TMI Blog2019 (10) TMI 991X X X X Extracts X X X X X X X X Extracts X X X X ..... Addition on account of CSR - HELD THAT:- Insertion of Explanation 2 to section 37(1) is applicable w.e.f. 1.4.2015 and thus, the said provision will not be applicable in the present case. There is no dispute that the expenses in question are not incurred under the statutory obligation. The Assessing Officer disallowed the claim of CSR expenses without disputing the factual matrix or bringing on record any adverse material which can be seen from the Assessment Order. Thus, this disallowance does not survive Disallowance on account of difference in total receipts and Form 26AS - HELD THAT:- From the perusal of the records it is appropriate in the present Assessment Year as well to remand back this issue to the file of the Assessing Officer for proper adjudication. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice - ITA No.451/Del/2019 - - - Dated:- 10-10-2019 - Shri N.K. Billaiya, Accountant Member And Shri Suchitra Kamble, Judicial Member For the Appellant : Ms. Ananya Kapoor, Adv. For the Respondent : Shri Yogesh Kumar Verma, CIT(DR) ORDER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 2. That on the facts and circumstances of the case, the AO/TPO/DRP have failed to appreciate that the salary paid to Ms. Shallu Jindal was incurred wholly and exclusively for the purposes of business. The same was also paid in accordance with the limits prescribed under the Companies Act, 2013. 3. That, in view of the facts and circumstances of the case and in law, the AO/TPO erred in not following the binding directions of the DRP and not granting the relief as allowed by the DRP. 4. That without prejudice, the adjustment made by the AO/TPO/DRP is also highly excessive and has been wrongly worked out. 5. That the TPO/ AO/DRP have erred, in law and on facts and circumstances of the case, by not appreciating that amendment to Section 92BA is retrospective in nature. 6. That the TPO/AO/DRP has erred on facts and in law in making addition of ₹ 3,31,20.337/- on account of allocation of expenses. The said addition is illegal and bad in law. 1. That, the AO/TPO/DRP has erred on facts and in law in not appreciating the analysis/benchmarking undertaken by the Assessee i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on Corporate Social Responsibility amounting to ₹ 69,46,170/-. 1. That, in view of the facts and circumstances of the case and in law, the AO/DRP erred in not appreciating that the said expenses are allowable u/s 37 of the Act. 2. That, in view of the facts and circumstances of the case and in law, the AO/DRP erred in not appreciating that the said expenses are necessary mandated and are for the purpose of business. 3. Without prejudice that the quantum of disallowance made by the AO/DRP is in any case, is highly excessive and unreasonable. 9. That the AO/DRP has erred on facts and in law in making an addition of ₹ 6,40,988/- on account of alleged difference in the income as declared by the assessee and receipts appearing in Form 26AS. 1. That the AO/DRP has erred on facts and in law in making an addition of ₹ 6,40,988/- on account of alleged difference in the income as declared by the assessee and receipts appearing in Form 26AS. 2. That the AO/DRP has erred on facts and in law in alleging that the assessee has not disclosed its income on account of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n account of allocation of expenses ₹ 3,31,20,337/- Total ₹ 30,94,45,109/- The assessee filed objections before the DRP and the DRP vide directions dated 13.09.2018 directed the Assessing Officer to incorporate the findings in respect of various objections in final order. The Assessing Officer vide final Assessment Order wrongly mentioned as draft assessment order dated 24.11.2018 made various additions and assessed the total income at ₹ 49,03,25,520/-. 4. Being aggrieved by the Assessment Order, the present appeal is filed by the assessee. 5. The Ld. AR submitted that Ground Nos. 1 to 4 are general in nature. Therefore, we are dismissing Ground Nos. 1 to 4. 6. As regards to Ground No. 5 relating to disallowance of salary paid to whole time Director, Ms. Shallu Jindal of ₹ 78,24,682/-, the Ld. AR submitted that this issue is covered in favour of the assessee by the decision in assessee s own case for A.Y. 2013-14 being ITA No. 7176/Del/2017 order dated 31.12.2018. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not correct in making addition on account of managerial remuneration. Ground No. 3 (b) is allowed. As regards to contention of the revenue that in earlier Assessment Year, the services provided by the whole Time director was not discussed is not correct as the Tribunal has discussed the same in the findings. Besides the factual aspect in the present year has not changed which is established by assessee from the records. In fact, para 6.1 of the TPO s order the role and responsibilities of the Director was submitted by the assessee. The minutes of meetings were also submitted by the assessee. Therefore, the assessee demonstrated the services provided by the Whole Time Director. Thus, issue is identical in the present year as well. Hence, Ground No. 5 is allowed. 9. As regards to Ground No. 6 relating to disallowance on account of allocation of expenses between exempt and non-exempt units of ₹ 3,31,20,337/-, the Ld. AR submitted that this issue is also covered in favour of the assessee by the decision of the Tribunal in assessee s own case for A.Y. 2013-14 being ITA No. 7176/Del/2017 order dated 31.12.2018. 10. The Ld. DR re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses of Unit Nos. II and III were diverted and claimed in Unit No. I. But no presumption under the law could be raised that expenses were so diverted. The assessee has produced accounts and details and, therefore, correct position could have been ascertained from the material statement of relevant persons including management and staff of the assessee could have been examined. But without any investigation and without collecting any material an arbitrary assessment by holding that expenses in Unit No. I should be proportionate to those in Unit Nos. II and III was made. Assessment based on such inference has to be held as arbitrary. 46. It is evident from above that even when the material produced by the assessee is rejected, the authorities cannot proceed to levy whatever tax they may levy. The assessment must be based on some material. If it is not based on any material then it has to be held to be capricious and arbitrary. The question which is raised in most of the cases before the Tribunal is whether the assessment by the AO have been made in accordance with law. The aforesaid question has be determined objectively and not by rai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ious years the Revenue disputed CSEB rates consists @ ₹ 0.38 p.u. on account of electricity tax, cess and for which the transfer price or power price was adjusted to that extent by disallowing to that extent and for the remaining the assessee is entitled for transfer price by treating sale price of power transferred for captive use. The assessee filed appeal before the CIT (A) wherein the CIT (A) allowed the appeal of the assessee. Against the said order the Revenue filed appeal before the Tribunal wherein the Tribunal upheld the finding of CIT (A). The Ld. AR pointed out that as per the new Finance Act, 2013 from A.Y. 2013-14, the domestic transaction took place u/s 92C whereas the Assessing Officer adopted a figure that CSEB purchasing power @ 1.89 p.u. on the basis of the information gathered from the CSEB U/s 133(6). The TPO has not taken into consideration that there are criteria for purchase from State generating station when excess production are there. In such situation, the generating station are under obligation to sale the extra power at the lowest price this lowest price cannot be considered as equivalent to the market rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and adjustments made to the market price for the electricity thereby adding back the sum of ₹ 3,86,93,638/- as excess deduction u/s 80-IA(8) claimed in its power plant. The assessee is engaged in generation of power and the power so generated is transferred to other units of the assessee captively at the rate at which it is obliged to purchase from the State Electricity of Board. The assessee has made sales of ₹ 51,73,22,855/- from the power plant and the profit has been arrived at ₹ 18,51,63,515/- against which deduction u/s 80IA has been claimed @100%. The sales of power to other units have been considered at the rate of ₹ 3.92, the rate of which CSEB was selling to industrial consumers as on 01.04.2008. AO observed that the rate of ₹ 3.92 included electricity duty @8% of energy charges and cess @ 0.05% per unit. AO also observed that the assessee has not been making actual sales to its other units because the power generated is consumed captively by other units. As such, the sale to other units of the assessee can at best be called notional sales. When actual sales are made, duty @8% and cess @0.05% collected from, consumers is paid to governmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts exceptional difficulties, the Assessing Officer may compute such profits and gains on such reasonable basis as he may deem fit. Explanation.-For the purposes of this sub-seclion, market value , in relation to any goods or services, means the price that such goods or services would ordinarily fetch in the open market. From the above provision it is clear that the price at which goods are to be transferred from one business of the assessee to another business should correspond to the market value of such goods for computing the profits of the eligible business. The expression 'market value' has been defined in Explanation to sub-section (8) to section 80-IA of the Act, as the price which such goods would ordinarily fetch when sold in the open market. 3.6.3 In the present case, the power generated by the captive plants was consumed by the manufacturing units of the appellant at Raigarh. The appellant accounted for the revenue/profit on transfer of such power to its captive units at the rate of ₹ 3.92 per unit, which is the price charged by CSEB for supplying power to industrial consumers. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well. Had the assessee not been saddled with restrictions of supplying surplus power to the State Electricity Board, it would have supplied power t the ultimate consumers at rates similar to those of the Board or such other competitive rates, meaning thereby that price received by the assessee would be in the vicinity of ₹ 3.72 per unit i.e. charged by the Board from its industrial consumers/users. Thus, under the given circumstances, it would be in the fitness of things to hold that the consideration recorded by the assessee's undertaking generating electric power for transfer of power for captive consumption at the rate of ₹ 3.72 per unit corresponds to the market value of power. Therefore, on this aspect, we uphold the stand of the assessee and set aside order of the Commissioner (Appeals) and direct the assessing officer to allow relief to the assessee under Section 80-IA as claimed. Assessee succeeds on this ground. 61. We find the decision of the Delhi Bench of the Tribunal has been upheld by the Hon ble Punjab Haryana High Court in ITA No.53/2008. Similarly, the Hon ble Chattisgarh High Court in the case of CIT vs. Godawari Power Isp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15. As regards to Ground No. 8 relating to addition on account of CSR, the Ld. AR submitted that this issue is also covered in favour of the assessee by the decision of the Tribunal in assessee s own case for A.Y. 2013-14 being ITA No. 7176/Del/2017 order dated 31.12.2018. 16. The Ld. DR relied upon the order of the TPO and the Assessment Order. 17. We have heard both the parties and perused all the relevant material available on record. The Tribunal in A.Y. 2013-14 held as under: 34. We have heard both the parties and perused all the relevant material available on record. The Ld. AR relied upon the decision of the Tribunal in case of Jindal Power Ltd. (supra). The Tribunal held as under: 16. We have noted that fundamental objection of the Assessing Officer is that the expenses is voluntary, not mandatory and not for business purposes. As for the contention that the expenses being in the nature of voluntary expenses, which are not mandatory, and which the assessee was not statutorily required to incur, are not admissible deduction in computation of business income, we are of the considered view t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 79) 118 ITR 261 (SC)] inter aha observed that : It has to be observed here that the expression wholly and exclusively used in s. 10(2)(xv) of the Act does not mean necessarily . Ordinarily, it is for the assessee to decide whether any expenditure should be incurred in the course of his or its business. Such expenditure may be incurred voluntarily and without any necessity and if it is incurred for promoting the business and to earn profits, the assessee can claim deduction under s. 10(2)(xv) of the Act even though there was no compelling necessity to incur such expenditure. It is relevant to refer at this stage to the legislative history of s. 37 of the IT Act, 1961, which corresponds to s. 10(2)(xv) of the Act. An attempt was made n the IT Bill of 1961 to lay down the necessity of the expenditure as a condition for claiming deduction under s. 37. Sec. 37(1) in the Bill read any expenditure, laid out or expended wholly, necessarily and exclusively for the purposes of the business or profession shall be allowed. The introduction of the word necessarily in the above section resulted in public protest. Consequently, when s. 37 was finally enacted into law, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nected or related with the carrying on of the assessee's business or which results in the benefit to the assessee s business has to be regarded as an allowable deduction under section 37(1) of the Act. Such a donation, whether voluntary or at the instance of the authorities concerned, when made to a Chief Minister's Drought Relief Fund or a District Welfare Fund established by the District Collector or any other fund for the benefit of the public and with a view to secure benefit to the assessee's business, cannot be regarded as payment opposed to public policy It is not as if Tie payment in the present case had been made as an illegal gratification. There is no law which prohibits the making of such a donation. The mere fact that making of a donation for charitable or public cause or in public interest results in the Government giving patronage or benefit can be no ground to deny the assessee a deduction of that amount under section 37(1) of the Act when such payment had been made for the purpose of assessee's business. 8. In the case of CIT v. Madras Refineries Ltd. [2004] 266 ITR 170 1, Hon'ble Madras High Court has upheld deductibility of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od corporate citizen which brings goodwill of with the regulatory agencies and society at large, thereby creating an atmosphere in which the business can succeed in a greater measure with the aid of such goodwill . 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, 20 3 (18 of 2013) 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). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bjective pursued by the legislature, it would 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Ld. AR pointed out that the difference on account of 26AS the assessee has already made the submission after reconciliation which has not been appreciated. There is no proper finding to that effect in the Assessment Order, therefore, it will be appropriate to remand back this issue to the file of the Assessing Officer for proper adjudication. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Ground No. 8 is partly allowed for statistical purpose. From the perusal of the records it is appropriate in the present Assessment Year as well to remand back this issue to the file of the Assessing Officer for proper adjudication. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Ground No. 9 is partly allowed for statistical purpose. 21. As regards to Ground Nos. 10 and 11, the same are general in nature, hence Ground Nos. 10 and 11 are dismissed. As regards to Ground No. 12 is concerned the same is consequential, hence the same is not adjudicated at this juncture. 22. In result, appeal of the assessee is partly allowed for ..... 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