaining such assets. Therefore, in view of the provisions of Section 14 A(2), 1 am not satisfied with the correctness of the claim of the assessee that no such expenditure has been incurred in relation to the assets incomes from which do/may not form part of total income. 8.6 In the above background and the fact that assesse itself had followed Rule 8D for disallowance u/s 14A in. A.Y, 2013-14, the same is used for computing disallowance. 8D(2)(iii) provides for a method for determination of such administrative expenses @ 1/2% of the average value of investment.” 9. Ld. CIT(A) has sustained the aforesaid with following findings :- “5.4.2 After rejecting the method adopted by the assessee the only mechanism for computation of the disallowance is as prescribed under rule 8D. The same has been done by the assessing officer. As a result the addition made by the assessing officer is hereby confirmed. The ground of appeal is dismissed.” 271/Del/2019 Steel Authority of India 6 10. The Bench is of considered opinion that when the nature of investments continued to be the same, then methodology for computation of disallowance for the purpose of Section 14A(2) and Rule 8D requires consistency. If the revenue has accepted the methodology for assessment years 2008-09 and 2009- 10 and as with regard to assessment year 2013-14 also the co-ordinate Bench has directed to accept the same methodology, then there can be no other way to arrive for disallowance then to follow the same. Accordingly, the issue is restored to the files of Ld. AO to follow the same methodology for present AY also. The ground is allowed for statistical purposes. 11. In the result, appeal of assessee is allowed. Order pronounced in the open court on 11 th October, 2022. Sd/- Sd/- (ANIL CHATURVEDI) (ANUBHAV SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER Date:- 11 .10.2022 *Binita, SR.P.S* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI