2022 (12) TMI 335 - AT - Income Tax

Disallowance of Capitalization of CENVAT credit on capital goods - assessee is a nationalized bank in which majority of the shares are held by Central Government - whether CENVAT credit cannot be capitalized and no depreciation on the same can be claimed? - Appellant bank charged off 50% of the CENVAT credit as per the provisions of the Finance Act. 1994 - HELD THAT - As identical issue came up for consideration in assessee s own case in Assessment Year 2015-16 2022 (3) TMI 1131 - ITAT BANGALORE holding that unutilized CENVAT credit has to be capitalized to the cost of the Asset in relation to which the CENVAT credit became available to the assessee, the Revenue authorities were justified in rejecting the claim of the assessee for deduction on account of unutilized CENVAT credit which was claimed as deduction in computing income from business of the assessee. Consequently, ground No.2 raised by the assessee is dismissed. Disallowance paid to Corporation Bank Economic Development Foundation u/s 37 - HELD THAT - provisions of section 37(1) and 80G of the Act are not mutually exclusive if the contribution by the assessee in the form of donation of the category specified in section 80G of the Act but if it could be termed as an expenditure of the category falling under section 37(1) of the Act, then the right of the assessee to claim the whole of it as allowance under section 37(1) of the Act cannot be denied but such money must be laid out wholly or exclusively for the purpose of business. The decision of the Hon ble Calcutta High Court in the case of CIT Vs. Eastern Coalfields Ltd. 2022 (11) TMI 982 - CALCUTTA HIGH COURT where Government of India framed guidelines on corporate social responsibility for central public sector enterprises, such public sector is bound to formulate a policy in terms of the said guidelines and if an obligation springs from complying with the said guidelines, it has to be regarded as expenditure incurred on grounds of commercial expediency and allowed as a deduction. Therefore the expenditure in question, on the facts of the present case, satisfies the requirements of Sec.37(1) of the Act. In view of the facts and circumstances of the given case, we are of the view that the deduction claimed by the assessee should be allowed in full. We hold and direct accordingly and allow ground No.3 raised by the assessee. Deduction u/s 36(1)(vii) on account of Bad Debts written off - Additional claim made by the Appellant Bank u/s 36(1)(vii) 36(1)(viia) at the time of Assessment proceedings by holding that it is an alternate ground - HELD THAT - Since the CIT(A) has not rendered any decision on ground No.5, the parties prayed that the issue may be set aside to the CIT(A) for fresh adjudication. Accordingly, ground No.4 in this appeal is set aside to CIT(A) for consideration afresh after giving due opportunity of being heard to the parties.

Summary

Issues Involved:
1. Disallowance of CENVAT credit on capital goods.
2. Disallowance of payment to Corporation Bank Economic Development Foundation under section 37.
3. Additional claim under sections 36(1)(vii) and 36(1)(viia).

Detailed Analysis:

1. Disallowance of CENVAT Credit on Capital Goods:
The assessee, a nationalized bank, claimed a deduction of Rs. 3,14,95,510/- being the CENVAT credit on capital goods. The Commissioner of Income Tax (Appeals) upheld the disallowance, failing to appreciate that CENVAT credit cannot be capitalized and no depreciation on the same can be claimed as per legal requirements. The Tribunal referred to its earlier decision in the assessee's own case for the Assessment Year 2015-16, where it was held that unutilized CENVAT credit must be capitalized to the cost of the asset. The Tribunal explained that as per Explanation 9 to Section 43 of the Act, the actual cost of the asset should be reduced by the amount of duty of excise in respect of which a claim of credit has been made and allowed under the Central Excise Rules, 1944. Consequently, the Revenue authorities were justified in rejecting the claim for deduction on account of unutilized CENVAT credit, and the ground raised by the assessee was dismissed.

2. Disallowance of Payment to Corporation Bank Economic Development Foundation:
The assessee claimed a deduction of Rs. 3,82,69,960/- paid to Corporation Bank Economic Development Foundation under section 37(1) of the Act. The AO treated this payment as a donation eligible for deduction under section 80G (50% of the donations only) and disallowed the claim under section 37(1). The CIT(A) upheld the AO's decision, not adjudicating the eligibility of the claim under section 37(1). The Tribunal, however, noted that the payment was made in compliance with Government guidelines for Rural Self Employment Training Institutes (RSETIs) and was for the purpose of promoting the business of the assessee. Citing the Karnataka High Court's decision in CIT Vs. Infosys Technologies Ltd., the Tribunal held that sections 37(1) and 80G are not mutually exclusive, and if the expenditure is for promoting the business, it can be claimed under section 37(1). The Tribunal also referred to other judicial precedents supporting the claim. Thus, the Tribunal allowed the deduction in full under section 37(1) and upheld the ground raised by the assessee.

3. Additional Claim under Sections 36(1)(vii) and 36(1)(viia):
The assessee raised an additional claim for deduction under sections 36(1)(vii) and 36(1)(viia) of the Act, which was not considered by the CIT(A), who treated it as an alternative ground. The Tribunal noted that the CIT(A) did not render any decision on this ground and thus set aside the issue to the CIT(A) for fresh adjudication, ensuring due opportunity for both parties to be heard. The Tribunal directed the CIT(A) to consider the additional claim afresh.

Conclusion:
The Tribunal dismissed the ground related to CENVAT credit disallowance, allowed the deduction for payment to Corporation Bank Economic Development Foundation under section 37(1), and remanded the additional claim under sections 36(1)(vii) and 36(1)(viia) for fresh consideration by the CIT(A). The appeal was partly allowed.