TaxTMI 
TaxTMI 
2019 (3) TMI 1687
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....ndered therein will apply mutatis mutandis 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 in....
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....we find, has categorically held that the CSR expenses are to be treated 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 ....
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....nt spent by the assessee even on bringing drinking water to locality and in aiding local school. 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 ....
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....ainable merits in this plea either. The amendment in the scheme of Section 37(1), which has been introduced with effect 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 l....
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.... obligation and under a voluntary assumption of responsibility. As for the former, the disallowance under Explanation 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 in....
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....that the assessee had shown the said tax refund as other income in its profit and loss account ,but at the same time had reduced identical 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: ....
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....t the tax on income is a pass through item and hence interest received by him u/s 244A of the Income Tax Act is not his income cannot be accepted. The act of the A.O. is upheld and this ground of the appeal is dismissed." 20. The Ld. counsel for assessee has been unable to controvert this 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 deduct....
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....f Schedule 2.22, in para 14 above. 29. In view of the same, we hold, that the addition to the Book Profits of the assessee of the Income Tax Refund was wrongly made and direct deletion of the same. The order of the Ld.CIT(A) in this regard is therefore set aside. 30. Ground of appeal No III raised by the assessee is allowed 31. In effect appeal of the assessee 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 o....
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....e it was pointed out that the nexus of the income from scrap sale with the manufacturing activity had been duly demonstrated by pointing out that the cost of spares was charged fully to the Profit and Loss account, and the income generated from the sale of these spares actually only reduced the cost of spares booked. The income from sale of scrap spares, shown separately was therefore 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 doe....
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....crap is allowed." 37. It was therefore contended that the Ld.CIT(A) had rightly allowed the claim of the assessee. 38. We have heard the rival contentions. We have also gone through the order of the Ld.CIT(A) .We do not find any infirmity in the same .The fact the scrap sold related to unserviceable/damaged spares retrieved from the plant is not disputed. That the cost of new spares replaced in place of the damaged spares 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 Reven....
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....ved and adopted in the Annual General Meeting. The ratio of Appolo Tyres 255 ITR 273 needs to have been followed. This issue has not been adjudicated by CIT(Appeals) in his orders." 42. Ground No.1 and ground No.II(a),(b),(c) & (d)(iii) were not pressed before us and the same are, therefore, dismissed as not pressed. 43. Ground No.2(d)(i) & (ii) relate disallowance of deduction u/s 80IA of the Act on sundry creditors written back and insurance claim received from repairs. The A.O. had disallowed the said claim holding that the income 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 Pro....
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....g condition, Hence the receipt is directly related with the running and maintenance of the Plant engaged in generation of electricity. Accordingly, the insurance receipts for repair is rightly claimed by the company u/s 80 IA and needs to be allowed. I have perused the facts of the case, the action of the A.O. and the submissions of the appellant. This contention of the appellant cannot be accepted. The issue is squarely covered by the decision reported at [2013] 40 taxmann.com 399 (Madras) in the case of Commissioner of Income-tax Vs. Gangothri Textiles Ltd. Wherein 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 ....
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.... said receipts had been reflected in the Profit & Loss Account but instead of showing them separately, they had been set off against expenses of interest. Therefore, it could not be said that they did not form part of the book profit for the purpose of section 115JB of the Act. 52. The Ld. DR was unable to controvert this factual contention of the assessee. Further, we find that this fact clearly emanates from para 7 of the assessment order wherein the A.O. has mentioned that as per Note2.11 of the Audited Accounts relating to "expenditure during construction", it was found that the assessee had adjusted the following 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....
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....in deleting the addition of Rs. 1,83,00,000/- and Rs. 17,63,383/- made by the A.O. by disallowing the deduction claimed by the assessee u/s 80IA on the income earned from recovery from M/s JP Power Ventures and M/s Karcham Wangtoo, ignoring the fact that prior period income was rightly added to the income by the AO, as the expense to this extent was claimed by the assessee in the P & L account of previous assessment year." 55. Brief facts relating to the same are that the assessee had received recovery from M/s JP Power Ventures and M/s Karcham Wangtoo amounting to Rs. 1.83 crores and Rs. 17,63,383 which was shown as miscellaneous income during the year and deduction 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 sa....