2022 (10) TMI 756 - AT - Income Tax

CSR expenditure u/s 37(1) - Allowable revenue expenses or not? - HELD THAT - As in Jindal Power Ltd. 2016 (7) TMI 203 - ITAT RAIPUR has held in terms of explanation 2 to Section 37(1) disallowance is restricted to expenses incurred by assessee under the statutory obligation u/s.135 of the companies Act 2013 and it doesn t apply to the expenditure incurred in discharge of corporate social responsibility(CSR) on voluntarily basis. We considering the facts, submissions, provisions of the Act and the judicial decisions relied by AR find the action of the assessee incurring the expenditure voluntarily to maintain harmony at the vicinity of the factory area and is not a personal expenditure, further the assessing officer has not doubted genuineness of the expenditure but only on the nature of the expenditure was not incurred for the purpose of business. The assessee has filed the details of CSR expenditure which cannot be overlooked and the AO has accepted such claim and the assessee has made a voluntarily disallowance of CSR expenditure under section 37(1) of the Act in restricting expenses under the statutory obligations of CSR policy. Accordingly, we set-aside the order of the CIT(A) on this disputed issue and direct the AO to delete the addition and allow this ground of appeal in favour of the assessee. Disallowance of claim under 80JJAA - We found that this ground of appeal does not emanates from the order of the assessing officer u/s.143(3) of the Act. Whereas the CIT(A) findings are that the disallowance was under 143 (1)of the Act and the assessee has filed a separate appeal and the order was passed on 26.08.2021. These grounds of appeal raised by the assessee are dismissed.

Summary

Issues:
1. Disallowance of business expenditure under Section 31(1) of the Income Tax Act.
2. Disallowance of deduction under Section 80JJAA of the Income Tax Act.

Issue 1: Disallowance of business expenditure under Section 31(1) of the Income Tax Act:
The appellant appealed against the order of CIT(A)- National Faceless Appeal Centre, challenging the disallowance of business expenditure claimed under Section 31(1) of the Act. The appellant argued that the expenses were incurred wholly and exclusively for the business, supported by invoices and vouchers. The CIT(A) upheld the disallowance, stating that the expenses were covered under CSR expenditure as per Explanation 2 to Section 37(1) of the Act. However, the ITAT Mumbai held that the expenditure was voluntarily incurred for welfare measures of employees and local community, not as part of CSR obligation. Referring to judicial decisions, the ITAT directed the AO to delete the addition, acknowledging the genuine nature of the expenditure and its business purpose.

Issue 2: Disallowance of deduction under Section 80JJAA of the Income Tax Act:
The appellant contested the disallowance of deduction under Section 80JJAA, claiming it was wrongly denied by the AO without valid reasons. The CIT(A) dismissed this ground, stating the disallowance was made under Section 143(1) of the Act, not 143(3). Consequently, the ITAT Mumbai dismissed this ground of appeal, as it did not stem from the AO's order under Section 143(3) and was addressed in a separate appeal. Therefore, the ITAT partially allowed the appeal, setting aside the disallowance of business expenditure but upholding the dismissal of the deduction under Section 80JJAA.