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2021 (10) TMI 495 - AT - Income TaxDisallowance on account of expenses incurred on corporate social responsibility - expenses has enhanced the brand image of the company which in turn has got a positive long-term impact on the business of the assessee - HELD THAT - Expenses have been incurred on the direction of the relevant Ministry / Government of India - neither the AO nor the learned DR has rebutted the contention of the assessee that expenses have been incurred for enhancing brand image of the company which are wholly and exclusively for the purpose of the business of the assessee. Both the lower authorities have disallowed the expenses only on the ground that Explanation -2 is clarificatory and retrospective in nature - said Explanation -2 is prospective in nature, we hold that expenses incurred on corporate social responsibility in the year under consideration i.e. AY 2014-15, cannot be disallowed invoking Explanation-2 to section 37(1) of the Act. The ground of the appeal of the assessee is accordingly allowed.
Issues Involved:
1. General nature of the order passed by the CIT(A). 2. Disallowance of ?5,72,32,442/- on account of Corporate Social Responsibility (CSR) expenses. 3. Charging of interest under sections 234A, 234B, 234C, and 234D of the Income Tax Act. 4. Withdrawal of interest under section 244A of the Income Tax Act. 5. General grounds for adding, amending, or altering the grounds of appeal. Issue-wise Detailed Analysis: 1. General Nature of the Order Passed by the CIT(A): The ground No.1 of the appeal was dismissed as infructuous since it was general in nature and did not require specific adjudication. 2. Disallowance of ?5,72,32,442/- on Account of CSR Expenses: The primary issue was the disallowance of CSR expenses amounting to ?5,72,32,442/-. The assessee argued that these expenses were incurred to protect its business and enhance its brand image, in accordance with guidelines from the Ministry of Heavy Industry and Public Enterprises. The Assessing Officer (AO) disallowed these expenses based on Explanation 2 to Section 37(1) of the Income Tax Act, which prohibits the allowance of CSR expenses. The AO considered this explanation as clarificatory and hence applicable retrospectively. The CIT(A) upheld the AO's decision, stating that the explanation clarified the law from its original enactment and thus CSR expenses were not allowable under Section 37(1). However, the Tribunal referred to its previous judgment in the case of Addl. CIT Vs Rites Limited, where it was held that Explanation 2 to Section 37(1) is prospective in nature and applicable from assessment year 2015-16. The Tribunal also cited similar judgments, including those involving Hindustan Petroleum Corporation Ltd. and M/s. HLL Lifecare Ltd., where it was determined that CSR expenses incurred under government directions were allowable as business expenditure. The Tribunal concluded that since the expenses in the present case were incurred on the direction of the Government of India to enhance the brand image, they were wholly and exclusively for the purpose of business. Thus, the disallowance of CSR expenses for the assessment year 2014-15 was not justified, and the ground No. 2 of the appeal was allowed. 3. Charging of Interest under Sections 234A, 234B, 234C, and 234D: The grounds No. 3 and 4 of the appeal, concerning the charging of interest under sections 234A, 234B, 234C, and 234D, and the withdrawal of interest under section 244A, were dismissed as infructuous since they were consequential in nature. 4. Withdrawal of Interest under Section 244A: Similar to the previous issue, the ground concerning the withdrawal of interest under section 244A was also dismissed as infructuous. 5. General Grounds for Adding, Amending, or Altering the Grounds of Appeal: The ground No. 5, being general in nature, was dismissed as infructuous. Conclusion: The appeal of the assessee was allowed, with the Tribunal holding that the CSR expenses incurred for the assessment year 2014-15 could not be disallowed under Explanation 2 to Section 37(1) of the Income Tax Act. The other grounds of appeal were dismissed as infructuous. The order was pronounced in the open court on 11th August 2021.
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