2022 (7) TMI 621 - AT - Income Tax

Disallowance u/s 14A read with Rule 8D(2)(iii) - AO found that the assessee has made substantial investment in mutual funds, dividend on which is exempt - assessee has held shares of a JV Company during the year, such shares being assets which can yield exempt income to the assessee - assessee submitted that the Ld. AO has not recorded the satisfaction as to why there was expenditure relatable to exempt income - HELD THAT - From the bare reading of the aforesaid observation, it is seen that nowhere AO has noticed the nature of expenditure debited nor he has examined the books of accounts as to what are the expenditure which can be said to be attributable for opening of the dividend income. The conditions laid down in u/s.14A (2) is not being satisfied and accordingly in view of the decision of Godrej Boyce Manufacturing 2010 (8) TMI 77 - BOMBAY HIGH COURT disallowance made u/s. 14A is allowed. Decided in favour of assessee. Nature of expenditure - disallowance of CSR expenses - expenditure of capital nature or personal nature - HELD THAT - As decided in own case 2021 (9) TMI 1405 - ITAT DELHI the impugned expenditure cannot be held to be capital and it is not in the nature of personal expenditure or for any violation of law. Thus we delete the impugned disallowance of CSR expenses. As regards donation to CM's relief fund, the same is, otherwise allowable as deduction under section 80G(2)(a)(iiihf). - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act, 1961.
2. Disallowance of Corporate Social Responsibility (CSR) expenses.
3. Denial of deduction under Section 80G for donations to the Chief Minister's Relief Fund.

Detailed Analysis:

1. Disallowance under Section 14A of the Income Tax Act, 1961:
The assessee contested the disallowance of Rs. 1,92,91,622/- under Section 14A read with Rule 8D(2)(iii) of the Income Tax Rules. The Assessing Officer (AO) argued that the assessee had made substantial investments in mutual funds and shares of a Joint Venture (JV) company, which could yield exempt income. The AO reasoned that administrative and other expenditures must have been incurred to maintain these assets, leading to the disallowance. The assessee countered that no specific efforts or expenditures were made to earn the exempt income, emphasizing that the investments were managed by advisors without any cost to the company. The CIT(A) upheld the AO's disallowance, stating that the satisfaction of the AO was not mandatory when no disallowance was made by the assessee.

Upon appeal, the Tribunal referred to its previous rulings for Assessment Years (AY) 2011-12 and 2012-13, where similar disallowances were deleted. It was established that the assessee's investments were managed without incurring any expenses, and no disallowance under Section 14A was warranted. The Tribunal concluded that the facts and circumstances for AY 2014-15 were consistent with the preceding years and deleted the disallowance of Rs. 1,92,91,622/-.

2. Disallowance of Corporate Social Responsibility (CSR) expenses:
The AO disallowed Rs. 3,96,00,919/- of CSR expenses, treating them as capital in nature. The CIT(A) upheld this disallowance, following the appellate order for AY 2013-14. The assessee argued that the CSR expenses were not capital expenditures, as they did not result in any enduring benefit to the company and were incurred wholly and exclusively for business purposes.

The Tribunal referred to its previous rulings for AY 2012-13 and 2013-14, where similar disallowances were deleted. It was noted that the CSR expenses were incurred voluntarily and were necessary for the business, aligning with the company's CSR policy. The Tribunal emphasized that the expenses were not capital in nature and were allowable under Section 37(1) of the Income Tax Act. Accordingly, the Tribunal deleted the disallowance of CSR expenses for AY 2014-15.

3. Denial of deduction under Section 80G for donations to the Chief Minister's Relief Fund:
The assessee claimed a deduction under Section 80G for a donation of Rs. 2.50 crore to the Chief Minister's Relief Fund, which was part of the disallowed CSR expenses. The Tribunal noted that such donations are specifically allowable as deductions under Section 80G(2)(a)(iiihf) of the Income Tax Act. Consequently, the Tribunal allowed the deduction for the donation to the Chief Minister's Relief Fund.

Conclusion:
The appeal by the assessee was allowed, with the Tribunal deleting the disallowances under Section 14A and for CSR expenses, and allowing the deduction under Section 80G for the donation to the Chief Minister's Relief Fund. The order was pronounced in the open court on 30th June 2022.