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TMI Blog2021 (1) TMI 828X X X X Extracts X X X X X X X X Extracts X X X X ..... s of law laid down in the decision of the Tribunal in Bengal NRI Complex Ltd.[ 2018 (12) TMI 744 - ITAT KOLKATA] we have to hold that the expenditure incurred by the assessee to fulfil the obligations of Section 135 of Companies Act, 2013 is allowable as deduction and consequently there is no error in the order passed by the AO u/s. 143(3) of the Act much less an error which is prejudicial to the interest of the Revenue. We quash the order of the Pr. CIT passed u/s. 263 of the Act as bad in law.- Decided in favour of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... details. d) Amendment by way of Explanation 2 to Section 37(1) of the Act was w.e.f. 01.04.2015 and does not apply to the impugned assessment year. e) The allowability of expenditure depends only upon the nature of the expenditure. f) The expenditure can be allowed u/s. 37(1) of the Act when the assessee is able to establish that the expenditure is incurred wholly and exclusively for the purpose of business. 4.2. He concluded that the AO during the course of assessment proceedings has not made any examination of the nature of the expenditure incurred under the head "Corporate Social Responsibility" and had allowed the same, which resulted in the order passed u/s. 143(3) of the Act being erroneous to the extent it is prejudicial to the interest of the Revenue. 4.3. Thereafter at para 5, he set aside the matter to the file of the AO with the direction to the AO to verify each and every expenditure incurred under the head "Corporate Social Responsibility" and examine whether the expenditure should be allowed u/s. 37(1) of the Act or not. 4.4. The ld. Counsel for the assessee pointed out that the AO had called for the details of each and every expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wever, the claim was disallowed only on the ground that the expenditure is not wholly and exclusively incurred for the purpose of the business the expenditure. The Ld. AR drew our attention to the coordinate Bench decision in ACIT Vs. Jindal Power Ltd. (ITAT Raipur) in ITA No. 99/BLPR/2012 for AY 2008-09 dated 23.06.2016 wherein on similar facts and law, the Tribunal while allowing the expenditure under 'CSR' held as under: "ii) The concept of business is not static. It has evolved over a period of time to include within its fold the concrete expression of care and concern for the society at large and the locality in which business is located in particular. Being a good corporate citizen brings goodwill of the local community as also with the regulatory agencies and society at large, thereby creating an atmosphere in which the business can succeed in a greater measure with the aid of such goodwill (CIT v. Madras Refineries Ltd. [2004]266 ITR 170, Sri Venkata Satyanarayana Rice Mill Contractors Co. v. CIT [1997] 223 ITR 101, Hindustan Petroleum Corporation Ltd. Vs. DCIT [(2005) 96 ITO 186 (Bom)] (iii) The amendment in the scheme of Section 37(1), which has been intr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this provision to be retrospective in application. As a matter of fact, the amendment in law, which was accompanied by the statutory requirement with regard to discharging the corporate social responsibility, is a disabling provision which puts an additional tax burden on the assessee in the sense that the expenses that the assessee is required to incur, under a statutory obligation, in the course of his business are not allowed deduction in the computation of income. This disallowance is restricted to the expenses incurred by the assessee under a statutory obligation under section 135 of Companies Act 2013, and there is thus now a line of demarcation between the expenses incurred by the assessee on discharging corporate social responsibility under such a statutory obligation, and under a voluntary assumption of responsibility. As for the former, the disallowance under Explanation 2 to Section 37(1) comes into play, but, as for latter, there is no such disabling provision as long as the expenses, even in discharge of corporate social responsibility on voluntary' basis, can be said to be "wholly and exclusively for the purposes of business". There is no dispute that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orted in 1978 AIR (SC) 597 has laid down the law that a public authority should discharge his duties in affair , just and reasonable, manner and the principle of due process of law was recognized by the Hon'ble Supreme Court. Therefore the opinion of the Ld. CIT has to be in consonance with that of the well settled judicial principles and cannot be arbitrarily made discarding the judicial precedent on the subject. The opinion of the Ld. Pr. CIT has to be reasonable and that of a prudent person instructed in law and which founded on the correct facts borne out from records. The CIT's opinion should be based on objective consideration of material facts and not on his subjective notions of the facts wrongly presumed or inferred by him. Moreover, it has to be kept in mind that an Explanation to substantive section should be read as to harmonize with and clear up any ambiguity in the main section and should not be so construed as to widen the ambit of the section conferring powers or authority larger than what is envisaged in the principal provision. It is so held by the Hon'ble Supreme Court in Bihta Cooperative Development Cane Marketing Union Ltd. Vs. Bank of Bihar, AIR 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prejudicial to the interests of the Revenue for the reasons out in the SCN. The ld. CIT in such a situation cannot merely set aside the assessment order directing AO to pass the order of assessment afresh, effectively giving the AO a second innings without establishing that the initial order was erroneous as well as prejudicial to the interests of the Revenue. In this regard, it is pertinent to refer to the observations and the decision rendered by the Hon'ble Delhi High Court in the case of ITO vs. DG Housing Projects Ltd. in 343 ITR 329, which is reproduced below: "19. In the present case, the findings recorded by the Tribunal are correct as the CIT has not gone into and has not given any reason for observing that the order passed by the Assessing Officer was erroneous. The finding recorded by the CIT is that "order passed by the Assessing Officer may be erroneous". The CIT had doubts about the valuation and sale consideration received but the CIT should have examined the said aspect himself and given a finding that the order passed by the Assessing Officer was erroneous. He came to the conclusion and finding that the Assessing Officer had examined the said a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... categories of revenue earned by the assessee during the year viz. (i) sales of products (Sch. 18a of P&L account), (ii) sales of scrap (Sch. 18b of P&L account), and (iii) other income (Sch. 19 of P&L account). Hence, incidence of TDS can apply only to other income, which as per the accounts was to the tune of ₹ 8.40 Crores (₹ 873.53L less foreign exchange gain of ₹ 33.82L). Thus, even if TDS was deducted on entire other income, there was a short credit income. The same was not properly verified by the A.O." 20. In the impugned order the Ld. Pr. CIT admitted that the assessee had filed explanation but the same was not rejected summarily on the ground that the issue was not looked into nor were full facts discussed. In the course of hearing, the ld. AR drew our attention to the facts available on record which factually disproved the reasons set out in clause (a). As noted in Para 3, we find that the assessee's case was selected for scrutiny under CASS inter alia on the ground that there was a mismatch in turnover as per audit report and ITR. We note that this aspect was specifically enquired into by the AO at the time of assessment. The assessee by its l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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