DY. C.I.T.1(2), RAIPUR (CG) V. M/S HIRA INDUSTRIES LTD., RAIPUR (CG)

ITA 362/BIL/2014

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 9002 (ITAT-RAIPUR)
• Duration Of Justice: 3 year(s) 2 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-01-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 14-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R M MUJUMDAR
• Keywords: Business expenditure; Charitable institution
• Section: 14A; 80G; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, RAIPUR BENCH, RAIPUR BEFORE S/SHRI N.S SAINI, ACCOUNTANT MEMBER AND PAVAN KUMAR GADALE, JUDICIAL MEMBER ITA NO.362/RPR/2014 ASSESSMENT YEAR : 2010-2011 DCIT, 1(2), AAYAKAR BHAVAN, CENTRAL REVENUE BUILDING, CIVIL LINES, RAIPUR. VS. HIRA INDUSTRIES LTD., 557A, URLA INDUSTRIAL AREA, RAIPUR PAN/GIR NO.AABCH 2868 P (APPELLANT ) .. ( RESPONDENT ) ASSESSEE BY : NONE REVENUE BY : SHRI R.M. MUJUMDAR, DR DATE OF HEARING : 16/01/ 2018 DATE OF PRONOUNCEMENT : 17 /01/ 2018 O R D E R PER PAVAN KUMAR GADALE, JM THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE O RDER OF THE CIT(A)- RAIPUR, DATED 26.9.2014 FOR THE ASSESSMENT YEAR 2010 -2011. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APP EAL: 1. WHETHER IN LAW AND FACTS & CIRCUMSTANCES OF THE CASE, T HE CIT(A) HAS ERRED IN RESTRICTING THE DISALLOWANCE OF RS. 51,165/- ON ACCOUNT OF CSR/DONATION EXPENSES THEREBY GIVING REL IEF OF RS.76,50,000/-. 2. WHETHER IN LAW AND ON FACTS & CIRCUMSTANCES OF THE CAS E, THE CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.50 ,77,701/- U/S.14A OF THE I.T.ACT, 1961. 2 ITA NO.362/RPR/2014 ASSESSMENT YEAR : 2010-2011 3. THE RESPONDENT-ASSESSEE HAS FILED AN ADJOURNMENT PETIT ION TO ADJOURN THE APPEAL ON THE GROUND THAT THE LD COUNSEL FOR THE ASSESSEE ENGAGED TO REPRESENT THE CASE ON BEHALF OF THE ASSESSEE WILL PROCEED TO MUMBAI FOR ATTENDING THE PART HEARD MATTERS IN MUMBAI BENCHES AN D WILL NOT BE AVAILABLE TO ARGUE THE CASE. WE FIND THAT THE REASON FOR ADJOURNMENT IS NOT PLAUSIBLE ONE, HENCE THE ADJOURNMENT PETITION IS REJ ECTED AND THE MATTER IS HEARD AND DISPOSED OF ON THE BASIS OF MATERIALS AVAILAB LE ON RECORD AND AFTER HERING LD D.R. 4. APROPOS GROUND NO.1 OF APPEAL, THE FACTS ARE THAT THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS DEBITED A SUM OF RS.94, 51,165/- TO THE PROFIT AND LOSS ACCOUNT UNDER THE HEAD CORPORATE SOCI AL RESPONSIBILITY EXPENSES. THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO J USTIFY THE CLAIM. THE ASSESSEE SUBMITTED THAT THE AMOUNTS WERE DONATED TO A KANDSHA LIONS SCHOOL FOR MENTALLY HANDICAPPED, MIKKI MEMORIAL TRUST , A CHARITABLE INSTITUTE FOR EYE TREATMENT, SITAPUR SHIKSHA SANSTAN, AN INSTITU TE FOR EDUCATION OF POOR AND NEEDY CHILDREN. THE ASSESSING OFFICER OBSERVED THAT AKANDSHA LIONS SCHOOL FOR MENTALLY HANDICAPPED IS NOT REGISTERED WITH THE INCOME TAX DEPARTMENT, THEREFORE, HE DISALLOWED RS.59,00,000/-. AS REGARDS TO DONATION TO MIKKI MEMORIAL TRUST OF RS.25,00,000/-, A CHARITABLE INSTITUTE FOR EYE TREATMENT, AND RS.10,00,000/- TO SITAPUR SHIKSH A SANSTAN, THE 3 ITA NO.362/RPR/2014 ASSESSMENT YEAR : 2010-2011 ASSESSING OFFICER OBSERVED THAT BOTH THESE INSTITUTIONS ARE REGISTERED U/S. 80G, THEREFORE, HE ALLOWED 50% OF THE DONATION AND DISALLOWED BALANCE 50% OF THE DONATION. AS REGARDS TO DONATION OF RS.36,165 /- AND RS.15,000/- PAID TO GANESH PUJA, DURGA PUJA, CRICKET TOURNAMENT, ETC, T HE ASSESSING OFFICER DISALLOWED THE SAME. HENCE, IN SUM AND SUBSTANCE, HE DI SALLOWED RS.77,01,165/- OUT OF TOTAL EXPENSES CLAIMED BY THE ASSE SSEE. 5. ON APPEAL, THE CIT(A) ALLOWED PART RELIEF TO TH E ASSESSEE BY ALLOWING RS.76,50,000/- AND DISALLOWED RS.51,165/-. 6. LD D.R. SUBMITTED THAT THE CIT(A) HAS ERRED IN RE STRICTING THE ADDITION ON ACCOUNT OF DONATION OF RS.51,165/- AND ALLOWING SUBS TANTIAL RELIEF TO THE ASSESSEE. LD D.R. EMPHASIZED THAT THE DECISIONS RELIED ON BY THE CIT(A) ARE NOT RELEVANT TO THE FACTS OF THE ASSESSEES CASE. THE EXPEN SES CLAIMED BY THE ASSESSEE CANNOT BE ALLOWED AS THE SAME ARE NOT WHOLLY AND EXCLUSIVELY INCURRED FOR THE BUSINESS PURPOSES OF THE ASSESSEE. LD D.R. SUBMITTED THAT THE ASSESSEE HAS NOT COMPLIED WITH THE REQUISITE CONDITIONS U/S.37(1) OF THE ACT TO CLAIM THE DEDUCTION. HE ALSO SUBMITTED THAT TH E ASSESSEE HAS NOT SHOWN ANY NEXUS BETWEEN THE CURRENT BENEFIT AND FIGUR E BENEFIT FOR THE ASSESSEE IN MAKING SUCH HUGE DONATIONS IN THE INSTITUTIONS. 7. WE HAVE HEARD LD D.R, PERUSED THE ORDERS OF LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. WE FIND THE ASSESSEE HA S MADE DONATIONS TO 4 ITA NO.362/RPR/2014 ASSESSMENT YEAR : 2010-2011 THE RESPECTIVE INSTITUTES, SUCH AS AKANKSHA LIONS SCHOOL F OR MENTALLY HANDICAPPED, MIKKI MEMORIAL TRUST, A CHARITABLE INST ITUTE FOR EYE TREATMENT, SITAPUR SHIKSHA SANSTAN, AN INSTITUTE FOR EDUCATION OF POOR AND NEEDY CHILDREN. IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS NOT MADE DONATIONS TO THE ABOVE SAID INSTITUTIONS. THE EXPENSES ARE INCURRED F OR WELFARE OF COMMUNITY, WHICH ULTIMATELY IMPROVES THE CORPORATE IMA GE AND ENHANCE GOODWILL IN PUBLIC. SCHEDULE VII OF THE COMPANIES ACT PRESCRIBES ACTIVITIES TOWARDS WHICH CSR EXPENDITURE SHOULD BE INCURRED LIKE S LUM DEVELOPMENT, ERADICATING POVERTY, PROMOTING HEALTH CARE, GENDER EQ UALITY ,TAKING EDUCATION INITIATIVES, ONE OF THE MAIN THINGS THAT COM E TO FORE IS WHAT IS THE EFFECT OF CSR COMMITMENTS FROM TAX DEDUCTIBILITY PERSPECT IVE. THE GENERAL NORM HAS BEEN TO ALLOW A DEDUCTION FOR DONATIONS, CON TRIBUTIONS, ETC., MADE FOR CHARITABLE PURPOSES UNDER SECTION 80G OF THE INCOME- TAX ACT, 1961. THE CORPORATE HOUSES WERE EXPECTING RELIEF UNDER SECTION 37 ( 1) OF THE INCOME- TAX ACT, 1961. IT IS A RESIDUARY SECTION IN THE ACT TO ALLOW BUSINESS EXPENDITURE WHICH IS DONE IN THE NORMAL COURSE OF BUSIN ESS AND PROFESSION. THE REQUIREMENT IS THAT IT SHOULD HAVE A NEXUS WITH BU SINESS OBJECTIVES AND SHOULD NOT BE OF A PERSONAL NATURE. IN THE INSTANT CASE, THE ASSESSEE HAS DONATED THE AMOUNTS TO THE INSTITUTIONS, WHICH ARE ENG AGED IN MEDICAL TREATMENT; SCHOOL FOR MENTALLY HANDICAPPED AND EDUCATIO N FOR POOR AND NEEDY CHILDREN. THESE ITSELF PROVE THAT THE EXPENDITU RE INCURRED BY THE 5 ITA NO.362/RPR/2014 ASSESSMENT YEAR : 2010-2011 ASSESSEE ARE FOR CHARITABLE PURPOSES. HENCE, THE DEDUCTION U NDER SECTION 37 OF THE INCOME-TAX ACT, 1961 IS TO BE ALLOWED. 8. WE ALSO FIND THAT THE CIT(A) HAS RELIED ON THE DECI SION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. INFOSYS TECH NOLOGIES LTD., 360 ITR 714 (KAR) HAS HELD THAT THE EXPENDITURE INCURRED ON SOCIAL RESPONSIBILITY WAS LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR PU RPOSES OF BUSINESS. THE CIT(A) HAS REFERRED TO THE AMENDMENT MADE IN FIN ANCE ACT (NO.2) 2014 W.E.F. 1.4.2015 IN SECTION 37, WHEREIN, IT IS DE CLARED THAT FOR THE PURPOSES OF SUB-SECTION(1) ANY EXPENDITURE INCURRED BY AN ASSESSEE ON THE ACTIVITIES RELATING TO CORPORATE SOCIAL RESPONSIBILITY REF ERRED TO IN SECTION 135 OF THE COMPANIES ACT, 2013 SHALL NOT BE DEEMED TO BE A N EXPENDITURE INCURRED BY THE ASSESSEE FOR THE PURPOSES OF THE BUSINESS OR PROFESSION. THE CIT(A) HAS HELD THAT THERE WAS NO SUCH EMBARGO FOR THE PRECEDING YEARS. IN VIEW OF ABOVE, THE CIT(A) HELD THAT THE D ISALLOWANCE CANNOT BE SUSTAINED. WE ARE OF THE CONSIDERED OPINION THAT THE CIT(A) HAS RIGHTLY CONSIDERED THE DECISION AND DELETED THE ADDITION MADE B Y THE ASSESSING OFFICER AND GROUND NO.1 OF APPEAL OF THE REVENUE IS D ISMISSED. 9. THE NEXT ISSUE RELATES TO DELETION OF RS.50,77,701/- U/S.14A OF THE ACT. 6 ITA NO.362/RPR/2014 ASSESSMENT YEAR : 2010-2011 10. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS MADE INVESTMENT OF RS.1,96,52,176/- IN THE SHARES OF HIRA FERRO ALLOYS LTD., A GROUP COMPANY. AS ON 31.3.2010, THE TOTAL INVESTMENT MADE BY THE ASSESSE E COMPANY IN SHARE STOOD AT RS.18,39,22,128/-. IN RESPONSE TO ASSESSING OFFICERS QUERY, THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE COMPANY HAS EARNE D CASH PROFIT OF RS.1.30 CRORES AND HAS NOT INCURRED ANY DIRECT OR INDIRECT EXPENDITURE FOR MAKING SUCH INVESTMENT, THEREFORE, PR OVISIONS OF SECTION 14A OF THE ACT ARE NOT APPLICABLE. THE ASSESSING OFFICER O BSERVED THAT DIVIDEND INCOME FROM THE INVESTMENT IS EXEMPT FROM TA X AND, THEREFORE, THE CORRESPONDING INTEREST OUT OF INTEREST EXPENDITURE CLAIM ED ON BORROWED FUNDS IS NOT ALLOWABLE U/S.14A OF THE ACT. THEREFORE, HE DISALLOWED RS.50,77,701/-. 11. ON APPEAL, IT WAS SUBMITTED THAT THE ASSESSEE HAS EARN ED DIVIDEND INCOME OF RS.46.86 LAKHS ON THE INVESTMENTS MADE BY THE COMPANY IN ITS ASSOCIATE COMPANIES HIRA FERRO ALLOYS LTD., IN WHICH THE A SSESSEE IS HOLDING ALMOST 40% OF SHARES. THE INVESTMENT IN THE COMPANY IS O UT OF BORROWED FUND FROM HIRA STEELS LTD., AND JAGDAMBA POWER AND A LLOYS LTD., AND THE INTEREST AMOUNTING TO RS.1,96,52,371/- ATTRIBUTABLE T O THE AMOUNT OF INVESTMENT OF RS.16.37 CRORES HAS BEEN ADDED TO THE COST OF IMPROVEMENT, THEREBY INTEREST ON BORROWED FUND OF RS.1,96,52,371/- WAS NOT DEBITED TO 7 ITA NO.362/RPR/2014 ASSESSMENT YEAR : 2010-2011 PROFIT AND LOSS ACCOUNT. IT WAS ALSO SUBMITTED THAT BY A DDING INTEREST EXPENDITURE OF RS.1,96,52,371/- TO THE COST OF INVESTME NT MEANS REDUCING THE INTEREST EXPENDITURE BY THAT AMOUNT RESULTING OVE RALL INCREASE OF THE TOTAL INCOME OF THE ASSESSEE, THEREFORE, FURTHER DISALLOW ANCE ON ACCOUNT OF INTEREST OF RS.50,77,644/- IS NOT CORRECT. 12. THE CIT(A) OBSERVED THAT INTEREST ON BORROWED FUN DS WHICH IS ATTRIBUTABLE TO THE INVESTMENT IN THE SHARE CAPITAL O F ASSOCIATED COMPANIES HAS BEEN ADDED TO THE COST OF INVESTMENT AND AS SUCH THE TOTAL INTEREST DEBITED TO THE PROFIT AND LOSS ACCOUNT HAS BEEN REDUCED TO THAT EXTENT. THEREFORE, DISALLOWANCE U/S.14A DOES NOT ARISE AT THE EN TIRE INTEREST EXPENSES ATTRIBUTABLE TO THE INVESTMENT MADE IN THE ASSO CIATED COMPANIES. THEREFORE, HE DELETED THE ADDITION MADE BY THE ASSESSIN G OFFICER. 13. THE CONTENTION OF LD D.R. IS THAT THE ASSESSEE HAS MA DE INVESTMENT IN SHARES AND HAS BEEN RECEIVING DIVIDEND INCOME AND CLAIME D EXEMPT FROM TAX. THE ASSESSEE HAS BEEN UTILIZING BORROWED FUNDS FOR INVESTMENT AND, THEREFORE, THE INTEREST COMPONENT TO THE EXTENT OF EX EMPT INCOME CANNOT BE ALLOWED. HE SUBMITTED THAT THE CIT(A) HAS ERRED IN ALLOWING THE CLAIM OF THE ASSESSEE WITHOUT CONSIDERING ALL THESE FACTS. 8 ITA NO.362/RPR/2014 ASSESSMENT YEAR : 2010-2011 14. AFTER HEARING LD D.R. AND PERUSING THE MATERIALS AVAILABLE ON RECORD, WE FIND THAT THE ASSESSING OFFICER HAS MADE ADDITION AP PLYING SECTION 14A R.W. 8D OF THE ACT IN RESPECT OF INVESTMENT MADE BY THE ASSESSEE IN THE GROUP COMPANIES AND THE INVESTMENT WAS FOR MAKING PRO FIT AND FOR FUTURE BENEFIT OF THE ASSESSEE COMPANY. THE ASSESSING OFFICER NOTICE D THAT THE ASSESSEE HAS INCURRED CERTAIN EXPENDITURE TOWARDS INTEREST A ND ALSO THESE INVESTMENTS WERE MADE OUT OF BORROWED FUNDS IN THE GR OUP COMPANIES AND, THEREFORE, APPLYING THE PROVISIONS OF SECTION 14A R.W. S 8D, THE ASSESSING OFFICER MADE DISALLOWANCE. WHEREAS, THE CIT(A) FOUND T HAT THE ASSESSEE HAS MADE INVESTMENT IN THE SISTER CONCERN OUT OF ITS NON-I NTEREST BEARING FUNDS, WHICH IS NOT DISPUTED BY LD D.R. AND ALSO THE I NVESTMENTS HAVE BEEN MADE WITH PROFIT MOTIVE. IN THESE CIRCUMSTANCES, THE CIT (A) FOUND THAT THE DISALLOWANCE IS NOT IN ORDER CONSIDERING THE FACTS OF THE CASE, WE ARE INCLINED TO UPHOLD THE ORDER OF THE CIT(A) AND REJECT THE GROUND OF APPEAL OF THE REVENUE. 15. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DIS MISSED. ORDER PRONOUNCED ON 17 /01/2018. SD/- SD/- (N.S SAINI) ( PAVAN KUMAR GADALE) ACCOUNTANT MEMBER JUDICIALMEMBER RAIPUR; DATED 17 /01/2018 9 ITA NO.362/RPR/2014 ASSESSMENT YEAR : 2010-2011 B.K.PARIDA, SPS COPY OF THE ORDER FORWARDED TO : BY ORDER, SR.PRIVATE SECRETARY ITAT, RAIPUR 1. THE APPELLANT : DCIT, 1(2), AAYAKAR BHAVAN, CENTRAL REVENUE BUILDING, CIVIL LINES, RAIPUR 2. THE RESPONDENT. HIRA INDUSTRIES LTD., 557A, URLA INDUSTRIAL AREA, RAIPUR 3. THE CIT(A)- RAIPUR 4. PR.CIT- RAIPUR 5. DR, ITAT, RAIPUR 6. GUARD FILE. //TRUE COPY//