2019 (2) TMI 794 - AT - Income Tax

Penalty u/s 271(1)(c) - disallowance of corporate Social Responsibility (CSR) - Held that - It is nowhere specifically stated that it will not be effective retrospectively neither is there any judgement specifically on this issue holding it not retrospective . Therefore, AO is directed to disallow the said expenditure. The AO is directed to give effect to the above mentioned order and issue demand notice. He is also required to initiate penalty u/s 271(1)(c) / for furnishing inaccurate particulars of income by the assessee. Upon hearing both the counsel and perusing the record, we find that it has been held by the ITAT in Jindal Power Ltd. 2016 (7) TMI 203 - ITAT RAIPUR that explanation 2 to section 37(1) comes into effect from 01.04.2015. DR has referred to the decision of ITAT Hyderabad Bench said to be a contrary decision. We find that it is settled law that if two views are possible, one in favour of the assessee should be adopted. In these circumstances, the ld. CIT(A) s directions to disallow the same is not sustainable. Even otherwise it can be held that there could be two views on this issue and if the A.O. has adopted one view, which admittedly is a plausible one, the ld. CIT(A) is not vested with jurisdiction u/s. 263 qua this issue. This proposition gets support from the Hon ble Apex Court decision in the case of Malabar Industrial Co. Ltd. vs. CIT 2000 (2) TMI 10 - SUPREME COURT . Hence, we quash the direction given by the ld. CIT(A) in this issue. Loss/damages and other write off - Held that - We find that there is no cogent basis for the accounting done by the assessee. The assessee has received the sum of ₹ 3 crores towards insurance claim. The loss on account of fire loss has already been booked by the assessee. There is no case that further loss is to be booked. Hence, this treatment of part of the insurance claim as advance is not at all correct. Thus, the A.O. is totally wrong in accepting this postponement of income. As a matter of fact before parting, we may add that the entire insurance claim receivable needed to be accounted for on accrual basis. In the result, we uphold the order of the ld. CIT on this issue. - Appeal by the assessee is partly allowed.

Summary

Issues Involved:
1. Validity of Order u/s. 263
2. Deducibility of ?9.05 crores being expenditure on Corporate Social Responsibility (CSR)
3. Addition of ?2.52 crores being losses/damages and other write-offs under the head "Miscellaneous Expenses"

Issue 1: Validity of Order u/s. 263
The appeal challenged the order passed by the Commissioner of Income Tax (CIT) under section 263 of the Income Tax Act, 1961. The appellant argued that the conditions for passing such an order were not met, and the assessment framed by the Assessing Officer was done after due consideration. The appellant contended that the order u/s. 263 was erroneous, exceeded jurisdiction, and was bad in law. The appellant sought to strike down the impugned order. The CIT observed discrepancies in the assessment leading to under-assessment of income and short levy of tax, prompting the issuance of a notice u/s. 263. The CIT directed the AO to increase the total income based on the identified discrepancies.

Issue 2: Deducibility of ?9.05 crores being expenditure on Corporate Social Responsibility (CSR)
The CIT directed the AO to disallow the expenditure incurred on CSR, citing the insertion of Explanation 2 to section 37 of the Income Tax Act by the Finance Act, 2014. The appellant argued that the provisions disallowing CSR expenditure were applicable from Assessment Year 2015-16 onwards and not for the year under consideration (A.Y. 2013-14). The ITAT held that if two views were possible, the one in favor of the assessee should be adopted. Referring to the decision in Jindal Power Ltd., the ITAT quashed the CIT's direction to disallow the CSR expenditure, stating that there could be two views on the issue.

Issue 3: Addition of ?2.52 crores being losses/damages and other write-offs
The CIT directed the AO to treat the balance amount of ?2.52 crores, received as insurance claim after a fire incident, as income for the relevant assessment year. The appellant explained the circumstances of the fire incident, insurance claim, and accounting treatment. The ITAT upheld the CIT's order, stating that the entire insurance claim receivable needed to be accounted for on an accrual basis, rejecting the appellant's treatment of part of the insurance claim as advance. The appeal was partly allowed, and the order was pronounced on 08.02.2019.