2021 (4) TMI 1249 - AT - Income Tax

Nature of expenditure - Disallowance of community welfare expenses - assessee incurred this expenditure on upkeep of road as per the direction of Deputy Commissioner, Bellary - AO treated the expenditure as capital expenditure - assessee contended that expenditure is revenue in nature allowable u/s. 37(1) - HELD THAT:- In the present case, the assessee being an individual, the restriction imposed under Explanation (2) to section 37 is not applicable to assessee’s case. See M/S GUJARAT NARMADA VALLEY FERTILIZER AND CHEMICALS LTD [2019 (8) TMI 1288 - GUJARAT HIGH COURT]

Disallowance is restricted to the expenses incurred by the assessee under a statutory obligation u/s. 135 of the 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 the expenses in question are not incurred under the aforesaid statutory obligation. In the present case, the said expenditure is incurred by the assessee on discharging social responsibility so as to earn the goodwill of the society and it is wholly and exclusively for the purpose of business.

The provisions of Explanation to section 37 of the Act cannot be applied. Further, in the present case, the assessee being an individual, and not a corporation under the Companies Act, 2013, Explanation 2 to section 37 cannot be applied so as to deny the voluntary expenditure incurred by assessee towards community welfare. Accordingly, we are of the opinion that the expenditure incurred is wholly and exclusively for the purpose of business of assessee and has to be allowed as business expenditure. Accordingly, this ground of appeal is allowed.

Loss from derivatives – F&O - assessable under the head ‘capital gains’ OR 'business loss' thereby not allowing set off of the same - whether trading in F & 0 derivative is taxable under section 28(i) and not a speculative transaction under section 43(5) - HELD THAT:- When the AO had accepted the income from trading in F&O derivatives as business income in earlier year, specifically in the immediate preceding AY 2015-16, the revenue cannot be allowed to change its view with regard to fundamental aspect of a transaction taken in earlier year, unless it is able to demonstrate change in circumstances in the subsequent assessment year.

In the case of CIT v. Escorts Ltd.[2011 (2) TMI 579 - DELHI HIGH COURT] it was held that the principle of res judicata did not apply to income tax proceedings, the revenue cannot be allowed to change its view with regard to fundamental aspect of a transaction taken in earlier assessment year, unless it is able to demonstrate any change in the circumstances in the subsequent assessment year. It was held that as a fundamental aspect permeating through different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year.

On these reasonings, in the absence of any material change justifying the revenue to take a different view of the matter and if there is no change, it was in support of assessee that the AO is precluded to reopen that issue and take a contrary view of what he has taken in earlier assessment proceedings and taking such a contrary decision should be have been avoided

Whether the assessee is prevented to make such a claim without filing revised return? - Regarding the additional claim made during the assessment proceedings other than the claim made in the return of income u/s. 139, in our opinion, the assessee cannot make additional claim before the AO without revised return - as held by the Hon’ble Supreme Court in the case of Goetze (India) Ltd. [2006 (3) TMI 75 - SUPREME COURT] the appellate authorities are not precluded in entertaining such claim without any revised return. Being so, we do not find any infirmity in making such claim by the assessee before the CIT(Appeals) with regard to treatment of loss from F&O transaction as business loss. Therefore, this ground of appeal is allowed.