Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2024 (11) TMI 1454 - AT - Income TaxAddition made u/s 43B as MVAT paid under protest by the assessee during the year - HELD THAT - Supreme Court in case of Kedarnath Jute Mfg. Co. Ltd. 1971 (8) TMI 10 - SUPREME COURT allowed deduction for sales tax demand as a business expense even in the absence of entries recording the demand as a liability in the books of account of the assessee. The Supreme Court held that statutory liability for sales-tax incurred by issue of notice by the authorities is deductible notwithstanding the fact that the liability is disputed by the assessee and no provision for the same has been made in the accounts which is maintained as per mercantile system. An assessee who follows the mercantile system of accounting is entitled to deduct from the profits and gains of the business such liability which had accrued during the period for which the profits and gains were being computed. Whether the assessee is entitled to a particular deduction or not will depend on the provision of law relating thereto and not on the view which the assessee might take of his rights nor can the existence or absence of entries in the books of account be decisive or conclusive in the matter. The assessee who was maintaining accounts on the mercantile system was fully justified in claiming deduction of the liability to sales-tax which it was liable under the law to pay during the relevant accounting year. Apart from the cited decisions of Hon ble Supreme Court we find that in the case of Maruti Suzuki in 2024 (3) TMI 1115 - ITAT DELHI and plethora of other decisions in the same case it has been consistently held that service tax liability alongwith the interest paid on the basis of the show cause notice issued by the service tax authorities is allowable deduction under section 43B of the Act in the year in which the payment was made irrespective of the fact that such demand was paid under protest and the matter was subjudice before the authorities. Deduction u/s 80G - deny deduction for CSR expenses incurred by companies - HELD THAT - It may be stated here that in the case Allegis Services (India) (P.) Ltd. 2020 (5) TMI 378 - ITAT BANGALORE wherein AR submitted that all payments forming part of CSR does not form part of profit and loss account for computing Income under the head Income from Business and Profession . It has been submitted that some payments forming part of CSR were claimed as deduction under section 80G of the Act for computing Total taxable income which has been disallowed by authorities below. In our view assessee cannot be denied the benefit of claim under Chapter VI A which is considered for computing Total Taxable Income . If assessee is denied this benefit merely because such payment forms part of CSR would lead to double disallowance which is not the intention of Legislature. In our view authorities below have erred in denying claim of assessee under section 80G of the Act. We also note that authorities below have not verified nature of payments qualifying exemption u/s 80G of the Act and quantum of eligibility as per section 80G(1) of the Act. We are remitting the issue back to Ld.AO for verifying conditions necessary to claim deduction under section 80G of the Act. Deduction claimed u/s 35AC and Trait fee - Admission of additional evidences - HELD THAT - As the documents furnished by the assessee are vital which go to the root of the present controversy so these are to be admitted in the interest of natural justice but these documents are required to be examined and considered at the level of the AO. We therefore set aside the impugned order and remand the present issue back to the file of the AO to be decided afresh in accordance with law after providing due and reasonable opportunity of being heard to the assessee.
The primary legal issues considered by the Tribunal in this appeal and cross-objections pertain to the following:
1. Whether the payment of Maharashtra Value Added Tax (MVAT) of Rs. 7 crore made under protest by the assessee during the year is eligible for deduction under section 43B of the Income Tax Act, 1961, despite the liability being contested and not finally crystallized. 2. Whether the deduction claimed under section 80G of the Act in respect of Corporate Social Responsibility (CSR) contributions made to eligible institutions is allowable, given the mandatory nature of CSR expenditure under section 135 of the Companies Act, 2013. 3. Whether the deduction claimed under section 35AC of the Act for certain donations is admissible, particularly regarding the timing and documentation of payments made to the Akshayapatra Foundation. 4. Whether income from Trait fees amounting to Rs. 7.56 crore, excluded by the assessee on grounds of uncertainty of realization, should be included in total income, considering the mercantile system of accounting and evidence of tax deducted at source (TDS) by payers. 5. Whether the assessee was accorded adequate opportunity of hearing during appellate proceedings. Issue 1: Deductibility of MVAT Paid Under Protest under Section 43B The legal framework centers on section 43B of the Income Tax Act, which mandates that certain payments including taxes, duties, cess, or fees are deductible only in the year in which they are actually paid. The Revenue contended that since the MVAT was paid under protest and the liability was disputed and sub judice, there was no reasonable certainty of liability crystallization; hence, deduction was not permissible. The Assessing Officer (AO) disallowed the deduction of Rs. 7 crore paid under protest, adding it to the income. The CIT(A) and the Tribunal relied heavily on Supreme Court precedents including Berger Paints (India) Ltd v. CIT and Kedarnath Jute Manufacturing Co. Ltd v. CIT, which establish that payments of statutory liabilities such as sales tax or excise duty, even if disputed and paid under protest, qualify for deduction under section 43B on payment basis. The Tribunal also referred to consistent coordinate bench rulings in the Maruti Suzuki series of cases, where excise duty and customs duty paid under protest were allowed as deductions under section 43B. The Tribunal noted that the liability represented a statutory demand and hence was an accrued/crystallized liability despite the dispute. The fact that payment was made within the due date for filing the return of income satisfied the conditions of section 43B. The Tribunal explicitly rejected the Revenue's argument that uncertainty of liability precluded deduction under section 43B, holding that the statutory nature of the demand and actual payment sufficed. Consequently, the Tribunal upheld the CIT(A)'s deletion of the addition and dismissed the Revenue's appeal on this ground. Issue 2: Deduction under Section 80G for CSR Contributions The AO disallowed a deduction of Rs. 2.32 crore claimed under section 80G on CSR contributions made to eligible institutions, reasoning that CSR expenditure mandated under section 135 of the Companies Act, 2013 is obligatory and not voluntary donation. The AO held that such mandatory expenditure lacks the voluntary charitable element necessary for section 80G deduction. The CIT(A) upheld this disallowance, emphasizing that mandatory CSR spend cannot simultaneously be treated as donation for tax benefits. The assessee challenged this view, relying on the statutory provisions and circulars. It argued that while CSR expenditure is disallowed as business expenditure under Explanation 2 to section 37(1), there is no express prohibition on claiming deduction under section 80G for donations to eligible institutions even if such donations form part of CSR spend. The assessee pointed to the absence of any legislative restriction on section 80G deductions for CSR donations except for specific funds like Swachh Bharat Kosh and Clean Ganga Fund, where such deductions are expressly disallowed if made pursuant to CSR obligations. The Tribunal examined the legislative framework, including Explanation 2 to section 37(1) (which disallows CSR expenditure as business expense), section 80G provisions, and the Companies Act CSR rules. It noted that the disallowance under section 37(1) applies only to business income computation and does not extend to deductions under Chapter VI-A such as section 80G, which is applied at the stage of total income computation. The Tribunal also relied on judicial precedents including the co-ordinate bench decision in Allegis Services (India) Pvt. Ltd., which held that CSR contributions to eligible trusts are deductible under section 80G unless specifically excluded by the Act. It further noted clarifications by the Ministry of Corporate Affairs that CSR expenditure per se does not attract specific tax exemptions but donations to eligible funds do. Accordingly, the Tribunal concluded that the AO and CIT(A) erred in disallowing the deduction under section 80G and remitted the matter to the AO for fresh adjudication after verifying the eligibility and conditions for deduction under section 80G. This remand was made to ensure proper verification of the nature of payments and compliance with section 80G requirements. Issue 3: Deduction under Section 35AC for Donations The AO disallowed Rs. 65,66,938 claimed under section 35AC as the donation to the Akshayapatra Foundation was not supported by expenditure certificates or receipts, and the payment was made after the assessment year. The CIT(A) upheld this disallowance. The assessee sought to file additional evidence including purchase orders and receipts to substantiate the claim. The Tribunal, applying Rule 29 of the ITAT Rules and principles of natural justice, admitted the additional evidence as the failure to produce it earlier was not deliberate or mala fide. It observed that these documents were vital to the controversy and remanded the issue to the AO for fresh adjudication after providing the assessee an opportunity to be heard. Issue 4: Inclusion of Trait Fees Income The AO added Rs. 7.56 crore to income, rejecting the assessee's claim that this amount was not accrued due to uncertainty of realization. The AO reasoned that since tax was deducted at source by payers and reflected in Form 26AS, there was reasonable certainty of income accrual under the mercantile system of accounting. The AO noted absence of evidence from payers denying liability and pointed to settlement agreements admitting the claim. The CIT(A) upheld the addition. The assessee contended that revenue recognition should be postponed in cases of uncertainty of ultimate collection, citing judicial precedents including the Delhi High Court in CIT v. Vasisth Chay Vyapar Ltd. and the Mumbai ITAT in Neon Solutions Pvt Ltd. The assessee submitted ledger evidence showing overdue receivables and correspondence indicating disputes with payers, supporting the claim of uncertainty and non-accrual of income. The Tribunal admitted additional evidence filed by the assessee under Rule 29, finding that it was not produced earlier due to no mala fide intent and was crucial for just adjudication. The Tribunal remanded the issue to the AO for fresh consideration in light of the new evidence, with due opportunity to the assessee. Issue 5: Adequacy of Opportunity of Hearing This ground was not pressed during the hearing and was accordingly dismissed. Significant Holdings and Core Principles On the deductibility of taxes paid under protest, the Tribunal affirmed the principle that statutory liabilities paid under protest are deductible under section 43B in the year of payment, regardless of ongoing disputes or appeals, as crystallization of liability occurs upon statutory demand and payment. The Tribunal emphasized that the non-obstante clause in section 43B mandates deduction on payment basis for specified taxes and duties, overruling other provisions. Regarding CSR contributions and section 80G deductions, the Tribunal clarified that mandatory CSR expenditure disallowed as business expenditure under section 37(1) Explanation 2 does not preclude deductions under section 80G for donations to eligible institutions, except where specifically excluded by statute. The Tribunal underscored the legislative intent to allow such deductions unless expressly prohibited, preventing double disallowance and recognizing the distinct stages of income computation. On admission of additional evidence, the Tribunal applied Rule 29 of the ITAT Rules liberally to admit crucial documents not previously furnished, provided no mala fide intent was found, ensuring fairness and justice in appellate proceedings. On revenue recognition of uncertain income, the Tribunal recognized established accounting and judicial principles that revenue should be recognized only when there is reasonable certainty of ultimate collection, allowing postponement of recognition in cases of genuine uncertainty. Finally, the Tribunal remanded issues relating to section 80G deduction, section 35AC deduction, and Trait fees income for fresh adjudication by the AO after verification and hearing, while dismissing the Revenue's appeal on MVAT deduction.
|