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TMI Blog2024 (11) TMI 1454X X X X Extracts X X X X X X X X Extracts X X X X ..... On the facts and circumstances of the case, Id. CIT(A) has erred in deleting the addition made u/s 43B of the Income Tax Act, 1961 to the tune of Rs. 7,00,00,000/- as MVAT paid under protest by the assessee during the year. 2. On the facts and circumstances of the case, Id. CIT(A) has erred in not appreciating the fact that the assessee has paid MVAT of Rs. 7,00,00,000/-under protest and is contesting the matter in appeal, hence, the liability is not yet finalized during the year, which may or may not crystalise in future; and there is no reasonable certainty in this respect. 3. Factual matrix of the case involve the case of the assessee which is engaged in the business of promoting, marketing and sub-licencing of Trait technology of seeds. It was observed by the AO that the assessee had paid Rs. 7 Cr. MVAT under protest and accordingly claimed deduction in computation of Income. The claim of deduction was liable to be disallowed as the liability had crystallized. According to him, there was no doubt that section 43B of the Act starts with a non-obstante clause and therefore overrides all other provision of the Act. However, that does not mean that all the payments made by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iability crystallised in the current year. Further, the said amount of Rs 15 cr. has not been routed through the Profit and Loss Account. As payment of Rs 7 cr. is made in the current year, the assessee has claimed deduction of MVAT in accordance with the section 43B of the Act. As per Section 43B of the Act, payments relating to tax, duty, cess or fee can be claimed as a deduction in the financial year in which liability is incurred subject to payment of the same being made within the due date for filing ROI. In this regard, further reliance was placed upon the following decisions: The Supreme Court in case of Berger Paints (India) Ltd. v. CIT [2004] 266 ITR 993 has held that deduction on payment basis should be allowed under section 43B of the Act irrespective of the previous year to which the corresponding liability related to. Also, reliance on this aspect was placed on the decision of the Supreme Court in case of Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 wherein it allowed deduction for sales tax demand as a business expense even in the absence of entries recording the demand as a liability in the books of account of the assessee. The Supreme Court held that statut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 009-10. The relevant findings read as under: "35. Xxxxxxxxxxxx is in respect of Custom Duty and Excise Duty both paid under protest. Custom duty paid under protest represented the duties paid as per the additional demand raised by the statutory authorities, i.e. the Excise Department and the Customs Department. Though the assessee has disputed such additional demand and paid the amount under protest, in view of the demand being in the nature of a statutory liability, the same represented accrued/ crystallized liability. As per the mandate of section 43B of the Act, the aforesaid additional excise duty and custom duty so actually paid under protest was claimed as deduction on payment basis which has been disallowed by the assessing officer. The Assessing Officer, following the orders for preceding assessment years, disallowed the said claim on the ground that since the assessee was contesting these liabilities and there was no finality regarding the liabilities and that the same were not debited to the P&L A/c. 36. The Ld. AR submitted that the Tribunal has held in assessee's own case that, since the duty has been paid, deduction claimed under section 43B of the Act has to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax authorities, the same was allowable under section 43B in the year in which the payment was made irrespective of the fact that such demand was paid under protest and the matter was subjudice before the authorities. He further submitted that in similar circumstances the Honhle Delhi High Court in the case of CIT v. Dharampal Satyapal Sons (P.) Ltd.: 50 DTR 287, held that the amount paid by the assessee against excise duty demand raised by excise authorities was allowable deduction as it was statutory liability which was allowable on payment basis under section 43B of the Act, and also submitted that in assessee's own case for A.Y's 1999-00, 2000-01, 2001-02, 2002-03, 2005-06, 2006-07 and 2007-08, coordinate Benches of this Tribunal have held that, since the duty is paid, deduction claimed u/s 43B of the Act has to be allowed. 3.29. This aspect of disallowance of claim for deduction under section 43B of the Act for the amount of Customs Duty paid under protest has been one of the subject of matters in assessee's own case for the AY 2006-07 and 2007- 08 successively, and for the AY 2006-07 vide para 5.5 of the order dated 24.8.2015, the following finding was returned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... huuddeshiya 35,00,000 17,50,000 Total 4,64,16,825 2,32,08,413 10. It is stated by the AO that the assessee has claimed a deduction of Rs. 2,32,08,413/- u/s 80G against a total contribution of Rs. 4,64,16,825/- made in FY 2016-17 out of CSR funds. It furnished copy of receipts, proof of eligibility u/s 80G and bank statement which shows the genuineness of transactions. Same has been confirmed by the relevant entities in response to notice u/s 133(6). The newly inserted Section 135 of the Companies Act mandates that every company fulfilling the threshold specified therein in terms of net worth or turnover or net profits shall ensure that the company spends, in every financial year, at least two per cent of the average net profits made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy. It is also specified that the Company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for Corporate Social Responsibility activities. Thus the said amount has not been paid by the assessee voluntarily to become eligible for entity specified under Section 80G of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... G provides for "Deduction in respect of donations to certain funds, charitable institutions, etc". It is not disputed that the assessee has paid Rs. 4,64,16,825/- in FY 2016-17 to the organizations eligible u/s 80G. But underlying nature of such payment is CSR expense and not donation. In view of above discussion, claim of deduction u/s 80G amounting to Rs. 2,32,08,413/- was disallowed and added back to its total income for AY 2017-18. 11. The ld.CIT(A) observed that the claim u/s 80G amounting to 2,32,08,413/- was rightly disallowed since the same has been mandatorily spent within the threshold limits specified and not in the specified local areas and surrounding areas where the Companies operates as per the Companies Act. Therefore, it can't be a voluntarily donation for the purpose of Section 80G. Accordingly ground of appeal was dismissed. 12. Before us, the ld.AR contested the said orders. He has drawn attentions to its replies made before the authorities below. The company made donation of Rs. 2,32,08,413/- to the fund/institute covered under section 80G(2)(a)(iv) of the act. During the year it gave donation of Rs. 4,64,16,825/- to various societies, foundation and trusts a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activities under the Companies Act through donation made to the trust which qualifies for deduction u/s 80G of the act. Further, we would like to reproduce the relevant extract of section 37 of the act, to explain the basis of the claim made u/s 80G of the act, as under: "Section 37 of the act Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession"... ...Explanation 2. For the removal of doubts, it is hereby declared that for the purposes of subsection (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". Based on the above, we would like to submit as under: As per the plain reading of Explanation to 2 to section 37(1) of the act, any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble purpose and if it fulfills the following condition namely...". 12.2 Based on the above, it was submitted that as per section 80G of the act, deduction has to be made in accordance with and subject to the provisions of the said section. Further, an amount of 50% of the aggregate of the sums, donated to any other fund or any institution to which Section 80G(2)(a)(iv) of the act applies, is allowed as expenditure even if the Company includes the expenditure as CSR expenditure/donation. This is because there is no prohibition or restriction placed by the Parliament in the act on such a donation even if shown as CSR expenditure. Further it is submitted that the legislature has specifically put certain restrictions in section 80G of the act for deduction in respect of two donations i.e. CSR expenditure related to Swachh Bharat Kosh and Clean Ganga Fund which is explained as under: If the company spends only the mandatory CSR expenditure, which includes the amount of donation to Swach Bharat Kosh and Clean Ganga Fund (referred to in section 80G(2)(a)(iiihk) and (iiihl) of the act, then deduction under section 80G of the act was not allowable. However, where the company gave donation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of authorities below based on the amended provisions of section 37 and also section 135 of the Companies Act. We have also perused relevant provisions of the Act and legal position emerging from the cited decisions (supra). The CSR expenses which are required to be mandatorily incurred by the assessee-company as per section 135 of the Companies Act are not entitled to deduction under section 37(1) for assessment year 2015-16 by virtue of the fetter placed by Explanation 2 to section 37(1), which was inserted by the Finance (No. 2) Act, 2014. A plain reading of Explanation 2 to section 37(1) shows that any expenditure incurred towards CSR activities as referred to in section 135 of the Companies Act, 2013 shall not be allowed as 'business expenditure' and shall be deemed to have not been incurred for purpose of business. The embargo created by Explanation 2 inserted in section 37 by Finance (No. 2) Act, 2014 was to deny deduction for CSR expenses incurred by companies, as and by way of regular business expenditure while computing 'income under the head business'. 13.1 So, it can be clearly seen that this Explanation 2 to section 37(1) which denies deduction for CSR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Income under the Head 'Income form Business and Profession'. Further, clarification regarding impact of Explanation 2 to section 37(1) of the Income Tax Act in Explanatory Memorandum to The Finance (No. 2) Bill, 2014 is as under: "The existing provisions of section 37(1) of the Act provide that deduction for any expenditure, which is not mentioned specifically in section 30 to section 36 of the Act, shall be allowed if the same is incurred wholly and exclusively for the purposes of carrying on business or profession. As the CSR expenditure (being an application of income) is not incurred for the purposes of carrying on business, such expenditure cannot be allowed under the existing provisions of section 37 of the Income-tax Act. A. Y : 2016 - 17 Therefore, in order to provide certainty on this issue, it is proposed to clarify that for the purposes of section 37(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 shall not be deemed to have been incurred for the purpose of business and, hence, shall not be allowed as deduction under section 37. However, the CSR e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exclusion of certain payments, that are part of CSR responsibility, not eligible for deduction u/s 80G. 14. In our view, expenditure incurred under section 30 to 36 are claimed while computing income under the head, 'Income form Business and Profession", where as monies spent under section 80G are claimed while computing "Total Taxable income" in the Ahands of assessee. The point of claim under these provisions are different. 15. Further, intention of legislature is very clear and unambiguous, since expenditure incurred under section 30 to 36 are excluded from Explanation 2 to section 37(1) of the Act, they are specifically excluded in clarification issued. There is no restriction on an expenditure being claimed under above sections to be exempt, as long as it satisfies necessary conditions under section 30 to 36 of the Act, for computing income under the head, "Income from Business and Profession". 16. For claiming benefit under section 80G, deductions are considered at the stage of computing "Total taxable income". Even if any payments under section 80G forms part of CSR payments( keeping in mind ineligible deduction expressly provided u/s.80G), the same would already ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment order, details of the donation claimed under section 35AC are as follows: Sr. no. Name of the Institution Amount of CSR incurred Deduction allowable u/s 35AC 1 ISKCON food relief foundation 45,00,000 45,00,000 2 The Akshayapatra foundation 65,66,938 65,66,938 3 The Akshayapatra foundation 39,24,188 39,24,188 4 The Akshayapatra foundation 31,91,937 31,91,937 5 The Akshayapatra foundation 65,66,937 65,66,937 Total 2,47,50,000 2,47,50,000 14.1 According to the AO with respect to claim of deduction of Rs. 65,66,938/- of donation given to the Akshayapatra foundation, neither the assessee submitted copy of expenditure certificate and donation receipt nor the same amount was reflected in the bank statement submitted by the assessee. Further, it has been observed that the payment made to Akshayapatra Foundation of Rs. 65,66,938/- was not eligible for deduction under section 35AC of the Act in AY 2017-18 as the said payment was made on 06.04.2017 and the receipt was issued on 07.06.2017. As the expenditure was not incurred by the assessee in AY 2017-18, the claim of deduction cannot be allowed u/s 35AC. Therefore, deduction claimed u/s 35AC to the tune of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6,74,920/-was added to the total income of assessee in AY 2017-18. Ld.CIT(A) upheld the addition made. 16. Before us, the ld.AR has submitted that merely because the assessee is following mercantile system of accounting it does not mean that the income has accrued to the assessee pursuant to credit reported by sub-licensee in Form 26AS of MMBIPL. Where the ability to assess the ultimate collection with reasonable certainty is lacking at the time of raising any claim, e.g., for escalation of price, export Incentives, Interest etc., revenue recognition is postponed to the extent of uncertainty involved. In such cases, it may be appropriate to recognise revenue only when it is reasonably certain that the ultimate collection will be made. Where there is no uncertainty as to ultimate collection, revenue is recognised at the time of sale or rendering of service even though payments are made by instalments. When the uncertainty relating to collectability arises subsequent to the time of sale or the rendering of the service, it is more appropriate to make a separate provision to reflect the uncertainly rather than to adjust the amount of revenue originally recorded. Key Principles emanati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ground no. 4 and 5 relating to deduction u/s 35AC and Trait fee has made written request under Rule 29 of ITAT Rules 1963, for submission of certain additional evidences which remained to be filed before authorities below. Reliance has been placed on certain case laws in support of the claim requesting that in the interest of justice and to decide the appeal on merits, the same may be allowed to submit to support its claim raised in Cross objection. i) With regard to denial of deduction u/s 35AC of Rs 65,66,398/- it is submitted that the assessee wanted to submit certain documents /information to effectively rebut the deduction disallowed i.e copy of purchase order issued by Akshyapatra Foundation. ii) In respect of ground relating to addition made w.r.t. Trait fees in order to rebut the addition effectively the certain additional evidence i.e. copy of correspondence between assessee and its vendors whereby vendors disputed trait fees charged by it in lieu of state laws regulating the amount and requested for refund of excess fees paid. Copy of Settlement agreements with vendors. 17.1 As per the provisions contained in Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1 ..... 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