2019 (2) TMI 794 - AT - Income Tax

ITAT Decision: CSR Expenditure Disallowed, Insurance Claim Proceeds as Income

Rashtriya Chemicals & Fertilizers Ltd. Versus CIT – Large Tax Payer Unit, Centre-1, Mumbai

Rashtriya Chemicals & Fertilizers Ltd. Versus CIT – Large Tax Payer Unit, Centre-1, Mumbai - TMI Issues Involved:1. Validity of Order u/s. 2632. Deducibility of Rs. 9.05 crores being expenditure on Corporate Social Responsibility (CSR)3. Addition of Rs. 2.52 crores being losses/damages and other write-offs under the head 'Miscellaneous Expenses'Issue 1: Validity of Order u/s. 263The appeal challenged the order passed by the Commissioner of Income Tax (CIT) under section 263 of the Income Tax Act, 1961. The appellant argued that the conditions for passing such an order were not met, and the assessment framed by the Assessing Officer was done after due consideration. The appellant contended that the order u/s. 263 was erroneous, exceeded jurisdiction, and was bad in law. The appellant sought to strike down the impugned order. The CIT observed discrepancies in the assessment leading to under-assessment of income and short levy of tax, prompting the issuance of a notice u/s. 263. The CIT directed the AO to increase the total income based on the identified discrepancies.Issue 2: Deducibility of Rs. 9.05 crores being expenditure on Corporate Social Responsibility (CSR)The CIT directed the AO to disallow the expenditure incurred on CSR, citing the insertion of Explanation 2 to section 37 of the Income Tax Act by the Finance Act, 2014. The appellant argued that the provisions disallowing CSR expenditure were applicable from Assessment Year 2015-16 onwards and not for the year under consideration (A.Y. 2013-14). The ITAT held that if two views were possible, the one in favor of the assessee should be adopted. Referring to the decision in Jindal Power Ltd., the ITAT quashed the CIT's direction to disallow the CSR expenditure, stating that there could be two views on the issue.Issue 3: Addition of Rs. 2.52 crores being losses/damages and other write-offsThe CIT directed the AO to treat the balance amount of Rs. 2.52 crores, received as insurance claim after a fire incident, as income for the relevant assessment year. The appellant explained the circumstances of the fire incident, insurance claim, and accounting treatment. The ITAT upheld the CIT's order, stating that the entire insurance claim receivable needed to be accounted for on an accrual basis, rejecting the appellant's treatment of part of the insurance claim as advance. The appeal was partly allowed, and the order was pronounced on 08.02.2019.