2024 (4) TMI 750 - HC - Income Tax

Revision u/s 263 - CSR expenses admissibility as the deduction u/s 37(1) - assessee is public sector undertaking - Tribunal on fact concluded that it is not a case of no enquiry and nor it is a case of non-application of mind - HELD THAT - ITAT s factual finding cannot be dislodged in an appeal filed u/s 260A where we are required to answer substantial questions of law for consideration. With regard to the admissibility of the expenses u/s 37(1) Tribunal has taken note of the decision in the case of Hindustan Copper Limited. 2020 (1) TMI 1324 - ITAT KOLKATA the facts of the said case is also on the similar line as in the said case the assessee was a public sector undertaking and certain directives issued by the Government of India was followed by the assessee. There are two notifications issued by the Government of India the first of which is by Office Memorandum dated 21.06.2011 wherein the expenses incurred by public sector undertakings in the form of fee charged for participation in CSR Training Programme/Workshops or for sponsorship of Workshops/programmes organized by Tata Institute of Social Sciences etc. will be allowed to be included under the CSR Budgets of Central Public Sector Enterprises. The other notification is dated 1st November 2011 which stipulates the guidelines on Corporate Social Responsibility for Central Public Sector Enterprises. Admittedly the respondent assessee has complied with the said directives issued by the Government of India. Identical issue was considered by this Court in the case of Ramesh Prasad Sao 2023 (10) TMI 405 - CALCUTTA HIGH COURT wherein the assessee company was engaged in iron ore mining and it incurred periphery development expenses for territorial welfare as well as welfare of local people in the area in which mines were operating as per the direction of the local administration and such CSR expenses incurred by the assessee prior to the assessment year 2015-16 were held to be liable as business expenditure as same was wholly and exclusively incurred for the purpose of business. Thus on facts we are convinced that the expenses were allowable more so when the respondent assessee is a public sector undertaking and they had carried out a notification and they had implemented the notifications issued by the Government of India. The specific case of the assessee was that they incurred the expenditure for facilitating the business of construction and repair of ships mainly for Indian Navy and they were required to take up certain activity for the benefit of people residing in the said locality. Matter is entirely factual and no substantial question of law arises.

Summary

Issues Involved:
The appeal filed by the revenue u/s 260A of the Income Tax Act, 1961 challenging the order passed by the Income Tax Appellate Tribunal "C" Bench, Kolkata for the assessment year 2013-14. The substantial questions of law raised were:
i) Whether the Tribunal erred in setting aside the order u/s 263 of the Income Tax Act without considering the assessment order's prejudice to revenue due to lack of inquiry into Corporate Social Responsibility expenditure.
ii) Whether the Tribunal erred in setting aside the order u/s 263 by ignoring that CSR expenditure was not allowable as it was not incurred for the business purpose.
iii) Whether the Tribunal erred in setting aside the order u/s 263 by ignoring that CSR expenditure was not allowable u/s 37 of the Income Tax Act.

Analysis:
The appeal was found to be time-barred with a delay of 976 days. The Court considered the lack of acceptable reasons for condoning the delay. However, the appellant's counsel requested a review based on the merits of the case. The Tribunal had to determine if the CSR expenses claimed by the assessee were deductible u/s 37(1) of the Act. The assessing officer had sought explanations from the assessee and accepted their submissions. The Principal Commissioner of Income Tax (PCIT) issued a notice under section 263, questioning the lack of inquiry by the assessing officer. The Tribunal found that the assessing officer did inquire into the expenses, and the PCIT's conclusion was unfounded.

The Tribunal allowed the appeal, noting that the assessing officer had indeed conducted an inquiry. The admissibility of expenses u/s 37(1) was considered in light of relevant case law and government directives. The Tribunal referred to precedents where CSR expenses were allowed, especially for public sector undertakings following government directives. The expenses were considered allowable as they were incurred for the business purpose, including activities benefiting the local community.

The Court concluded that no substantial question of law arose, as the matter was primarily factual. Therefore, the application for condonation of delay and the appeal were dismissed.