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TMI Blog2018 (4) TMI 335X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 grounds on/or before the date of hearing." 2. The only effective ground in assessee's appeal is against confirming the disallowance of expenses of Rs. 59,21,197/- as Corporate Social Responsibility expenses. Briefly stated the facts are that case of the assessee was picked up for assessment u/s 143(3) of the Income Tax Act 1961 ( hereinafter refer to as the Act) which was framed vide order dated 31st January, 2014. While framing the assessment the AO disallowed the claim of expenses of Rs. 59,21,197/- incurred in respect of expenses toward corporate social responsibility. Further the AO while invoking the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Metallic Bins for safe storage of seeds saved by farmers d. Undertaking water management /conservation / harvesting measures in the seed villages e. Organizing de-addition programmes, organizing blood donation caps, health/AIDS/HIV awareness campaign etc. f. Participation in prison reform programmes through supply of free seeds and planting material including technical advice and guidance to jail authorities g. Organizing tree plantation so as to contribute to 'Cleaner Environment'. h. Organizing training programmes for farmers/seed growers on crop production/seed production in particular i. Distribution of solar lamps/hand/foo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nch 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 of the Companies Act, 2013 (18 of2013) shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession", the expenses incurred in discharging corporate social responsibility are not deductible in computation of business income. Learned Departmental Representative submits that this amendment should be treated as clarificatory in nature, as it is stated to be in so many words, and we should, therefore, hold that the expenses in discharging corporate social responsibility were outside the ambit of expenses deductible under section 37(1). 19. We are unable to see legally sustainable merits in this plea either. The amendment in the scheme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 accompanied by the statutory requirement with regard to discharging the corporate social responsibility, is a disabling provision which puts an additional tax burden on the assessee in the sense that the expenses that the assessee is required to incur under a statutory obligation in the course of his business are not allowed deduction in the computation of income. This disallowance is restricted to the expenses incurred by the assessee under a statutory obligation under section 135 of 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 vo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6/- made by the AO U/S 14A. The assessee has invested in shares of State Seeds Corporation (SSC) of Rs. 8,87,06,500/- during the year 1970 to 2003 and earned dividend income of Rs. 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:- Year Shares issued to GOI in Rs. Investment in SSC in Rs. 1970 32,00,000 10,00,000 1971 0 500 1976 1,20,00,000 200 1977 40,00,000 20,00,200 1978 84,18,000 48,10,600 1979 1,19,78,000 96,95,500 1980 37,53,600 42,25,500 1981 34,00,000 81,24,000 1982 1,45,00,000 18,75,000 1983 2,25,00,000 1,70,14,000 1984 2,94,99,400 70,80,000 1985 36,00,000 66,99,000 1986 1,05,50,000 11,54,000 1987 1,21,14,000 1,57,82,000 1992 4,46,87,000 15,94,000 1993 0 52,80,000 1997 61,93,000 (12,50,000)* 2003 0 36,22,000 Total 19,03,93,000 8,87,06,500 * Redemption of preference shares by UPSTDC Further, no deduction was made by the appellant U/S 14A in respect of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where the Assessing Officer is, on the basis of the accounts of the assessee, not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under the Act. Subsection (2) of section 14A does not enable the Assessing Officer to apply the method prescribed by rule 8D without determining in the first instance the correctness of the claim of the assessee, having regard to the accounts of the assessee. 4.2.4 Hon'ble High Court of Delhi in Maxopp Investment Ltd. v. CIT [2011] 15 Taxmann.com 390 (Delhi) held that while rejecting the claim of the assessee with regard to the expenditure or no expenditure, as the case may be, in relation to exempt income, the Assessing Officer would have to indicate cogent reasons for the same. 4.2.5 The AO held that the amount of direct expenditure in relation to exempt income is nil under Rule 8D(2)(i). The AO computed the indirect interest expenditure under rule 8D(2)(ii) at Rs. 40,97,513/- . However while computing indirect interest expenditure for disallowance u/s 14A, the AO has not indicated any cogent reason as to how the interest expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X
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