2020 (4) TMI 117 - AT - Income Tax

ITAT rulings on CSR, prior period expenses, and Section 14A disallowances for assessment years 2011-12 & 2012-13

DCIT (LTU) Circle-1 New Delhi Versus Indian Railway Finance Corporation Ltd. And (Vice-Versa), And Indian Railway Finance Corporation Ltd. Versus DCIT (LTU) Pushp Vihar, Saket And (Vice-Versa) And Indian Railway Finance Corporation Ltd. Versus DCIT (LTU) Circle-1, New Delhi

The ITAT partly allowed the assessee's appeals and dismissed the Revenue's appeals for the assessment years 2011-12 and 2012-13. The ITAT confirmed the ... Disallowance u/s 14A - assessee submitted that no expenses have been incurred for earning the same - HELD THAT:- The issue in the present case is already covered against the assessee in assessment year 2010-11 [2017 (8) TMI 417 - ITAT DELHI] we do not find any reason to deviate from the same. Therefore, respectfully following the decision of the coordinate bench in the assessee’s own case the disallowance under Section 14A of the Act in the normal computation of the total income is upheld. Addition to the book profit under Section 115JB - HELD THAT:- This issue is squarely covered by the order of the coordinate bench in assessee’s own case [2017 (8) TMI 417 - ITAT DELHI] wherein following the decision of the Special Bench in the case of Vireet Investment [2017 (6) TMI 1124 - ITAT DELHI] the addition is deleted. The learned Departmental Representative also stated that the issue is covered by that decision. Therefore, respectfully following the decision of the coordinate bench we direct the learned Assessing Officer to delete the addition while computing book profit on account of disallowance under Section 14A made in the normal computation while computing book profit on account of disallowance under Section 14A made in the normal computation. Disallowance on account of coordinate social responsibility - AO stated that the above expenditure is not wholly and exclusively incurred for the business purposes of the assessee and hence disallowed - HELD THAT:- The assessee has incurred the above expenditure in improving the passenger facilities and the solar system at one of the railway stations which is run by Ministry of Railways. The Ministry of Railways is the only customer of the assessee. Therefore, these expenditure have direct nexus with the business of the assessee. Even otherwise Explanation (ii) inserted in section 36(1) with effect from 1.04.2015 is prospective in nature, impugned assessment year is assessment year 2011-12, we direct the Assessing Officer to delete the above disallowance. Addition on account of prior period expenditure - HELD THAT:- Explanation of the assessee is that though the above expenditure related to earlier period but the bills of the same have been approved during the year. As the expenditure have been incurred and approved during the current year though may be pertaining to earlier year it cannot be said to be a prior period expenditure. Similarly in the earlier year in assessee’s own case ITAT has deleted the above disallowance. Therefore, respectfully following the decision of the coordinate bench, we direct the Assessing Officer to delete the disallowance. Adjustment of book profit in the book profit on account of Leave Travel Assistance - HELD THAT:- As decided in own case [2017 (8) TMI 417 - ITAT DELHI] co-ordinate bench has confirmed a similar addition on account of Leave Travel Concession. Therefore, respectfully following the decision of the co-ordinate bench, we confirm the action of the Assessing Officer. Difference in gross lease rent received and lease rent offered for taxation - HELD THAT:- In assessee’s own case, the Hon’ble Delhi High Court has considered this issue in [2014 (6) TMI 224 - DELHI HIGH COURT]and further the co-ordinate bench in assessee’s own case for assessment year 2010-11 [2014 (6) TMI 224 - DELHI HIGH COURT] has dealt with that issue and deleted the addition made by the learned Assessing Officer confirming the order of deletion of the learned CIT (Appeals) on the identical grounds. Disallowance on account of membership fee paid to Airport Authority of India - Corporate membership - CIT (Appeals) allowed the claim of the assessee holding that the same is allowable under Section 37(1) - HELD THAT:- Assessee has paid this sum for corporate membership of Airport Authority of India Officers Institute. The fact has been noted that the personal expenses of the executives are not incurred. The identical issue arose before the Hon’ble Delhi High Court in [1999 (7) TMI 58 - DELHI HIGH COURT] wherein it has been held that such expenditure did not bring into existence any benefit of enduring nature. Also see M/S GROZ BECKERT ASIA LIMITED [2013 (2) TMI 375 - PUNJAB & HARYANA HIGH COURT] - Decided against the Revenue. Issues Involved:1. Disallowance under Section 14A of the Income Tax Act, 1961.2. Addition to book profit under Section 115JB of the Income Tax Act, 1961.3. Disallowance on account of Corporate Social Responsibility (CSR) expenses.4. Addition on account of prior period expenses.5. Addition on account of provision for Leave Travel Assistance (LTA).6. Deletion of addition on account of difference in gross lease rent.7. Disallowance of membership fee paid to Airport Authority of India Officers Institute.Issue-wise Detailed Analysis:1. Disallowance under Section 14A of the Income Tax Act, 1961:The assessee challenged the disallowance of Rs. 5,24,350/- made by the Assessing Officer (AO) under Section 14A. The AO had applied Rule 8D, disallowing the amount on the grounds that certain expenditures were incurred for earning exempt income. The CIT (Appeals) dismissed the appeal, and the ITAT upheld the disallowance, citing a prior decision in the assessee's own case for the assessment year 2010-11.2. Addition to book profit under Section 115JB of the Income Tax Act, 1961:The AO added Rs. 5,24,350/- to the book profit under Section 115JB, which was disallowed under Section 14A in the normal computation. The ITAT directed the AO to delete this addition, following a prior decision in the assessee's own case and the Special Bench decision in the case of Vireet Investment.3. Disallowance on account of Corporate Social Responsibility (CSR) expenses:The AO disallowed Rs. 47,53,000/- claimed by the assessee for CSR activities, stating it was not wholly and exclusively for business purposes. The ITAT directed the AO to delete the disallowance, noting that the expenses had a direct nexus with the business of the assessee, which is a Government of India undertaking leasing assets to Indian Railways, the only customer.4. Addition on account of prior period expenses:The AO disallowed Rs. 2,217/- as prior period expenses related to stationery purchased in earlier years but approved during the current year. The ITAT directed the AO to delete the disallowance, stating that the expenditure, though related to an earlier period, was incurred and approved during the current year.5. Addition on account of provision for Leave Travel Assistance (LTA):The AO added Rs. 2,60,424/- to the book profit on account of LTA provision. The ITAT confirmed this addition, following a prior decision in the assessee's own case for the assessment year 2010-11.6. Deletion of addition on account of difference in gross lease rent:The AO added Rs. 2,368.11 crores, treating the lease as an operational lease instead of a financial lease. The ITAT upheld the CIT (Appeals)'s decision to delete this addition, citing a prior decision by the Hon’ble Delhi High Court in the assessee's own case for the assessment year 2001-02 and a coordinate bench decision for the assessment year 2010-11.7. Disallowance of membership fee paid to Airport Authority of India Officers Institute:The AO disallowed Rs. 10,00,000/- paid for membership, treating it as capital expenditure. The CIT (Appeals) allowed the claim under Section 37(1). The ITAT upheld this decision, referencing decisions by the Hon’ble Delhi High Court and other High Courts that such expenditure did not bring into existence any benefit of enduring nature.Conclusion:The ITAT partly allowed the assessee's appeals and dismissed the Revenue's appeals for the assessment years 2011-12 and 2012-13. The ITAT confirmed the deletion of disallowances related to CSR expenses, prior period expenses, and membership fees while upholding the disallowance under Section 14A and the addition on account of LTA provision. The ITAT directed the AO to delete the additions to book profit under Section 115JB related to disallowances under Section 14A.