2017 (7) TMI 369 - HC - Income Tax

Court allows delay in re-filing appeal, dismisses Revenue's appeal on CSR expenses.

Commissioner of Income Tax (LTU) Versus Gail (India) Ltd.

The court allowed the application for delay in re-filing the appeal and condoned the delay. The Revenue's appeal against the ITAT's decision to quash the ... Revision u/s 263 - expenses on account of CSR - Held that:- When a questionnaire was issued by the AO raising a specific query as regards the CSR expenses that was answered by the Assessee. The AO could have made further enquiries on this explanation but chose not to do so. That by itself does not make the AO's order erroneous. In the order of the CIT itself in para 6 the explanation offered by the Assessee is noted. According to the Assessee the expenses on account of CSR comprised of expenses on helping the poor children in their study, providing medical care to the poor and downtrodden section of society, rehabilitation of mentally handicapped children, providing basic amenities like water etc to the poor and other CSR related activities. It was sought to be explained by the Assessee that being a public sector undertaking its objective was not only earning profit but also serving the society. One of the essential components to justify the invocation of Section 263 of the Act is that the order of the AO must be erroneous. In this case the said requirement cannot be said to be fulfilled. - Decided in favour of assessee. Issues:1. Delay in re-filing the appeal2. Validity of ITAT's decision in quashing CIT's order under Section 263 of the Act3. Allowability of advertisement and publicity expenditure4. Allowability of Corporate Social Responsibility (CSR) expensesIssue 1: Delay in re-filing the appealThe application for delay in re-filing the appeal was allowed, and the delay was condoned.Issue 2: Validity of ITAT's decision in quashing CIT's order under Section 263 of the ActThe Revenue appealed against the ITAT's decision to quash the CIT's order dated 24th February, 2012 under Section 263 of the Act for the AY 2007-08. The primary question was whether the ITAT's decision was justified in law and on facts.Issue 3: Allowability of advertisement and publicity expenditureThe ITAT found that the expenditure on advertisement and publicity was for business purposes and not of a capital nature. This finding did not raise any substantial question of law, and the appeal did not succeed on this ground.Issue 4: Allowability of Corporate Social Responsibility (CSR) expensesRegarding CSR expenses, the Assessee justified the expenses as being for business purposes, including activities like helping the poor and providing medical care. The Revenue argued that the Assessee failed to prove the expenses were for business purposes. The court clarified that while Explanation 2 of Section 37 of the Act places the initial onus on the Assessee to show CSR expenses were for business, it does not automatically disallow the deduction. The court held that the AO's order was not erroneous, as the Assessee had provided explanations for the CSR expenses, and the AO did not conduct further inquiries. The court concluded that the invocation of Section 263 of the Act required the AO's order to be erroneous, which was not the case here. Therefore, the ITAT's decision to set aside the CIT's order under Section 263 was upheld, and the appeal was dismissed.This judgment clarifies the legal position on the allowability of CSR expenses and the requirements for invoking Section 263 of the Act.