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TMI Blog2024 (9) TMI 516X X X X Extracts X X X X X X X X Extracts X X X X ..... Per Bench These two appeals filed by the assessee are directed against separate orders of the ld CIT(A), NFAC, Delhi both dated 29.7.2022 for the Assessment Years 2011-12 2012-13, respectively. 2. Since identical issues are involved in both the appeals, same were heard together and are being disposed of by this common order for the sake of convenience. 3. The issue involved in both the appeals is with regard to disallowance of Corporate Social Responsibility (CSR) expenses and Sustainable Development expenses amounting to Rs. 2,47,87,000/- and Rs. 2,81,05,000/- respectively upheld by the ld CIT(A). 4. Grounds of appeal are identical to both the appeals, therefore, for the sake of convenience, grounds raised in Assessment year 2011-12 read as under and the decision would apply mutatis-mutandis to assessment year 2012-13. 1. For that ld AO was not justified in initiating proceedings u/s.148 beyond 4 years specially when original assessment has been completed u/s.143(3). Proceeding initiated u/s.148 is bad in law and assessment framed there by is fit to be quashed. 2. For that ld AO has neither in order of assessment or in the reasons recorded mentioned the issue that assessee failed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rinciples. Moreover, the expenses were shown as separate line item/head of expenses along with necessary disclosure in the notes forming part of profit and loss account. Similar claim was allowed by the Assessing Officer in earlier assessment year. It was also submitted by the assessee that the Explanation -2 to Section 37 of the Act, which was inserted by the Finance Act, 2014 would apply prospectively and, therefore, not applicable to the impugned assessment year. Prior to the above amendment, such expenses were allowable deduction u/s.37 of the Act. 9. Ld CIT(A) has, in para 6.3 page 7 admitted that CSR activities had been mandated by the DPE, a department of Government of India and the assessee being a wholly owned Central Public Sector Enterprise, was bound by the government s directives. However, the ld CIT(A) analysed the claim in the light of the provisions contained in section 37(1) of the Act, which reads as under: 37(1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed that the genuineness of the expenses has not been doubted by the authorities below. Moreover, the assessee being a PSU, was bound to follow the directives and guidelines issued by Central Government and its books of account are always subjected to audit by CAG. All the expenses were duly verified and proved. These expenses were incurred for social cause which are duly mentioned by the Ministry in the DPE guidelines. 12. Besides, ld AR has pointed out that in the subsequent assessment years i.e. 2013-13 and 2014-15, identical disallowances were made which have been deleted by the Co-ordinate Bench of this Tribunal vide order dated 22.2.2023 and 23.11.2022, respectively. Ld AR has also strongly relied upon the decision of Hon ble Calcutta High Court in the case of PCIT vs Ramesh Prasad Sao, 155 taxmann.com 256, in which it was held that CSR expenses incurred prior to assessment year 2014-15 were allowable as business expenses as the same were incurred wholly and exclusively for the purposes of business. Reliance was placed on the decision of Hon ble Delhi High Court in the case of PCIT vs. PEC Ltd., 146 taxmann.com 407(Del),wherein, it has been, inter alia, that Explanation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred can be deducted while computing the income chargeable under the head profits and gains of business or professions. 15. It is also worthwhile to examine the claim of the assessee in view of CSR responsibility. The understanding of CSR basically encompasses the range of activities that demonstrate responsibility and advocate for holistic approach to social development and environmental sustainability. It is viewed as business committing to contribute the sustainable economic development by collaborating with employees, their families, local communities and the society at large. An ethically responsible business should embrace economic, legal, ethical and philanthropic responsibilities. CSR is being actively promoted as a developmental model that provides an alternative to state intervention. The corporate responsibility has constitutional responsibility as well as it is connected with the constitutional provisions, philosophy and values. 16. The Parliament of India, in 1976 had inserted the term socialist in the preamble of the country s constitution thereby committing itself to ensure a development process which would be guided and spearheaded by the State. This incorporat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction u/s.37(1) of the Act. 20. It is worth noting that detailed guidelines on CSR for PSUs of March 2010, encompasses all aspects relating to CSR activities including concept, planning, implementation, funding, monitoring etc. In view of such detailed guidelines, it was incumbent on the assessee to incur expenditure in CSR which the assessee has duly obeyed. Apparently, these expenses are incurred for commercial expediency. Assessee was duty bound to comply with these guidelines. 21. In this regard, it may also be mentioned here that this Bench itself vide Virtual hearing at Kolkata in assessee s own case in ITA No.232/RAN/2017 for A.Y. 2013-14 and ITA No.267/RAN/2017 for A.Y. 2014-15 order dated 22.2.2023 and 23.11.2022, respectively has allowed similar claim of the assessee. Relevant concluding portion of the order in A.Y. 2014-15 is reproduced as below: 7. We have heard the rival submission and gone through the facts and circumstances of the case. we note that the AO after taking note that the assessee had debited under the head CSR an amount of Rs. 2,02,04,000/- and ask the assessee as to why the amount should not be disallowed because according to him this expenditure is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trospective application any further. In any event, as held by Hon'ble Supreme Court's five judge constitutional bench's landmark judgment, in the case of CIT Vs Vatika Townships Pvt Ltd [(2014) 367 ITR 466 (SC)], the legal position in this regard has been very succinctly summed up by observing that Of the various rules guiding how legislation has to be interpreted, one established rule is that unless a contrary intention appears, legislation is presumed not to be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past. If we do something today, we do it keeping in view the law of today and in force and not tomorrow's backward adjustment of it. Our belief in the nature of the law is founded on the bed rock that every human being is entitled to arrange his affairs by rely on the existing law and should not find that his plans have been retrospectively upset. This principle of law is known as lex prospicit non respicit: law looks forward not backward. (iv) It may appear to be some kind of a dichotomy in the tax legislation but the well settled le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urred by the assessee as envisaged under the Companies Act, 2013. So we are of the opinion that it has to be allowed and we take note that the Tribunal in Jindal Power Ltd., (supra), has already held that the introduction of explanation 2 to sec. 37(1) of the Act w.e.f. from 1st August, 2015 cannot be held to be retrospective in operation. Therefore, the expenditure incurred by assessee on account of CSR as envisaged u/s. 135 of the Companies Act, 2013 need to be allowed as deduction. Therefore, the CSR expenditure which the assessee company was obliged to discharge because it was a statutory obligation upon the assessee company so, the deduction should have been allowed as per the law in force for this assessment year and we direct the AO to allow the expenditure. Therefore, the appeal of assessee is allowed. 9. In the result, the appeal of the assessee is allowed. 22. We also find that the Hon ble Delhi High Court in the case of PEC Ltd (supra) while deciding the similar issue has held as under: S. 37(1): Business expenditure-Corporate social responsibility expenditure-Expenditure for earlier years allowable as a deduction-CBDT Circular binding on the department. Dismissing the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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