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TMI Blog2020 (1) TMI 1324X X X X Extracts X X X X X X X X Extracts X X X X ..... urn on 27.09.2013 declaring total income of Rs.244,15,02,590/- followed by sec.115JB book profit computation of Rs.312,05,64,000/-. The Assessing Officer completed regular assessment in question dated 29.01.2016 making various disallowance(s) / addition(s). It is the said regular assessment which form subject-matter of the CIT's sec. 263 revision directions under challenge on the ground that although the assessee had claimed corporate social responsibility "CSR" expenditure deduction of Rs.5,13,36,000/-, the Assessing Officer neither carried out any enquiry nor discussed the said issue in his assessment order dated 29.01.2016. He therefore takes into consideration sec.135 of the Companies Act 2013 r.w.s sec. 37; as amended by the Finance Act, 2014 inserting Explantion-2 that "CSR" shall not be deemed to be an expenditure incurred wholly and exclusively for the purpose of business or profession, the explanatory notes in Circular No.1 of 2015 dated 21.01.2015 as well as various judicial precedents dealing with the said amendment alongwith sec. 263(1) Explanton-2 incorporated w.e.f. 01.06.2015 to hold that the Assessing Officer needs to examine the assessee's claim of "CSR" afresh aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dentical claim of corporate social responsibility expenses incurred by a public sector enterprise as per Government of India's direction not disallowed in case of regular assessment to be not resulting error causing prejudice to interest of the Revenue as under:- "3. The brief facts of the case are as follows: The assessee is a company. For the assessment year 2012-2013, return was filed declaring an income of Rs. 29,26,21,280, which was subsequently revised to Rs. 22,88,55,880. The assessment u/s 143(3) of the I.T. Act was completed on 19.03.2015 determining a total income of Rs. 23,88,46,210. In the assessment completed u/s 143(3) of the I.T. Act, the Assessing Officer had allowed deduction of Corporate Social Responsibility (CSR) expenses to the tune of Rs. 44.69 lakh. 4. The Principal Commissioner of Income-tax issued notice u/s 263 of the I.T. Act, since according to him, the A.O. allowed deduction of CSR expenses without properly verifying the same. According to the Commissioner, as per Explanation 2 to section 37(1) of the I.T. Act, any expenditure incurred by an assessee on activities relating to CSR referred to in section 135 of the Companies Act, 2013 shall not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndicated under "5. Funding", all PSUs should mandatorily spend a percentage of net profit for CSR activities. The CSR expenses that has been incurred by the assessee is based on the specific directions of the Government of India and the A.O. in the assessment order passed u/s 143(3) dated 19.03.2015 had allowed the CSR expenditure. 9.1 The following explanation was introduced in the I.T. Act by Finance Act, 2014: "Explanation 2. - 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 of 2013) shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession" 9.2 The "Notes on Clauses" of Finance Bill, 2014 states as under: "Clause 13 of the Bill seeks to amend section 37 of the Income-tax Act relating to general expenditure. The existing provisions contained in sub-section (1) of the aforesaid section provide that any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the claim of deduction has to be considered with reference to the peculiar circumstances of the company which has no discretion in regard to the payment of the service charges to the government as it is bound to comply with the government orders. So much so, we are of the view that the parameters applicable in the case of a private company that too with respect to the claim for business expenditure, are exactly not applicable in the case of Public Sector Company whether it is under the control of the State Government or Central Government. In fact, many public sector companies are not formed just to make profit alone but are supposed to achieve larger objectives for the society and the State. By making payment of service charge, the respondent company has discharged only the obligation under Government orders. It cannot carryon business by violating Government orders and remain as a defaulter to the Government. 9.6 The ITAT Mumbai bench in the case of Hindustan Petroleum Corporation Ltd. (96 ITD 186) had held CSR expenditure incurred by Government Undertaking is an allowable deduction. The relevant finding of the ITAT Mumbai Benches reads as follows:- "Expenditure incurr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iscuss the issues in question or not so as to attract sec, 263 revision proceedings stands settled long back in Commissioner of Income Tax vs. Gabrial India Ltd. (1993) 203 ITR 108 (Bom) that mere non-discussion on an issue in the assessment order does not render it an erroneous causing prejudice to the interest of the Revenue. Hon'ble apex court's landmark decisions in Malabar Industrial Co. Ltd. v. Commissioner of Income Tax (2000) 243 ITR 83 (SC) and Commissioner of Income Tax vs. Max India (2007) 295 ITR 282 (SC) also hold that before an assessment is sought to be revised as erroneous causing prejudicial to the interest of the revenue, these twin conditions must exist simultaneously. We conclude in view of above stated factual and legal backdrop that even if it is held that the Assessing Officer had erred in not carrying out the necessary enquiry / factual verification on the assessee's claim of its "CSR", the same could not have caused any prejudice interest of the revenue in case of a public sector undertaking bound by the Government of India's directions issued on the subject. More particularly before the insertion of Explanation-2 in sec. 37 of the Act in assessment yea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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