2021 (9) TMI 283 - AT - Income Tax

Disallowance of assessee s claim for deduction of Corporate Social Responsibility (CSR) - CIT(A) observed that the expenditure that was incurred by the assessee insofar the same was in the nature of donations, was to be disallowed, for the reason, that the same was not incurred for the purpose of its business u/s 37(1) but that the deductions against the aforesaid donations would be permissible to the assessee in terms of the provisions of Sec.80G - HELD THAT - No infirmity emerges from the order of the CIT(A), who had rightly held that the expenses and contributions that were made by the assessee towards village development expenses as per the directions of the Government Authorities, whether State or Central, for which the approval of the Competent Authority was received during the year under consideration were to be allowed as a deduction while computing its income. Accordingly, concurring with the view taken by the CIT(A), we are not persuaded to accept the claim of the revenue that the CIT(A) had erred in allowing the assessee s claim for deduction with respect to CSR contributions. The Ground of appeal No. (i) is accordingly dismissed. Disallowance of Land Acquisition Expenses - revenue or capital expenditure - HELD THAT - As the facts and the issue involved qua the disallowance of land acquisition expenses during the year under consideration, remains the same, as were there before the Tribunal in the assessee s own for A.Y. 2012-13 2019 (1) TMI 1918 - ITAT MUMBAI , therefore, we respectfully follow the same, and therein, uphold the order of the CIT(A) who had rightly vacated the disallowance of the land acquisition expenses. Disallowance of the provision for enhanced compensation on land acquisition - HELD THAT - As decided in own case 2019 (1) TMI 1918 - ITAT MUMBAI , the expenditure incurred by the assessee was in the nature of a revenue expenditure that was allowable as a deduction while computing its income, the Tribunal had upheld the view taken by the CIT(A) and had vacated the said disallowance - thus uphold the order of the CIT(A) who had rightly vacated the disallowance made by the A.O as regards the provision for enhanced compensation on land acquisition for the year under consideration. Disallowance of School Expenses - assessee had incurred expenses pertaining to running of Atomic Energy Central School, Oscom (Orissa Sand Complex) as the claim of the assessee before the lower authorities that they were providing funds for running of the school in an area where they were carrying out their mining operations - HELD THAT - As the facts and the issue qua the assessee s claim for deduction of the expenditure incurred on running the Atomic Energy Central School, Oscom (Orissa Sand Complex), during the year under consideration, remains the same, as were there in its case for the immediately preceding year i.e A.Y. 2012-13 2019 (1) TMI 1918 - ITAT MUMBAI , therefore, we respectfully follow the view taken by the Tribunal and uphold the order passed by the CIT(A).

Issues Involved:
1. Disallowance of Corporate Social Responsibility (CSR) expenses.
2. Disallowance of land acquisition expenses.
3. Disallowance of enhanced compensation towards land acquisition.
4. Disallowance of school expenses.

Detailed Analysis:

1. Disallowance of Corporate Social Responsibility (CSR) Expenses:
The primary issue was whether CSR expenses incurred by the assessee are allowable as a deduction under the Income Tax Act. The assessee argued that these expenses were for business purposes, including donations to government schools, hospitals, and village development activities. The CIT(A) initially disallowed these expenses, stating they were voluntary and not for business purposes under Section 37(1) but allowed deductions under Section 80G for specific contributions. The ITAT upheld the CIT(A)'s decision, noting that CSR expenses directed by government authorities for business expediency were allowable, but voluntary donations were not. The ITAT also noted that 'Explanation 2' to Section 37(1), which disallows CSR expenses, was applicable prospectively from A.Y. 2015-16, not affecting the assessment year under consideration (A.Y. 2013-14).

2. Disallowance of Land Acquisition Expenses:
The dispute involved whether land acquisition expenses were capital or revenue in nature. The assessee claimed these expenses were reimbursements for salaries, rent, and maintenance of a land acquisition office set up by the Government of Kerala, essential for its mining operations. The CIT(A) and ITAT both found these expenses to be revenue in nature, incurred in the ordinary course of business, and thus allowable. The ITAT referred to its previous decision for A.Y. 2012-13, which similarly allowed such expenses, affirming the CIT(A)'s decision to vacate the disallowance.

3. Disallowance of Enhanced Compensation Towards Land Acquisition:
The issue was whether the provision for enhanced compensation on land acquisition was a revenue expenditure. The CIT(A) and ITAT both concluded that the expenditure was indeed revenue in nature, necessary for the business operations, and should be allowed as a deduction. The ITAT referenced its earlier decision for A.Y. 2012-13, which supported this view, thus upholding the CIT(A)'s decision to vacate the disallowance.

4. Disallowance of School Expenses:
The assessee incurred expenses for running a school (Atomic Energy Central School, Oscom) near its mining operations, claiming it benefited the local community and employees' children. The A.O. disallowed these expenses, arguing they were not exclusively for business purposes. However, the CIT(A) and ITAT found that these expenses, mandated by government directives, were necessary for the business and thus allowable as revenue expenditure. The ITAT upheld the CIT(A)'s decision, referencing its prior ruling for A.Y. 2012-13, which allowed similar expenses.

Separate Judgments:
The ITAT delivered a consolidated judgment for both A.Y. 2013-14 and A.Y. 2014-15, applying the same reasoning and decisions to both years. The appeals for both years were dismissed based on consistent findings and precedents from earlier years.

Conclusion:
The ITAT upheld the CIT(A)'s decisions on all issues, allowing CSR expenses mandated by government authorities, land acquisition expenses, enhanced compensation for land acquisition, and school expenses as revenue expenditures. The appeals by the revenue were dismissed for both assessment years.

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