2023 (10) TMI 405 - HC - Income Tax

CSR expenditure - whether a allowable business expenditure? - Tribunal concluded that CSR expenditure incurred prior to the assessment year 2015-16 are allowable as business expenditure - HELD THAT - CIT(A) after considering the facts held that the activity done by the assessee is undoubtedly a CSR activity and their business expenditure and observed that the expenditure is also part of ledger account of the assessee and the expenditure is incurred in consultation with the State Government Authorities. CIT(A) noted that the Assessing Officer has not doubted any of the vouchers and memos which were submitted by the assessee to substantiate the nature of expenses incurred by them. After taking note of the decision of the Hon ble Supreme Court in Thakur Prasad Sao Vs. Member, Board of Revenue 1975 (12) TMI 160 - SUPREME COURT the appeal filed by the assessee was allowed. The revenue carried the matter on appeal before the Learned Tribunal. The Learned Tribunal after reconsidering and reappreciating the facts of the case also noted that it is mandatory for the assessee, which is a mining industry, to look after the development of the area in which the mines were operating to create employment opportunities, provide educational facility to children etc. Thus expenses incurred for the welfare schemes were also taken into consideration and found to be justified. The Learned Tribunal also noted that the expenditure having been claimed by the assessee as of deduction for the assessment year 2014-15 and the mining which was made by adding explanation to Section 37(1) of the Act would not be applicable as it was with effect from the assessment year 2015-16. Thus, Tribunal was satisfied that the CSR expenditure incurred prior to the assessment year 2015-16 are allowable as business expenditure as the same are wholly and exclusively incurred for the purpose of business. Thus, on being satisfied with the factual matrix the Learned Tribunal dismissed the appeal filed by the revenue. No substantial question of law.

Summary

Issues involved:
The appeal filed by the revenue challenging the order passed by the Income Tax Appellate Tribunal "C" Bench, Kolkata in ITA 572/Kol/2019 for the assessment year 2014-15. Delay of 965 days in filing the appeal. Proposal to disallow periphery development expenses by the Assessing Officer. Claim by the assessee that the expenses were incurred for business purposes and were part of corporate social responsibility (CSR).

The assessee, a company engaged in mining iron ore and manganese, filed its return of income for the assessment year 2014-15. The Assessing Officer proposed to disallow periphery development expenses based on a letter from the Periphery Development Society. The assessee did not provide an explanation to the query raised by the Assessing Officer, but furnished ledger copies of expenses. The Assessing Officer disallowed the expenses, which the assessee appealed before the Commissioner of Income Tax (Appeals) 1, contending that the expenses were for business purposes and part of CSR activities. The CIT(A) allowed the appeal, considering the expenses as business expenditure supported by vouchers and memos.

The revenue appealed the decision before the Learned Tribunal, which noted the mandatory nature for mining industries to contribute to the development of the area where they operate. The Tribunal found the expenses justified and allowable as business expenditure for the assessment year 2014-15. The Tribunal concluded that the CSR expenditure incurred before the assessment year 2015-16 was wholly and exclusively for business purposes. Therefore, the Tribunal dismissed the revenue's appeal based on factual re-appraisal.

The High Court found that no question of law, let alone a substantial question of law, arose for consideration in the appeal. Considering the factual matrix, the Court dismissed the appeal filed by the revenue. The connected applications were also dismissed accordingly.