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2024 (9) TMI 516 - AT - Income TaxDisallowance of Corporate Social Responsibility (CSR) expenses and Sustainable Development expenses - HELD THAT - In consonance with the views taken in assessee s own case 2023 (2) TMI 1335 - ITAT RANCHI and 2022 (11) TMI 1514 - ITAT RANCHI and also case of PEC Ltd. 2022 (12) TMI 759 - DELHI HIGH COURT we are of the view that the assessee company was obliged to incur CSR and SD expenses in view of specific guidelines of Govt. of India. It is therefore held that the expenditure have been incurred during the relevant assessment years 2011-12 and 2012-13 by the assessee wholly and exclusively for the purposes of business of the assessee. Thus the deduction claimed by the assessee for both the assessment years is allowable. Decided in favour of assessee.
Issues Involved:
1. Initiation of proceedings under Section 148 beyond four years. 2. Disallowance of Corporate Social Responsibility (CSR) and Sustainable Development expenses for Assessment Years 2011-12 and 2012-13. 3. Charging of interest under Section 234A and 234B. Issue-wise Detailed Analysis: 1. Initiation of Proceedings under Section 148 Beyond Four Years: - The assessee challenged the initiation of proceedings under Section 148, arguing it was unjustified beyond four years, especially since the original assessment was completed under Section 143(3). The grounds of appeal stated, "Proceeding initiated u/s.148 is bad in law and assessment framed thereby is fit to be quashed." - However, these grounds were not pressed by the counsel for the assessee during the hearing and were dismissed as not pressed. 2. Disallowance of CSR and Sustainable Development Expenses: - The primary issue in both appeals was the disallowance of CSR and Sustainable Development expenses amounting to Rs. 2,47,87,000/- and Rs. 2,81,05,000/- for the respective assessment years. - The assessee, a Public Sector Undertaking under the Ministry of Steel, argued that these expenses were incurred as per the guidelines issued by the Department of Public Enterprises (DPE), Government of India, and were incidental to its business. - The CIT(A) upheld the disallowance, interpreting Section 37(1) of the Income Tax Act, which allows deductions only for expenses incurred "wholly and exclusively for the purposes of the business or profession." - The CIT(A) concluded that CSR expenses did not relate to the assessee's business and could not influence its business dealings, thus falling outside the purview of Section 37(1). - The assessee contended that prior to the insertion of Explanation 2 to Section 37 by the Finance Act, 2014, such expenses were allowable as business expenses. The Explanation, effective from 1.4.2015, was argued to be prospective and not applicable to the relevant assessment years. - The Tribunal noted that the genuineness of the expenses was not contested by the Department and that the expenses were incurred consistently for several years in line with CSR objectives. - The Tribunal emphasized the constitutional responsibility of businesses towards social welfare and noted that before the introduction of Explanation 2, CSR expenses were allowable as business expenses. - The Tribunal cited previous decisions, including those of the Hon'ble Delhi High Court and the ITAT in similar cases, which supported the allowance of CSR expenses incurred before the amendment. - Consequently, the Tribunal directed the Assessing Officer to allow the deduction of CSR and Sustainable Development expenses for both assessment years. 3. Charging of Interest under Section 234A and 234B: - The assessee challenged the charging of interest under Section 234A and 234B, arguing that interest should only be charged on returned income. - However, this ground was not pressed during the hearing and was dismissed as not pressed. Conclusion: - The appeals were partly allowed, with the Tribunal directing the allowance of CSR and Sustainable Development expenses for the assessment years 2011-12 and 2012-13. The issues related to the initiation of proceedings under Section 148 and the charging of interest under Sections 234A and 234B were dismissed as not pressed.
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