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

ITA 4856/DEL/2018

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 7815 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-02-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2013-2014
• Appeal Filed On: 08-07-2018
• Result in Favour of: Matter Remanded
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Rule 8D
• Section: 37; 2; 14A; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH: ‘G’ NEW DELHI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND DR. B.R.R. KUMAR, ACCOUNTANT MEMBER ITA No.4856/Del/2018 Assessment Year: 2013-14 M/s. Steel Authority of India Ltd., AGM (Taxation), 4 th Floor, Ispat Bhavan, Lodhi Road, New Delhi Vs. Addl. CIT, Special Range-8, New Delhi PAN :AAACS7062F (Appellant) (Respondent) ORDER PER SAKTIJIT DEY, JM: Captioned appeal by the assessee arises out of order dated 16.04.2018 of learned Commissioner of Income Tax (Appeals)-42, New Delhi, for the assessment year 2013-14. 2. Ground no. 5, being a general ground, does not require adjudication. Appellant by Sh. M.P. Rastogi, Advocate Respondent by Sh. H.K. Chaudhary, CIT (DR) Date of hearing 23.02.2022 Date of pronouncement 28.02.2022 2 ITA No.4856/Del/2018 AY: 2013-14 3. At the outset, on instruction, learned counsel for the assessee did not press ground nos. 1 and 4, accordingly, they are dismissed as not pressed. 4. In ground no. 2, the assessee has challenged disallowance of Corporate Social Responsibility (CSR) expenses of Rs.5329 lakhs. Briefly the facts are, the assessee is a public sector undertaking. For the assessment year under dispute, assessee filed its return of income on 30.09.2013 declaring total income of Rs.33,25,07,06,770/-. In course of assessment proceeding, the Assessing Officer noticed that the assessee has debited an amount of Rs.5329 lakhs to the profit and loss account towards CSR expenses. Noticing this, the Assessing Officer called upon the assessee to explain why the expenditure, being of capital nature, should not be disallowed. In reply to the show-cause- notice issued by the Assessing Officer, though, the assessee objected to the proposed disallowance, however, the Assessing Officer rejecting the explanation of the assessee held that the expenditure being of capital in nature is not allowed. Accordingly, he disallowed the claim of the assessee. 3 ITA No.4856/Del/2018 AY: 2013-14 5. Learned Commissioner (Appeals) upheld the disallowance on the ground that such expenditure is not incurred wholly and exclusively for the purpose of business. 6. Before us, learned counsel for the assessee submitted that in the preceding assessment years, the CSR expenses incurred by the assessee were allowed under section 37 of the Act. He submitted, in the impugned assessment year, based on Explanation – 2 to section 37 of the Act, the Assessing Officer has disallowed the expenditure. He submitted, Explanation – 2 to section 37 of the Act inserted by the Finance Act, 2014 would apply prospectively and not to the impugned assessment year. He submitted, it is now fairly well settled that prior to aforesaid amendment to section 37 of the Act, CSR expenses were allowable deduction. In support of such contention, he relied upon the following decisions: 1. ACIT Vs. Jindal Power Ltd. (ITA No. 99/DLPR/2012, AY : 2008-09) 2. Pr. CIT Vs. Gujarat Narmada Valley Fertilizer & Chemicals Ltd., 121 taxmann.com 82/422 ITR 164 7. Learned Departmental Representative relied upon the observations of learned Commissioner (Appeals). 4 ITA No.4856/Del/2018 AY: 2013-14 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 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 5 ITA No.4856/Del/2018 AY: 2013-14 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. 9. In ground no. 3.1 and 3.2, the assessee has challenged the disallowance made under section 14A read with Rule 8D. Briefly the facts are, during the year under consideration, the assessee suo motu worked out the disallowance under section 14A by applying the methodology provided under Rule 8D(2)(iii) for an amount of Rs.3,50,83,000/-. In course of assessment proceeding, the assessee furnished revised computation of disallowance under section 14A read with Rule 8D(2)(iii) at a much lesser figure. However, while completing the assessment, the Assessing Officer completely ignored the revised computation of the assessee. Whereas, learned Commissioner (Appeals), though, accepted assessee’s contention that the assessee can make a revised claim before the appellate authority, however, he ultimately held that the disallowance originally computed by the assessee while filing 6 ITA No.4856/Del/2018 AY: 2013-14 the return of income is correct, hence, needs no interference. Accordingly, he rejected assessee’s revised claim. 10. Before us, learned counsel for the assessee submitted that by simply following the method prescribed under Rule 8D(2), the assessee has made disallowance at a much higher figure than the actual expenditure incurred for earning the exempt income. He submitted, in the revised computation, the assessee has correctly computed the disallowance at Rs.5.33 lakhs. He submitted, the methodology adopted by the assessee in the revised computation was also adopted in assessment years 2008-09 and 2009-10 and has been accepted by the departmental authorities while giving effect to the order of learned Commissioner (Appeals) in assessment years 2008-09 and 2009-10. Thus, he submitted, the Assessing Officer may be directed to work out the disallowance under Rule 8D(2)(iii) by following the methodology adopted in assessment years 2008-09 and 2009-10. 11. Learned departmental representative relied upon the observations of the Assessing Officer and learned Commissioner (Appeals). 12. We have considered rival submissions and perused the materials on record. Undisputedly, while computing the income in 7 ITA No.4856/Del/2018 AY: 2013-14 the return of income filed for the impugned assessment year, the assessee has suo motu disallowed an amount of Rs.3.50 crores under section 14A read with Rule 8D. However, in course of assessment proceeding, the assessee filed a revised working of disallowance under rule 8D(2)(iii) by computing the disallowance of Rs.5.33 lakhs. While the Assessing Officer completely ignored the revised computation, learned Commissioner (Appeals) rejected assessee’s claim. Before us, learned counsel for the assessee submitted that the methodology adopted by the assessee in the revised computation of disallowance under section 14A read with Rule 8D was also adopted by the assessee in assessment years 2008-09 and 2009-10 and while giving effect to the direction of the learned Commissioner (Appeals), the Assessing Officer has adopted such methodology and computed disallowance under Section 14A read with Rule 8D. 13. Considering the aforesaid submission of the assessee, we direct the Assessing Officer to examine the revised computation of disallowance under section 14A read with Rule 8D of the Act as filed by the assessee and if it is found similar to the methodology adopted by the assessee in assessment years 2008-09 and 2009- 10, which, as submitted, were accepted by the Assessing officer 8 ITA No.4856/Del/2018 AY: 2013-14 while giving effect to the orders of learned Commissioner (Appeals) in assessment year 2008-09 and 2009-10, assessee’ claim may be accepted. Needless to mention, assessee must be provided due opportunity of being heard before deciding the issue. This ground is allowed for statistical purposes. 14. In the result, the appeal is allowed for statistical purposes. Order pronounced in the open court on 28 th February, 2022 Sd/- Sd/- (B.R.R. KUMAR) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 28 th February, 2022. RK/- Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi