TaxTMI 
TaxTMI 
TaxTMI 
2019 (3) TMI 1687
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....is to the other cross appeal also. 4. We shall first take up the appeal of the assessee in ITA No.834/Chd/2018. ITA No.834/Chd/2018(Assessee's Appeal): 5. Ground No.I(1) raised by the assessee reads as under: "I. Computation of Gross Total Income as per normal provisions. 1. CSR Expenses Rs. 16,03,01,431/- The clarificatory explanation No.2 added to section 27 was inserted by Finance Bill (No.2) Act, 2014 and was applicable w.e.f. 01.03.2015 and as such was not applicable for the relevant AY 2013-14. The genuine expenditure incurred as per statutory directiuons has a clear nexus with the earnings." 6. The above ground raised relates to disallowance of CSR expenses amounting to Rs. 16,03,01,431/-. The facts relating to the same are that the assessee had incurred the impugned CSR expenses, being corporate social responsibility expenses, by paying to SJVN CSR Trust and the same was disallowed by the A.O. holding that it had not been incurred for the purpose of carrying on business. The Ld.CIT(A) upheld the order of the A.O. stating that the Legislature had brought an amendment to section 37 of the Act by inserting Explanation.2 therein, disallowing CSR expenses w.e.f.....
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....eated as incurred for the purpose of business of the assessee and that the Explanation did not have a retrospective application and was to be applied prospectively only. Relevant findings of the I.T.A.T. in the case of Jindal Power Limited (supra) at paras 17 to 19 of the order is as under: "17. The next issue is whether it is for the purposes of business or not. We may, in this regard, usefully refer to the observations of a coordinate bench of this Tribunal, speaking through one of us (i.e. the Accountant Member) and in the case of Hindustan Petroleum Corporation Ltd Vs DCIT [(2005) 96 ITD 186 (Bom)], as follows: 7. We find that as hold by Hon'ble Karnataka High Court in the case of Mysore Kirloskar Ltd. v. CIT [1987] 166 ITR 836 1, while 'the basic requirements for invoking sections 37(1) and 80C are quite different', 'but nonetheless the two sections are not mutually exclusive'. Thus, there are overlapping areas between the donations given by the assessee and the business expenditure incurred by the assessee. In other words, there can be certain amounts, though in the nature of donations, and nonetheless, these amounts may be deductible under section 3....
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....chool. While doing so, Their Lordships observed as follows: The concept of business is not static. It has evolved over a period of time to include within its fold the concrete expression of care and concern for the society at large and the locality in which business is located in particular. Being a good corporate citizen brings goodwill of the local community as a/so with the regulatory agencies and society at large thereby creating an atmosphere in which the business can succeed in a greater measure with the aid of such goodwill. . . . 9. Let us now ake a look at the undisputed facts of this case. The assessee is a company owned by the Government of India and working under the control and directions of the Government of India. As the statement of facts clearly sets out, the expenditure on 20 Point Programmes was incurred in view of specific directions of the Government of India. This factual aspect is not even disputed or challenged by the Revenue at any stage. It cannot but be in the business interest of the assessee company to abide by the directions of the Government of India which a/so owns the assessee-company. In any event, as observed by the Hon'ble Madras High C....
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....ffect from 1st April 2015, cannot be construed as to disadvantage to the assessee in the period prior to this amendment. This disabling provision, as set out in Explanation 2 to Section 37(1), refers only to such corporate social responsibility expenses as under Section 135 of the Companies Act, 2013, and, as such, it cannot have any application for the period not covered by this statutory provision which itself came into existence in 2013. Explanation 2 to Section 37(1) is, therefore, inherently incapable of retrospective application any further. In any event, as held by Hon'ble Supreme Court's five judge constitutional bench's landmark judgment, in the case of CIT Vs Vatika Townships Pvt Ltd [(2014) 367 ITR 466 (SC)], the legal position in this regard has been very succinctly summed up by observing that "Of the various rules guiding how legislation has to be interpreted, one established rule is that unless a contrary intention appears, legislation is presumed not to be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past. If we do something t....
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....ion 2 to Section 37(1) comes into play, but, as for latter, there is no such disabling provision as long as the expenses, even in discharge of corporate social responsibility on voluntary basis, can be said to be "wholly and exclusively for the purposes of business". There is no dispute that the expenses in question are not incurred under the aforesaid statutory obligation. For this reason also, as also for the basic reason that the Explanation 2 to Section 37(1) comes into play with effect from 1st April 2015, we hold that the disabling provision of Explanation 2 to Section 37(1) does not apply on the facts of this case." 11. In view of the aforesaid two decisions of the I.T.A.T. holding the CSR expenses to be in the nature of business expenses and Explanation-2 to section 37 of the Act as being prospective in nature and the Ld. DR not having brought our notice any divergent view of the I.T.A.T., nor any distinguishing facts, the decision rendered in the above two cases will squarely apply to the present case also, following which we hold that the CSR expenditure incurred by the assessee amounting to Rs. 16,03,01,431/- were allowable for the impugned year. The disallowance so ma....
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....ical amount as refundable to beneficiaries. The disclosure made by the assessee in Schedule 2.22 of its audited financial statements for the impugned year, copy of which was placed before us, as under: "2.22 Other Income Year Ended 31st March, 2013 Interest From:- Banks 21,026 Employees 247 Contractors 6 Beneficiaries 211 21,490 Interest on Income Tax Refund 216 Less: Refundable to Beneficiaries 216 Surcharge on late payment From customers 983 Receipt of Maintenances of ICF 159 Sale of Scrap 43 Miscellaneous Income # 279 Foreign Currency Fluctuation Adjustment(Credit) 335 Total 23,289 Prior Period Income 163 Total Other Income 23,452 # Details of Miscellaneous Income: Hire Rental Charges from Contractor - Profit on Sale of Fixed Assets - Rent Recovery from Staff/Others 62 Excess Provision Written Back 140 Liquidated Damages recovered ....
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.... factual finding of the Ld.CIT(A). No other arguments have been made before us. In view of the same, we do not find any merit in the contention of the Ld.Counsel for the assessee and see no reason to interfere in the order of the Ld.CIT(A) in this regard. The addition made of Rs. 2,16,05,340/- on account of income tax refund is therefore upheld. 21. This ground of appeal is, therefore, dismissed. 22. Ground No.I(3) & Ground No.II were not pressed before us. The said grounds read as under: "3. Income Set off against expenditure during construction period treated as regular income a) interest from bank FDR Rs. 2,71,493/- b) interest from employees Rs. 53,99,144/- c) Misc Income Rs. 91,74,647/- The above income being of capital nature needs to be set off against incidental expenditure during construction period." "II. Computation of deduction u/s 80IA Income considered ineligible for deduction u/s 80IA a) Interest received from staff of Rs. 2,46,77,323/-. (i) Miscellaneous income derived from licence fee from quarters, recovery of private use of vehicles, income from transit camps, forfeiture of security, post retirement medical scheme, receipts from buses ....
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....ee is partly allowed. 32. We shall now take up the appeal of the Revenue in ITA No.826/Chd/18 for A.Y 2013-14. 33. The sole issue raised, relates to allowance of deduction u/s 80 IA of the Act on scrap sales. The facts relating to the same are that the assessee had credited an amount of Rs. 43,06,075/- under the head scrap sales. The AO denied the claim of deduction u/s 80IA on the said income by holding that the income was not derived from the manufacturing activity of the Industrial undertaking. The Ld.CIT(A) allowed the claim on finding that the assessee had clearly brought out the nature of scrap generated and the linkages to the manufacturing activity. Aggrieved by the same the Revenue has come up in appeal before us raising the following effective ground : "1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 43,06,075/- made by the A.O. by disallowing the deduction claimed by the assessee u/s 80IA on the income earned from sales of scrap, ignoring the fact that the assessee has not earned the same from the manufacturing activities, but from the unserviceable/damages spares retrieved from the plant, which is cap....
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....e nothing but part and parcel of the income derived from manufacturing activity. Our attention was drawn to the findings of the Ld.CIT(A) appreciating this contention of the assessee at para 5.5.8-5.5.10 of the order as under: "5.5.8 The submissions of the appellant, the order of the A.O. and the facts of the case have been carefully considered. To decide the issue whether the sale of scrap is eligible for deduction u/s 801A or not, it is material to see as to how the scrap is being generated. In case the scrap is generated out of the manufacturing activity, the same is to be taken as derived from industrial undertaking and will be eligible for deduction u/s 80IA. In case, the scrap is not generated out of the manufacturing activity, the deduction u/s 80IA is ineligible. The order of the AO does not state as to how the scrap is not generated from the manufacturing activity. No details or mention of the sale bills or any factual information has been brought out in the order to substantiate the disallowance of the scrap for claim of deduction u/s 80IA,. The A.O is first required to give a finding that the scrap generated is not derived from manufacturing activity before disallowin....
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....s was being charged fully to the Profit and Loss account has also not been controverted by the Revenue. The scrap sold therefore, we agree with the Ld.CIT(A) resulted in reduction in the cost of new spares purchased, and thus higher manufacturing profits to the assessee. And merely because the scrap sale was shown separately, it did not tantamount to a new source of income. The real and ultimate impact of the scrap sold was reduction in cost of spares purchased during the year. Therefore, we agree with the Ld.CIT(A) that the profits commensurate with the scrap sold was directly earned from the manufacturing activity of the assessee and the assessee was entitled to claim deduction u/s 80IA of the Act on the same. 39. Ground of appeal No.1 raised by the Revenue is therefore dismissed . 40. In effect the appeal of the Revenue is dismissed. 41. We shall now take up cross appeals relating to assessment year 2014-15, taking first the appeal of the assessee in ITA No.835/Chd/18 for A.Y 2014-15. The grounds of appeal raised are as under: "I. Computation of Gross Total Income as per normal provisions. 1. Income Set off against expenditure during construction period treated as re....
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....me was not derived from the manufacturing activity of the industrial undertaking. 44. Before the Ld.CIT(A) the assessee contended that the amount outstanding with the security creditors consisted of unclaimed security deposits, the expenditure of which had been debited in earlier years and accordingly, the claim of deduction u/s 80IA of the Act had been reduced with that amount in those years. Vis-à-vis the insurance claim received, it was contended by the assessee that the claim had been received against damages caused to security breakers of the machineries of the plant, the repair expenditure on which had already been debited to the Profit & Loss Account and claim u/s 80IA reduced with that amount. The assessee contended that both the claims were directly and inextricably linked and derived from the main business of the assessee and the assessee, therefore, was eligible for deduction u/s 80IA of the Act. The Ld.CIT(A) dismissed the contention of the assessee contending that the assessee had been unable to establish that these amounts were received while carrying out the business of the assessee. Relevant findings of the CIT(A) at paras 8.2.1 and 8.2.4 of the order are a....
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....in the following question of law was raised before the High Court:- 8. "Whether the insurance money received on loss of production is entitled for deduction under Section 80IA " 9. The High Court while allowing the appeal of the Revenue held that in the absence of any nexus shown between the compensation received and the business activities of the industrial undertaking, the compensation could not be held as derived from the undertaking for the purpose of inclusion under Section 80-IA of the Act. Even otherwise, the issue is squarely covered by the decisions of the Apex Court relied on by the A.O. in his order. This contention of the appellant is accordingly rejected and appeal of the assessee on this issue is dismissed. Accordingly, these grounds of appeal are dismissed except for on the issues mentioned in Para 8.2.2 to 8.2.3. Considering the detailed discussion above, this apeal of the assessee is partly allowed. To conclude, appeal for the A.Y. 2013-14 is dismissed and appeal for the A.Y. 2014-15 is partly allowed." 45. Before us, the Ld. counsel for assessee contended that the identical issue had arisen in the case of the assessee for A.Y 2008-09, vide orde....
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....wing receipts against interest and financial charges which the A.O. had disallowed and held that no adjustment of the same was allowable and had taxed the entire income received. The relevant portion of the assessment order at paras 7 and 8.1 of the assessment order is as under: "7. The assessee was confronted that in note 2.11.1. (Expenditure during construction) of audited accounts, it is found that the assessee has adjusted "Interest and Finance charges" of Rs. 4,10,98,7297- for which the assessee was requested to submit ledger & detailed break up of each of the above figures and explain with evidence why such receipts will not be taken separately as the income of the assessee. The assessee explained that: "In note no. 2.11.1. Expenditure during construction the following receipts have been adjusted against interest and financial charges. Receipts & Recoveries Interest From : Rupees Bank 2,07,742 Employees 59,84,547 Contractors 3,49,06,440 Total 4,10,98,729 During the previous year interest from contractor was allowed to be set off against interest expenses in the light of judgment of Hon'ble Supreme Court in the case of CIT....
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....duction claimed u/s 80IA of the Act on this receipts. The same was denied by the A.O. holding that the income was not derived from the manufacturing activity of the industrial undertaking. The Ld.CIT(A) allowed the same on noting that as per the facts of the case the said recoveries related to the business undertaking of the assessee. The relevant findings of the Ld.CIT(A) at para 8.2.2 & 8.2.3 of the order is as under: 8.2.2 (b)Recovery from JP Power Ventures of Rs. 1,83,00,000/- It was argued that the said amount of Rs. 1,83,00,000/- has beenreimbursed by M/s JP Power Ventures Ltd towards cost of repair of R Phase Circuit Breakers at Baspa-ll Project. The expenditure of which already stands debited to Profit & Loss a/c which entails that if the above receipts was credited to the said expenditure the profit would be more resulting in similar deduction u/s 80IA. I have perused the facts of the case, the action of the A.O. and the submissions of the appellant. The A.O. has not mentioned any facts with respect to receipt of this income in his assessment order while holding that the same is not eligible for deduction u/s 80IA of the Act. The appellant on further query during ....