2021 (1) TMI 828 - AT - Income Tax

Revision u/s 263 - Allowability of Corporate Social Responsibility Expenses - AO not enquired into the nature of these expenses to determine allowability of these expenses u/s. 37(1) - lack of enquiry OR Inadequate enquiry - HELD THAT - We hold that it is not a case of lack of enquiry. The allegation is only of inadequate enquiry, which cannot be a ground for revision u/s. 263 of the Act. Thus on this ground the order passed u/s. 263 of the Act is bad in law. The AO had examined the issue and taken a possible view. In addition to the case law cited above, the direction of Pr. CIT that only expenditure incurred for the benefit of the assessee is allowable u/s. 37(1) of the Act is against the propositions of law laid down in P. BALAKRISHNAN, COMMISSIONER OF INCOME-TAX 1999 (10) TMI 33 - KERALA HIGH COURT , SPINNING AND WEAVING MILLS LIMITED. 2004 (9) TMI 10 - RAJASTHAN HIGH COURT , COATS VIYELLA INDIA LTD. 2000 (11) TMI 24 - MADRAS HIGH COURT Applying the propositions of law laid down in the decision of the Tribunal in Bengal NRI Complex Ltd. 2018 (12) TMI 744 - ITAT KOLKATA we have to hold that the expenditure incurred by the assessee to fulfil the obligations of Section 135 of Companies Act, 2013 is allowable as deduction and consequently there is no error in the order passed by the AO u/s. 143(3) of the Act much less an error which is prejudicial to the interest of the Revenue. We quash the order of the Pr. CIT passed u/s. 263 of the Act as bad in law.- Decided in favour of assessee.

Summary

Issues Involved:
1. Delay in filing the appeal.
2. Validity of the revision order passed by the Pr. CIT under Section 263 of the Income Tax Act, 1961.
3. Allowability of Corporate Social Responsibility (CSR) expenses under Section 37(1) of the Income Tax Act, 1961.

Detailed Analysis:

1. Delay in Filing the Appeal:
The appeal was filed with a delay of 70 days. After reviewing the petition for condonation and the accompanying affidavit, the tribunal condoned the delay and admitted the appeal.

2. Validity of the Revision Order Passed by the Pr. CIT under Section 263:
The Pr. CIT revised the assessment order passed under Section 143(3) for the Assessment Year 2013-14, claiming that the Assessing Officer (AO) did not properly verify the nature of CSR expenses to determine their allowability under Section 37(1). The tribunal noted that the AO had called for and examined the details of CSR expenses during the original assessment proceedings. The AO's examination was deemed sufficient, and it was concluded that the AO had taken a possible view. The tribunal referenced the case of Bengal NRI Complex Ltd. vs. DCIT, which supported the notion that an AO's order cannot be revised merely on the grounds of inadequate inquiry if the inquiry was indeed conducted.

3. Allowability of CSR Expenses under Section 37(1):
The tribunal examined whether CSR expenses could be allowed as a deduction under Section 37(1), especially since the amendment by Explanation 2 to Section 37(1) was effective from 01.04.2015 and did not apply to the impugned assessment year. The tribunal cited precedents, including the case of Jindal Power Ltd., which held that CSR expenses incurred voluntarily and not under a statutory obligation should be allowed if they are wholly and exclusively for business purposes. The tribunal also referenced various judicial decisions, such as CIT vs. Madras Refineries Ltd., which supported the evolving concept of business to include CSR activities that generate goodwill and benefit the business indirectly.

Conclusion:
The tribunal concluded that the revision order passed by the Pr. CIT was not valid as it was based on an allegation of inadequate inquiry rather than a lack of inquiry. The tribunal held that CSR expenses incurred to fulfill obligations under Section 135 of the Companies Act, 2013, are allowable as deductions under Section 37(1). Consequently, the tribunal quashed the Pr. CIT's order under Section 263 as bad in law and allowed the appeal filed by the assessee.