NTPC Electric Supply Company Ltd., New Delhi V. ITO,Ward-18(4), New Delhi

ITA 4591/DEL/2017

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 9926 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 8 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-03-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2014-2015
• Appeal Filed On: 12-07-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAMILA M BISWAS
• Section: 37(1); 201

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER I.T.A. NO.4591/DEL/2017 ASSESSMENT YEAR: 2014-2015 NTPC ELECTRIC SUPPLY COMPANY LTD., NTPC BHAWAN, CORE-7, SCOPE COMPLEX, LODHI ROAD, NEW DELHI. VS. ITO, WARD-18(4) NEW DELHI. TAN/PAN: AABCN7520Q (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI VED JAIN, ADV. RESPONDENT BY: MS. PRAMILA M. BISWAS DATE OF HEARING: 02 03 2021 DATE OF PRONOUNCEMENT: 17 03 2021 O R D E R PER AMIT SHUKLA, JM THE AFORESAID APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE IMPUGNED ORDER DATED 14.06.2017, PASSED BY LD. COMMISSIONER OF INCOME TAX (APPEALS)-VI, DELHI FOR THE QUANTUM OF ASSESSMENT PASSED U/S.143(3) FOR THE ASSESSMENT YEAR 2014-15. THE ONLY EFFECTIVE GROUND RAISED BY THE ASSESSEE READS AS UNDER: 2(I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE ORDER PASSED BY LEARNED CIT(A) IS BAD BOTH IN THE EYE OF LAW AND ON FACTS. I.T.A. NO.4591/DEL/2017 2 (II) THAT THE ABOVE SAID EXPENDITURE WAS DISALLOWED DESPITE THE SAME HAVING BEEN INCURRED WHOLLY AND EXCLUSIVEL Y FOR THE PURPOSES OF BUSINESS ONLY. 2. AT THE OUTSET, THE LD. COUNSEL SUBMITTED THAT TH E LD. CIT(A) WHILE CONFIRMING THE ADDITION HAS RELIED UPO N THE DECISION OF LD. CIT(A) FOR ASSESSMENT YEAR 2013-14 WHICH WAS SUBSEQUENTLY DELETED BY THE TRIBUNAL IN ITA NO.4590/DEL/2017 VIDE ORDER DATED 20.01.2020. THE F ACTS IN BRIEF ARE THAT THE ASSESSEE-COMPANY IS A WHOLLY OWN ED SUBSIDIARY COMPANY OF NTPC LTD., A GOVERNMENT UNDER TAKING WITH THE OBJECTIVE TO MAKE FORAY IN SUPPLY AND DIST RIBUTION OF ELECTRICITY. IT WAS ENTRUSTED WITH RURAL ELECTRIFIC ATION WORK UNDER THE SCHEME OF CENTRAL GOVERNMENT. THE ASSESSE E HAD DEBITED SUM OF RS.6,24,035/- ON ACCOUNT OF COMMUNIT Y DEVELOPMENT AND WELFARE EXPENSES. IN RESPONSE TO SH OW CAUSE NOTICE, THE ASSESSEE HAS SUBMITTED AND STATED AS UN DER: ASSESSEE COMPANY HAS INCURRED AN EXPENDITURE OF RS . 6,24,035/- TOWARDS COMMUNITY DEVELOPMENT AND WELFARE EXPENSES DURING THE F. Y. 2013-14 (A. Y. 2014-15) AND THE SAME HAS BEEN CHARGED TO P&L A/C. SUCH EXPENDITURE HAS BEEN INCURRED WHOLLY AND EXCLU SIVELY FOR THE PURPOSE OF THE COMPANY'S BUSINESS AND IS THUS ALLOW ABLE U/S 37(1) OF THE INCOME TAX ACT. SOME OF THE REASONS WHICH SU PPORT NESCL'S CONTENTION ARE GIVEN BELOW: A. THIS EXPENDITURE HAS BEEN INCURRED TO COMPLY WI TH THE REQUIREMENTS OF DEPARTMENT OF PUBLIC ENTERPRISES (D PE) GUIDELINES, ISSUED VIDE OM DATED 09-04-2010 WHICH PROVIDE THAT ALL CPSES ARE REQUIRED TO NECESSARILY SPEND 0.5% TO 5% OF THEIR N ET PROFITS OF I.T.A. NO.4591/DEL/2017 3 PREVIOUS YEAR ON CSR ACTIVITIES. THEREFORE AS THIS EXPENDITURE IS INCURRED TO COMPLY WITH THE REGULATIONS FRAMED BY T HE CENTRAL GOVERNMENT, THE EXPENDITURE SHOULD BE DISALLOWED. B. EXPENDITURE ON CSR RESULTS IN IMPROVEMENT OF EN VIRONMENT IN WHICH THE BUSINESS OPERATES. THEREFORE, SUCH EXP ENDITURE PROVIDES INDIRECT BENEFITS TO THE BUSINESS. C. SUCH EXPENDITURE IS INCURRED AS A GOOD CORPORAT E CITIZEN TO EARN GOODWILL AND CREATE AN ATMOSPHERE IN WHICH BUS INESS CAN SUCCEED IN A GREATER MEASURE. D. FOLLOWING THE ABOVE GUIDELINES, NESCL HAS INCUR RED EXPENDITURE FOR AN AMOUNT OF RS. 6,24,035/- ON CSR ACTIVITIES DURING THE F.Y. 2013-14(A.Y. 2014-15) E. .. F. NESCL INCURS EXPENDITURE MAINLY IN THE AREAS OF BASIC INFRASTRUCTURE DEVELOPMENT IN FAR FLUNG AREAS WHERE THE PROJECTS ARE TAKEN FOR ELECTRIFYING THE VILLAGES FOR AN AMOUNT O F RS. 6,24,035/-. G. IT IS EVIDENT FROM THE ABOVE EXPLANATION THAT T HE CSR EXPENSES ARE ALLOWABLE LEGITIMATE BUSINESS FOR THE YEAR UNDER CONSTRUCTION. 3. LD. ASSESSING OFFICER HAD DISALLOWED THE SAID EXPENDITURE ON THE GROUND THAT SAME IS NOT WHOLLY A ND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS U/S.37(1). FURTHER, THE ASSESSEE HAS INCURRED HIS EXPENDITURE AS PER GUIDEL INES ISSUED BY DEPARTMENT OF PUBLIC ENTERPRISES THAT COM PANY WHO SPEND CERTAIN PERCENTAGE OF PROFITS TO DISCHARG E THEIR CORPORATE SOCIAL RESPONSIBILITY. ACCORDINGLY, HE MA DE A DISALLOWANCE. I.T.A. NO.4591/DEL/2017 4 4. LD. CIT (A) HAS CONFIRMED THAT SAID ADDITION, FO LLOWING THE ORDER OF THE LD. CIT(A) FOR ASSESSMENT YEAR 201 3-14 HOLDING THAT IT IS NOT WHOLLY AND EXCLUSIVELY FOR T HE PURPOSE OF BUSINESS. 5. AFTER CONSIDERING THE SUBMISSIONS MADE BY THE PA RTIES AND ON PERUSAL OF THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDER, IT IS SEEN THAT THE ASSESSING OFFICER HAS MA DE THE DISALLOWANCE BY TREATING IT TO BE EXPENDITURE IN NA TURE OF CSR. IT WOULD BE PERTINENT TO NOTE THAT EXPLANATION-2 TO SECTION 37(1) HAS BEEN BROUGHT IN THE STATUTE TO PR OHIBIT EXPENDITURE ON CSR FOR CLAIMING U/S.37(1) BY THE FI NANCE ACT 2 OF 2014 W.E.F. 01.04.2015, I.E., APPLICABLE FROM ASSESSMENT YEAR 2015-16. HERE IN THIS CASE, THE ASSESSMENT YEA R INVOLVED IN 2014-15, AND THEREFORE, EXPLANATION 2 TO SECTION 37(1) COULD NOT BE APPLICABLE. THIS PRECISE ISSUE H AS BEEN DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2012-13 AND 2013-14 WHEREIN IT HEL D THAT THE EXPENDITURE ON COMMUNITY DEVELOPMENT AND WELFAR E DEVELOPMENT IS ALLOWABLE BECAUSE PRIOR TO THE AMEND MENT THE SAID EXPLANATION WOULD BE APPLICABLE. ACCORDINGLY, GROUND RAISED BY THE ASSESSEE IS ALLOWED. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH MARCH, 2021 SD/- SD/- [O.P. KANT] [AMIT SHUKLA] [ACCOUNTANT MEMBER] JUDICIAL MEMBER DATED: 17/03/2021 PKK: