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2022 (12) TMI 1566 - AT - Income TaxMAT computation u/s 115JB on account of CSR expenses - HELD THAT - This issue is squarely covered in favour of the assessee and against Revenue in the case of GE Power System India Private Limited 2022 (9) TMI 815 - ITAT DELHI The Assessing Officer is directed to exclude the CSR expenses to book profit for the purpose of computing book profit u/s 115JB of Income Tax Act.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal in these consolidated appeals are: (a) Whether the learned Commissioner of Income Tax (Appeals) erred in confirming the addition of Corporate Social Responsibility (CSR) expenses to the book profit for the purpose of computing the book profit under section 115JB of the Income Tax Act, when there is no statutory requirement to adjust CSR expenses while computing book profit under the said provision. (b) Whether the initiation of penalty proceedings under section 270A of the Income Tax Act by the Assessing Officer was justified in the facts and circumstances of the case. 2. ISSUE-WISE DETAILED ANALYSIS Issue (a): Addition of CSR Expenses to Book Profit under Section 115JB Relevant legal framework and precedents: Section 115JB of the Income Tax Act mandates the computation of book profit for the purpose of Minimum Alternate Tax (MAT). The legal question revolves around whether CSR expenses, which are mandatory under the Companies Act, should be added back to the book profit while computing MAT under section 115JB. The Tribunal relied heavily on a recent precedent by a Co-ordinate Bench of the ITAT Delhi in the case of GE Power System India Private Limited vs. ACIT (ITA No. 9120/Del/2019 for AY 2016-17), where it was held that CSR expenses are not required to be added back to the book profit under section 115JB. Court's interpretation and reasoning: The Tribunal noted that the issue was squarely covered by the aforesaid Co-ordinate Bench decision, which held that CSR expenses do not fall within the ambit of disallowances or adjustments required under section 115JB. The Tribunal observed that neither party brought any new facts, legal submissions, or precedents to persuade it to deviate from the view taken in the GE Power System case. Key evidence and findings: The Tribunal considered the submissions of the authorized representative for the assessee and the Senior Departmental Representative, both of whom agreed that the precedent was applicable and binding. No contradictory evidence or legal argument was presented by the Revenue to challenge the applicability of the precedent. Application of law to facts: In light of the binding precedent and absence of any contrary submissions, the Tribunal held that the addition of CSR expenses to book profit was erroneous. The Assessing Officer was directed to exclude CSR expenses from the book profit computation under section 115JB. Treatment of competing arguments: The Revenue did not dispute the applicability of the precedent or present any alternate legal reasoning. The Tribunal therefore did not find any merit in confirming the additions made by the CIT(A). Conclusions: The Tribunal allowed the first ground of appeal in all three appeals, holding that CSR expenses are not required to be added back to book profit under section 115JB. The Assessing Officer was directed to exclude such expenses while computing book profit for MAT purposes. Issue (b): Initiation of Penalty Proceedings under Section 270A Relevant legal framework: Section 270A of the Income Tax Act provides for penalty for concealment of income or furnishing inaccurate particulars of income. The question was whether the initiation of penalty proceedings by the Assessing Officer was justified. Court's interpretation and reasoning: The Tribunal noted that the Assessing Officer had not passed any order imposing penalty under section 270A. As such, the issue of penalty was premature for adjudication before the Tribunal. Key evidence and findings: No submissions were made by either party on this point during the hearing. The Tribunal found no material to consider the penalty ground. Application of law to facts: Since no penalty order was passed, the Tribunal held that the ground challenging initiation of penalty proceedings was not ripe for adjudication. Treatment of competing arguments: Absence of submissions or penalty order rendered this ground devoid of merit. Conclusions: The Tribunal dismissed the second ground of appeal in all three appeals as premature and without merit. 3. SIGNIFICANT HOLDINGS The Tribunal, following the Co-ordinate Bench decision in GE Power System India Private Limited vs. ACIT, held: "In view of the foregoing, and respectfully following the aforesaid order dated 10/08/2022 of Co-ordinate Bench of ITAT, Delhi in the case of GE Power System India Private Ltd., we decide the issue in favour of the assessee and against Revenue. Accordingly, Ground No. 1 in all the three appeals before us is hereby allowed. The Assessing Officer is directed to exclude the CSR expenses to book profit for the purpose of computing book profit u/s 115JB of Income Tax Act." The Tribunal established the core principle that CSR expenses, although mandatory under the Companies Act, are not required to be added back to the book profit under section 115JB of the Income Tax Act for MAT computation. On the penalty issue, the Tribunal held that without an order imposing penalty, the challenge to initiation of penalty proceedings is premature and cannot be entertained. Accordingly, the Tribunal partly allowed the appeals by setting aside the addition of CSR expenses to book profit and dismissed the penalty ground for lack of adjudication.
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