TMI Blog2019 (12) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... ed AO. Disallowance of 50 % of the expenditure on account of the community development donation expenses under section 37 (1) - HELD THAT:- Following the decision of the honourable Karnataka High Court in case of CIT vs. Infosys Ltd [ 2013 (7) TMI 451 - KARNATAKA HIGH COURT] , we do not find any reason to sustain the order of the learned CIT A upholding the above disallowance. Further the reasons given by the learned CIT A that as the PSU are directed by Government Of India to incur certain expenditure in the form of corporate social responsibility, if such expenditure are allowed to them as deduction, then in case of private corporate assessee also the above expenditure is to be allowed. We do not find this just‟ reason for confirming the disallowance. Express provision of disallowance of the corporate social responsibility expenditure is provided under explanation 2 of the provisions of section 37 (1) of the income tax act with effect from 1/4/2014 by The Finance (Number 2) Act, 2014. Thus, prior to that it is clear that no such disallowance was provided in the law. As the honourable Karnataka High Court has held that such expenditure is allowable to the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the case and in law, the CIT(A) did not appreciate that having found that there was commercial expediency in incurring expenses on community development, for without maintaining relationship with the villagers, the drilling operations which is the business of the Appellant could not have been carried on, there was no reason to disallow 50% of the expenses. 5. Assessee is a company engaged in the business of exploration and production of coal bed methane‟s gas and compressed natural gas. It filed its return of income on 26/9/2011 declaring a loss of INR 607506849/ . Assessment u/s 143 (3) of The Income Tax Act 1961 was passed by the learned AO wherein disallowance of INR 32741784/ was made of expenses incurred by the assessee towards listing fee holding it to be capital expenditure in nature and allowing depreciation at the rate of 15% thereon, thus the balance addition of INR 27830516/ was made. Further assessee has incurred community development expenditure of ₹ 2442804/ same was also disallowed by the learned assessing officer holding that those expenses are not supported by proper vouchers but by self-made vouchers and further these expenses a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ected. Appellant is shifting its GDR (global depository receipt) from AIM London stock exchange to the main market London stock exchange. It is merely the change of the exchange without increasing the capital base of the company. The sifting only provided a bigger platform to its global depository receipt holders to trade their holdings. He therefore submitted that there is no enduring benefit received by the assessee. The learned authorised representative further submitted that issue squarely covered by the decision of the honourable Supreme Court in case of CIT vs. General Insurance Corp 286 ITR 232 wherein the honourable Supreme Court has also considered and distinguished the decision in case of Punjab State industrial development Corp Ltd 225 ITR 792 and Brooke Bond India Ltd 225 ITR 798 for the reason that in the said cases expenditure was incurred for the purpose of increasing company share capital by the issue of fresh shares and there was in flow of fresh funds. 10. We have carefully considered the rival contention and perused the orders of the lower authorities. In the present case, the appellant has shifted its global depository receipt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unity development donation expenses under section 37 (1) of the income tax act 1961. This also covers the ground number 1 and 2 in the appeal of the assessee. 12. Brief facts of the issue shows that the assessee company has claimed community development expenditure of ₹ 2442801/ . On the perusal of the details it revealed that the expenses incurred being donation for festivals, construction of market share in the bazaar, cash paid to various persons , for Puja, for water tanks, roads and amount expended for renovation of the roads et cetera. The learned assessing officer stated that the expenditure is not supported by proper vouchers but is booked based on the self-made vouchers. Therefore, it was held that such expenditure could not be covered by the provisions of section 37 being not wholly and exclusively incurred for the purposes of the business. The learned assessing officer noted that the intention of the assessee company for incurring this expenditure may be humanitarian but the same cannot be treated as business expenditure. Therefore, he disallowed the above expenditure. The assessee preferred an appeal before the learned CIT A who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT A found that these expenditure are for the purpose of the business of assessee however he noted that the entire expenditure cannot be held to as having commercial expediency with the business of the appellant as there is an element of humanitarian nature which is more akin to CSR measures, therefore he upheld the 50% disallowance thereof. On careful consideration of the various judicial precedents placed before us we think that the issue is squarely covered in favour of the assessee by the decision of the honourable Karnataka High Court in CIT vs. Infosys technologies Ltd [2014] 43 taxmann.com 251 (Karnataka)/[2014] 223 Taxman 469 (Karnataka)/[2014] 360 ITR 714 (Karnataka)/[2014] 270 CTR 523 (Karnataka) wherein it has been held as under:- 25. Therefore in the instant case, admittedly the assessee is having their establishment at Bannerghata Circle. Nearly about 500 employees are working in the said Unit. There was severe traffic congestion. Employees had to wait for longer time to reach the office. It seriously affected the business of the assessee, resulting in delay in completing the project. In order to facilitate its employees to reach their est ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment Year 2012-13:- 1. That on the facts and the circumstances of the case and in law, Commissioner of Income tax (Appeals)-35, New Delhi [briefly the CIT(A) ] has erred in upholding disallowance of ₹ 19,28,747/-, treating the same as not been incurred wholly and exclusively for the purpose business. 2. That on the facts and the circumstances of the case and in law, the CIT(A) did not appreciate that the Appellant was not a profit making company, hence relied upon order of CIT(A) in Power Finance Corporation was not applicable, moreover, expenditure on community development had nexus with the business of the Appellant. 20. Briefly stated the facts assessee filed its return of income on 27/9/2012 declaring loss of ₹ 431571144/ . Subsequently the return was revised on 24/05/2013. The assessment u/s 143 (3) of the income tax act was passed on 27/3/2015 wherein the learned assessing officer disallowed the community development expenditure of INR 1 928737/ on the same reasoning as given in the assessment year 2011 12. Assessee preferred an appeal before the learned CIT A who confirmed the disallowance. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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