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2022 (8) TMI 603 - AT - Income TaxDisallowance of Employees Contribution to PF u/s 36(1)(va) - scope of amendment to Section 43B - HELD THAT - As there was a delay in depositing employee s as well as employer s contribution to the Employee s Provident Fund/ESI fund. However, the amount was deposited before the due date of the filing of the return. We find that the issue is covered in favour of the assessee as the assessment year involved is AY 2017-18 and the Explanation- 5 inserted by Finance Act, 2021 to Section 43B w.e.f. 01.04.2021 is not applicable to the assessment year under consideration. - Decided in favour of assessee. Disallowance of corporate social responsibility (CSR) expenses u/s 37 - expenditures incurred by the assessee company for the purpose of business or not? - HELD THAT - As per provisions of Section 135 of the Companies Act, a company, having net worth of Rs. 500 Cr. or more, or turnover of Rs. 1000 Cr. or more, or net profit of Rs. 5 Cr. or more during any financial year, is obliged to spend at least 2% of the average net profits of the company made during the three immediate preceding financial years on Corporate Social Responsibility. There is no pleading that the company has spent more than the amount as it was required to spend as per the provisions of Section 135 of the Companies Act in an earlier years which, as per the provisions of sub-Section 5 to Section 135 of the Companies Act, can be set off against the requirement of Corporate Social Responsibility in succeeding three financial years. Hence, there is nothing on the file to show that the assessee had incurred more than the required expenditure on CSR in earlier years which could have been set-off against the liability on CSR of the current year. Even otherwise, there is nothing on record to show that the assessee company was exempt from spending any amount on Corporate Social Responsibility as required under Section 135 of the Companies Act. The matter is restored to the file of the ld. AO to verify the aforesaid contention of the assessee that the assessee was not required to spend any amount under Section 135 of the Companies Act on Corporate Social Responsibility and, further, that whether the amount spent by the assessee on Corporate Social Responsibility during the year was over and above its statutory liability under Section 135 of the Companies Act. As if it is found that the aforesaid plea of the assessee that the Corporate Social Responsibility expenditure was over and above its statutory obligation under Section 135 of the Companies Act is wrong and false then the finding of the ld. AO disallowing the aforesaid expenditure being hit by the provisions of Explanation 2 to Section 37 of the Act will stand affirmed. Appeal of the assessee is treated as allowed for statistical purposes.
Issues Involved:
1. Disallowance of Employees' Contribution to PF under Section 36(1)(va) of the Income Tax Act, 1961. 2. Disallowance of Corporate Social Responsibility (CSR) expenses under Section 37 of the Income Tax Act, 1961. Detailed Analysis: Ground No. 1: Disallowance of Employees' Contribution to PF Issue: The assessee challenged the disallowance of Rs. 30,49,649/- related to the delayed deposit of employees' contribution to the Provident Fund (PF) under Section 36(1)(va) of the Income Tax Act, 1961. Findings: - The assessee argued that the contribution was deposited before the due date for filing the return of income, citing the decision of the Calcutta High Court in CIT, Kolkata vs. M/s Vijay Shree Limited, which was also followed by the ITAT Kolkata in Harendra Nath Biswas vs. DCIT. - The Tribunal found the issue covered in favor of the assessee, noting that the assessment year involved was AY 2017-18, and Explanation-5 to Section 43B inserted by the Finance Act, 2021, effective from 01.04.2021, was not applicable retrospectively. - The Tribunal cited the decision in Harendra Nath Biswas vs. DCIT, where the delayed deposit of employees' contribution to PF and ESI was allowed as the deposit was made before the due date of filing the return of income. Conclusion: The Tribunal ordered the deletion of the impugned addition made by the lower authorities, thus allowing the appeal in favor of the assessee on this ground. Ground No. 2: Disallowance of Corporate Social Responsibility (CSR) Expenses Issue: The assessee contested the disallowance of Rs. 3,01,00,000/- incurred on CSR activities under Section 37 of the Income Tax Act, 1961. Findings: - The AO disallowed the CSR expenses, citing Explanation 2 to Section 37, which states that CSR expenses referred to in Section 135 of the Companies Act shall not be deemed as expenditure incurred for business purposes. - The assessee argued that the CSR expenses were incurred voluntarily for business purposes, beyond statutory requirements, to maintain good relations with the local community and ensure smooth business operations. - The Tribunal noted the assessee's claim that the CSR expenses were not mandated under Section 135 of the Companies Act, as the financial statements indicated no statutory requirement for CSR expenditure. - The Tribunal referenced the Gujarat High Court decision in PCIT vs. Narmada Valley Fertilizer and Chemicals Ltd., which allowed voluntary CSR expenses as business expenditure if not mandated under Section 135. - However, the Tribunal found no evidence that the assessee was exempt from the statutory CSR requirement and noted discrepancies in the financial statements. Conclusion: The Tribunal remanded the matter to the AO to verify whether the CSR expenses were indeed voluntary and beyond statutory requirements. If the AO finds the assessee's claim valid, the expenses will be allowed as business expenditure. Otherwise, the disallowance will stand, and the AO is directed to re-open assessments for earlier years where similar claims were made. Ground No. 3: General Nature Issue: The appellant sought leave to add, amend, alter, or delete grounds of appeal. Findings: The Tribunal found this ground to be general and not requiring adjudication. Conclusion: The appeal was treated as allowed for statistical purposes, subject to the observations and directions given. Order Pronouncement: The order was pronounced in the open court on 12.08.2022.
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