TMI Blog2018 (4) TMI 335X X X X Extracts X X X X X X X X Extracts X X X X ..... r, 2014 pertaining to the assessment year 2011-12. Both these appeals are being disposed of together by this common order for the sake of convenience. First we take up assessee s appeal in ITA No. 6794/Del/2014 assessee has raised following grounds :- 1.(a) The learned CIT(A) erred in law and on facts in upholding the disallowance of business expenses of ₹ 59,21,197 as Corporate Social Responsibility (CSR) expenses. (b)The learned CIT(A) erred in law in his finding that explanation 2 inserted in section 37 by the Finance Act 2014(2) is clarificatory in nature. 2. The learned CIT(A) erred in law and on facts in not disposing off ground No. 1,2 on learned assessing officer s erroneous observations that a) The objective behind these guidelines issued by Department of Public Enterprises can be met by the company by spending certain amount out of its surplus profit after tax and it need not to claim these expenses in the books of account as expenditure before determining taxable profit. b) The CSR expenditure was meant to be a below the line expenditure. The Appellant craves to leave, add, amend, modify, delete and / or change all or any of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the Corporate Social Responsibility (CSR for short) expenses of ₹ 59,21,197/-. The assessee company is a Government of India undertaking in cooperative sector and is engaged in the business of production, certification, quality control, processing, handling, packaging, sales training and consultancy of seeds and is assigned to plan and promote programmes of cooperative development in agricultural and allied activities through cooperative societies. The appellant has claimed expenditures of ₹ 59,21,197/- on Corporate Social Responsibility (CSR) Expenses. The appellant submitted that the assessee company's 100% shareholding is held by Central Government of India. The Department of Public Enterprises had issued the guidelines on Corporate Social Responsibility for Central public Sector Enterprises and the assessee has incurred expenses which fall under ambit of Corporate Social Responsibility guidelines. It was submitted that the expenses were incurred to carry out the following CSR activity. a. Facilitating soil testing for NSC's growers b. Organization of free veterinary health checkups particularly in the seed villages c. Distribution of Met ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e social responsibility referred to in section 135 of the Companies Act, 2013 (18 of 2013) shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession. . Although the above explanation was inserted by the Finance Act, 2014 the above explanation being clarificatory in nature, therefore, it is clear that intention of Legislature was never to treat these CSR expenditure as expenditure incurred by the assessee for the purposes of the business or profession. In view of the above, the disallowance made by the AO is fully justified. As such the same is sustained. The appeal fails in this ground. 7. Further the coordinate bench of this Tribunal in the case of ACIT vs. Jindal Power Ltd. (2016) 70 taxmann.com 389 (Raipur Tribunal) has held as under :- 18. We have also take note of the fact that in view of insertion of Explanation 2 to Section 37(1), with effect from 1st April 2015, which provides that for the removal of doubts, it is hereby declared that for . the purposes of sub-section (1), any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd. As was observed in Phillips v. Eyre [, a retrospective legislation is contrary to the general principle that legislation by which the conduct of mankind is to be regulated when introduced for the first time to deal with future acts ought not to change the character of past transactions carried on upon the faith of the then existing 'taw. It may appear to be some kind of a dichotomy in the tax legislation but the well settled legal position is that when a legislation confers a benefit on the taxpayer by relaxing the rigour of pre-amendment law, and when such a benefit appears to have been the objective pursued by the legislature, it would be a purposive interpretation giving it a retrospective effect but when a tax legislation imposes a liability or a burden, the effect of such a legislative provision can only be prospective. We have also noted that the amendment in the scheme of Section 37(1) is not specifically stated to be retrospective and the said Explanation is inserted only with effect from 1st April 2015. In this view of the matter also, there is no reason to hold this provision to be retrospective in application. As a matter of fact, the amendment in law, which was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the Ld. CIT(A) was not justified in deleing the disallowance. He submitted that the issue with regard to the disallowance u/s 14A has been decided by the Hon ble Apex Court in favour of the revenue in the cases where the amount of expenditure cannot be divided. The disallowance u/s 14A is justified. On the contrary Ld. AR submitted that the judgment of the Hon ble Apex Court is not applicable on the facts of the present case and he submitted that the facts are distinguishable. 11. We have heard the rival submissions and perused the material on record. Ld. CIT(A) has decided these issues by giving finding on facts as under :- 4.2.1 Ground nos. 2.1 to 2.3 of appeal are directed against disallowance of ₹ 45,41,046/- made by the AO U/S 14A. The assessee has invested in shares of State Seeds Corporation (SSC) of ₹ 8,87,06,500/- during the year 1970 to 2003 and earned dividend income of ₹ 58,44,900/- during the previous year relevant to A.Y. 2011-12. The above dividend income was claimed exempt. Appellant submitted that the year wise detail of share capital received from Government of India and investment made in the shares of SSC are as under:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es in the years 1970 to 2003 and the interest paid on loans outstanding during the year ended 31st March, 2011. The A. O. was not satisfied with the correctness of the claim of the assessee that no expenditure has been incurred in relation to the exempt income. Therefore, following Rule 8D, the A.D. has disallowed ₹ 45,41,046/- u/s 14A of the Act. 4.2.2 Section 14A provides that all the expenditure incurred in relation to the exempt income shall be disallowed. Rule 8D clearly provides for disallowance of direct expenditure incurred in relation to the exempt income under clause (i) of sub-rule (2) and indirect expenditure by way of interest of relevant previous year, under clause (ii) of sub rule (2). Further other indirect expenditure of the relevant previous year are to be disallowed as per clause (iii) of sub-rule (2), which is to be determined on the basis of average value of investment from which the exempt income is earned. 4.2.3 Hon 'ble High Court of Bombay in Godrej Boyce Mfg. Co. Ltd. v. DCIT [20 I 0] 194Taxrnan 203 (Born) held that as a result of the enactment of section 14A, no expenditure can be allowed as a deduction in relation to income which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t no interest expenditures are incurred for investment in shares, therefore, AO is required to indicate cogent reason on the basis of the accounts that the claim of the appellant is not correct. In the absence of any finding on the basis of accounts that interest expenditures are incurred in relation to exempt income no disallowance of indirect interest expenditure can be made under Rule 8D(2)(ii). In view of the above the indirect interest expenditure of ₹ 40.97 lacs computed by the AO under Rule 8D(2)(ii) for disallowance u/s 14A is not justified. 4.2.6 However, considering the investment in shares of ₹ 8.87 crores and tax exempt income of ₹ 58.44 lacs earned during the year, it is inevitable that some managerial and administrative expenditures are incurred in relation to the exempt income because no income can be earned without incurring some expenditures. When administrative and managerial expenditures are incurred during the year it is inevitable that such administrative and managerial expenses are also incurred to earn exempt income, although such expenditures are not segregated in the accounts and remain clubbed with the overall expenditures. Consider ..... X X X X Extracts X X X X X X X X Extracts X X X X
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