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TMI Blog2019 (12) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... w, the Id. CIT(A) erred in deleting the addition of Rs. 1,78,30,516/- made on account of capitalization of share listing expenses. 2. Whether on the facts and circumstances of the case & in law, the Id. CIT(A) erred in deleting the disallowance of Rs. 12,21,402/- made on account of community Development (Donation) expenses u/s 37(1) of the I.T. Act, 1961. 3. The appellant craves leave, to add, alter or amend any ground of appeal raised above at the time of the hearing." 4. The assessee has raised the following grounds of appeal in ITA No. 3360/Del/2015 for the Assessment Year 2011-12:- "1. That on the facts and the circumstances of the case and in law, Commissioner of Income tax (Appeals)-4, New Delhi [briefly "the CIT(A)"] has erred in upholding disallowance of Rs. 12,21,402/- out of community development expenses of Rs. 24,42,804/-. 2. That on the facts and the circumstances of 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 carr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e providing enduring benefit to the assessee. The expenditure is directly related to the expansion of the capital base of the company. The reasons cited by the assessee that this will enhance companies profile and enable increased access to the capital markets as upheld by the learned CIT - A clearly demonstrate that this company has long-term benefit through the sifting for which listing fees are incurred. Hence, the company will have the enduring benefit. It was further submitted that the issue is squarely covered against the assessee by the decision of Hon Supreme court in Brooke Bond India and Punjab State industrial development Corp Ltd. 9. The learned authorised representative submitted that by incurring the listing expenses the capital base of the appellant was not at all affected. 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 recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers and loyalty of employees, which generate value. Thus, the expenditure on account of listing fees paid to the stock exchange could not be said to be capital expenditure, and that it shall have to be regarded as expenditure of revenue nature. Therefore, for the reasons we do not find any infirmity in the order of the learned CIT - A in deleting the above disallowance noting that there is no increase in the capital base of the assessee company. In view of this, we dismiss ground number 1 of the appeal of the learned AO. 11. Coming to the ground number 2 of the appeal is against the deletion of the disallowance of 50 % of the expenditure of Rs. 24 lakh i.e. INR 1221402/- made on account of the community 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 Rs. 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, road ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ders of the lower authorities. The learned CIT - A in paragraph number 6.3 of his order as noted that assessee has incurred the expenditure towards community development expenses which were incurred for donation for festivals, construction of market said et cetera which were found as humanitarian in nature. He further noted that appellant has been carrying on the drilling operation in remote areas and therefore to maintain the good relations and to ensure continuing work of the assessee it is mandatory for the assessee to maintain good relationship with the villagers of the nearby places. The learned CIT - 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] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee and dismiss ground number 2 of the appeal of the learned assessing officer. 17. Accordingly, appeal of the assessee for assessment year 11 - 12 is allowed and appeal of the learned assessing officer for that assessment year is dismissed. 18. Now we come to the appeal of the assessee for assessment year 2012 - 13 against the order of the Commissioner of income tax (appeals) - 35, New Delhi dated 5/9/2016. 19. The assessee has raised the following grounds of appeal in ITA No. 5728/Del/2016 for the Assessment 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 Rs. 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing the decision of the honourable Karnataka High Court in case of CIT vs. Infosys Ltd ( supra) , 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 assessee u/s 37 (1) of the income tax act as it is wholly and exclusively incurred for the purposes of the business, we are of the view that such disallowance can only be made after 1/4/201 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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