TaxTMI 
TaxTMI 
2026 (3) TMI 634
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....urn of income for Assessment Year 2019-20 on 30.11.2019 declaring total income of Rs. 4556,20,76,520/-. Subsequently, a revised return of income was filed on 29.07.2020 declaring total income of Rs. 4567,49,77,390/-. The return of income was selected for scrutiny assessment and notices under sections 143(2) and 142(1) were issued from time to time. The case was also referred to the Transfer Pricing Officer under section 92CA of the Act on 16.07.202, who passed an order dated 27.01.2022 without proposing any adjustment to the arm's length price. 3. The assessment was completed under section 143(3) read with section 144B of the Act vide order dated 27.09.2022. During the course of assessment proceedings, the Assessing Officer examined various claims made by the assessee and made the following additions and disallowances: i. Disallowance of deduction under section 80G The Assessing Officer observed that the assessee had incurred Corporate Social Responsibility expenditure amounting to Rs. 21,06,00,000/- and claimed deduction under section 80G of Rs. 10,53,00,000/- in respect of donations made to Reliance Foundation. According to the Assessing Officer, Corporate Social Resp....
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.... appeal before the CIT(A).Before the CIT(A), the assessee challenged the validity of the assessment order contending that the assessment completed on 27.09.2022 was barred by limitation under section 153 of the Act. It was submitted that the time limit for completion of assessment expired on 31.03.2022 even after considering extension available on account of reference to the Transfer Pricing Officer. The assessee further submitted that the notices issued under section 142(1) after the expiry of limitation period were invalid and the assessment order was void ab initio. 5. On merits, the assessee made detailed submissions on all additions. The CIT(A) rejected the assessee's challenge to the validity of the assessment order and held that the assessment completed on 27.09.2022 was within the extended limitation period ending on 30.09.2022 after considering extension granted due to Covid pandemic and further extension on account of reference to the Transfer Pricing Officer. On merits, the CIT(A) granted relief to the assessee on the issues relating to deduction under section 80JJAA, disallowance under section 14A, treatment of AJIO marketing expenditure and addition on account of cr....
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....essment proceedings for AY 2019-20 as per section 153(1) r.w.s. 153(4) of the Act is 31 March 2022 and thereby the assessment order passed is bad in law and liable to be quashed; 3. Failed to appreciate that the Transfer Pricing Officer ('TPO') has passed the order on 27 January 2022 after due consideration of the limitation period of 31 March 2022 as prescribed under section 92CA(3A) r.w.s. 153 of the Act. Without prejudice to the above Grounds, Grounds of appeal in respect of the additions made by the learned AO are as under: Allowability of deduction under section 80G in respect of contributions towards Corporate Social Responsibility ('CSR'): Rs. 10,53,00,000 4. Erred in confirming disallowance of deduction claimed u/s 80G of Rs. 10,53,00,000 in respect of donation amounting to Rs. 21,06,00,000 given to entities registered u/s 80G to meet Corporate Social Responsibility. Additional claim of foreign tax credit not granted: Rs. 78,67,620 5. Erred in disallowing the additional claim of foreign tax credit of Rs. 78,67,620 on the ground that the Appellant did not file the Form 67 before the due date of filing the Return of Income....
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....s. 11. The learned Authorised Representative (AR) submitted that the assessee had claimed deduction under section 80JJAA aggregating to Rs. 12,31,53,732/-, which comprised Rs. 5,94,89,516/- relating to Assessment Year 2019-20 and Rs. 6,36,64,216/- relating to Assessment Years 2017-18 and 2018-19.The learned AR submitted that section 80JJAA(1) clearly provides that deduction equal to 30 percent of the additional employee cost is allowable for three assessment years including the assessment year in which the employment is provided. Accordingly, the deduction relating to Assessment Years 2017-18 and 2018-19 was eligible to be claimed in the year under consideration as part of the second- and third-year deduction under the statutory scheme. 12. It was further submitted that during the course of assessment proceedings the assessee had furnished complete details of the deduction claimed under section 80JJAA. The learned AR referred to the submissions made before the Assessing Officer vide letter dated 05.08.2022, wherein the assessee furnished the working of deduction under section 80JJAA along with Form No. 10DA for Assessment Years 2017-18 to 2019-20.The learned AR further submit....
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....able for three assessment years including the assessment year relevant to the previous year in which such employment is provided. The scheme of the provision clearly contemplates that once the additional employee cost qualifies for deduction in the initial year, the deduction at the prescribed rate becomes allowable in the succeeding two assessment years as well. 16. The objection of the learned DR that the assessee enhanced the claim in the revised return without revising Form No. 10DA does not advance the Revenue's case, since the assessee has placed on record the working of deduction and the audit report in Form No. 10DA for the relevant assessment years during the course of assessment proceedings and also explained during the course of hearing before us. No specific defect in such details has been pointed out by the Assessing Officer. 17. Similarly, the contention of the learned DR that deduction requires verification of continuation of employees in subsequent years is not supported by the language of section 80JJAA. The deduction under the said provision is linked to the additional employee cost incurred in the year of employment, and once such cost satisfies the statuto....
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....e investments were made out of interest-free funds, placing reliance on the decision of the Hon'ble Bombay High Court in the case of CIT vs. Reliance Utilities and Power Ltd. (313 ITR 340). 22. The learned DR submitted that the learned CIT(A) erred in restricting the analysis only to the question of availability of interest-free funds and the applicability of Rule 8D(2)(ii). According to the learned DR, the learned CIT(A) failed to adjudicate the disallowance under Rule 8D(2)(iii) relating to administrative expenditure, which is independent of interest expenditure. It was therefore submitted that even if the presumption regarding utilization of own funds is accepted, disallowance under Rule 8D(2)(iii) would still survive and the learned CIT(A) was not justified in deleting the entire disallowance without examining this aspect. 23. The learned AR submitted that in the return of income the assessee had made a suo motu disallowance of Rs. 10,73,211/- under section 14A being expenditure relatable to earning of exempt income. The learned AR submitted that the said disallowance was computed after making a detailed analysis of each head of expenditure debited to the Profit and Loss ....
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....d CIT(A) had thus directly addressed the basis on which the Assessing Officer rejected the assessee's disallowance and applied Rule 8D. It was contended that once the fundamental premise adopted by the Assessing Officer, namely utilization of interest-bearing funds for making investments, was found to be incorrect, the consequential application of Rule 8D could not be sustained. 26. We have carefully considered the rival submissions and perused the material available on record. The issue involved in the present ground relates to deletion of disallowance made by the Assessing Officer under section 14A read with Rule 8D amounting to Rs. 80,97,495/-, over and above the suo motu disallowance of Rs. 10,73,211/- made by the assessee. 27. It is observed that the assessee had made a suo motu disallowance under section 14A after examining the expenditure debited to the Profit and Loss account and identifying the expenditure relatable to earning of exempt income. The Assessing Officer rejected the working of the assessee primarily on the ground that the assessee had invested interest-bearing funds in investments capable of yielding exempt income and accordingly applied Rule 8D to compu....
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.... sustained. 31. In view of the foregoing discussion, we find no infirmity in the order of the learned CIT(A) in deleting the disallowance made under section 14A read with Rule 8D. Accordingly, Ground No. 2 raised by the Revenue is dismissed. Ground No. 4: Write-back of creditors 32. In respect of deletion of addition made by the Assessing Officer, the learned DR relied upon the findings of the Assessing Officer and submitted that the assessee had written back sundry creditors amounting to Rs. 12,43,28,110/- during the year under consideration but failed to offer the same to tax. It was submitted that the assessee claimed that the said amount had already been credited to the Profit and Loss account by way of adjustment against general expenses; however, the Assessing Officer found that no proper evidence was furnished to substantiate the claim that the write-back had actually been accounted for in the Profit and Loss account. The learned DR further submitted that the Form 3CD filed by the assessee did not disclose any amount chargeable to tax under section 41(1), which clearly indicated that the income arising on account of write-back of creditors was not offered to tax. It....
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....sessing Officer further held that the assessee failed to substantiate the claim that the write-back had already been accounted for in the Profit and Loss account and accordingly added the said amount to the returned income. On appeal, the learned CIT(A), after verification of ledger accounts and financial records, recorded a categorical finding that the amount of creditors written back was reduced from the head "General Expenses" and consequently stood reflected in the Profit and Loss account. The learned CIT(A) observed that general expenses were reduced from about Rs. 116.47 crore to about Rs. 104.07 crore on account of adjustment of creditors written back amounting to Rs. 12,43,28,110/-, and therefore no separate addition was warranted. 37. The finding recorded by the learned CIT(A) is a clear finding of fact based on examination of the ledger accounts. The Revenue has not brought any material on record to controvert the said finding or to demonstrate that the amount of Rs. 12,43,28,110/- was not reflected in the Profit and Loss account. 38. From the material placed on record, it is evident that the write-back of creditors was accounted for by reducing the general expenses....
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....e manner intended by management as per the provisions of Ind AS 16 and Ind AS 38, and accordingly the expenditure incurred on development of the platform was capitalized as intangible assets under development in the books of account. The assessee also submitted that the accounts were prepared in accordance with the applicable Ind AS prescribed under the Companies Act, 2013. 43. It was further submitted that although certain expenditures were capitalized in the books of account, the marketing expenditure of Rs. 105.90 crore incurred during F.Y. 2018-19 was allowable as revenue expenditure under the Income-tax Act since the said expenditure was not directly related to development of the AJIO portal but was incurred for promotion and scaling up of website operations after the platform had been put to use. The assessee pointed out that the AJIO business had commenced during F.Y. 2016-17, when the first online sale was made on 03.04.2016, and therefore the business operations had already started. It was stated that approximately 4.5 lakh customers had purchased goods aggregating to Rs. 51.23 crore through the AJIO platform and during F.Y. 2018-19 the platform had recorded sales of ap....
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....tributable to development of the AJIO website under the head Intangible Assets under Development on the ground that the website had not reached the condition necessary for full utilisation. It was held that once the project itself was under development, the marketing expenditure incurred in connection with the AJIO portal could not be treated separately as revenue expenditure. 47. The Assessing Officer noted that the assessee was engaged in the business of retailing of merchandise and the AJIO portal had been developed as a digital commerce initiative for marketing merchandise and establishing delivery infrastructure. According to the Assessing Officer, the expenditure of Rs. 105.90 crore was incurred for popularizing the AJIO portal and for establishing the online platform, and therefore the same was incurred for enduring benefit and required to be capitalized along with development cost. 48. The Assessing Officer also observed that the assessee had failed to furnish complete details of sales made through the AJIO platform and had not demonstrated that the marketing expenditure was not directly attributable to the development of the portal. It was further observed that the a....
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....s and marketing expenditure incurred on the AJIO platform as under: Financial Year Sales (Rs. in crores) Revenue marketing expenditure (Rs. in crores) 2017-18 250.36 351.20 2018-19 454.62 105.90 2019-20 857.49 226.13 53. The assessee submitted that the aforesaid expenditure represented routine marketing and advertisement expenses incurred on media platforms such as Facebook, YouTube, print and television and also included promotional campaigns offering discounts on products sold through the AJIO portal. It was submitted that these expenses were incurred to solicit customers and increase sales and were recurring in nature. According to the assessee, the expenditure did not represent any one-time outlay for development of the AJIO platform and did not result in creation of any asset or enduring benefit in the capital field. It was further submitted that the assessee was already engaged in the business of retail trading of fashion and lifestyle products through physical stores across India and that the launch of AJIO represented only an extension of the existing business through an additional distribution channel. It was contended that the launch....
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....According to the assessee, marketing expenditure incurred for selling products on AJIO could not be equated with expenditure for developing the platform or establishing a delivery chain as alleged by the Assessing Officer. 58. The assessee also relied on the decision of the Mumbai Tribunal in Reliance Footprint Ltd. v. ACIT (41 taxmann.com 553) wherein project development expenditure incurred after setting up of business was held to be revenue in nature. It was submitted that the said decision was affirmed by the Hon'ble Bombay High Court in CIT v. Reliance Footprint Ltd., ITA No. 948 of 2014. 59. Reliance was also placed on: * Reliance Fresh Ltd. v. ACIT (72 taxmann.com 170) (Mum Trib.), affirmed by the Hon'ble Bombay High Court in PCIT v. Reliance Fresh Ltd., ITA No. 985 of 2017, wherein expansion-related expenditure was held allowable as revenue expenditure. * Olive Bar & Kitchen Pvt. Ltd. v. DCIT (175 ITD 72) (Mum Trib.), wherein expenditure incurred for expansion of existing business was held allowable as revenue expenditure. 60. The assessee further submitted that accounting entries are not determinative of taxability and reliance was placed on the ....
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.... 65. The learned CIT(A) recorded that the total expenditure of Rs. 153,42,90,717/- was incurred mainly towards advertisement, marketing and sales promotion and after reducing gross margins and discounts, the net marketing expenditure worked out to Rs. 105,90,92,717/-. 66. On examination of sample invoices and supporting documents, the learned CIT(A) observed that the advertisements were run as marketing campaigns across various media platforms including Facebook, YouTube, print media and television and were intended to attract prospective customers to purchase products through the Ajio platform. It was further observed that such campaigns were routine in nature and related to sales promotion activities undertaken on a year-to-year basis. The learned CIT(A) recorded a finding that the marketing expenditure was incurred for promotion of business operations on the Ajio platform and was wholly connected with operational activities and did not result in creation of any capital asset or intangible asset. It was further observed that although such expenditure was capitalized in the books in accordance with Ind AS requirements, the same was claimed as revenue expenditure for tax purpos....
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....ar expenditure in subsequent assessment years, which according to him demonstrated that the expenditure was not routine in nature but related to development and strengthening of the AJIO platform. 73. It was further submitted that the expenditure was not in the nature of routine day-to-day selling expenses but was incurred for promotion and expansion of the AJIO platform itself. According to the learned DR, the nature of expenditure showed that it was intended to create and strengthen the platform and brand and therefore such expenditure was correctly treated as capital in nature by the Assessing Officer. 74. In rejoinder, the learned AR submitted that the contentions raised by the learned DR stand fully addressed by the decision of the co-ordinate Bench in the assessee's own case in ITA No. 4251/Mum/2024, wherein identical issue relating to the allowability of marketing expenditure incurred in connection with the AJIO platform was examined in detail. The learned AR invited our attention to paras 7.4 to 7.9 of the said order, wherein the co-ordinate Bench considered the very same objections raised by the Assessing Officer and rejected them after analysing the nature of expend....
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....services but was primarily engaged in the business of retailing. 79. It was further submitted that the Tribunal also considered the explanation given by the assessee regarding capitalization of expenditure in the books in compliance with Ind AS 16 and Ind AS 38, which require that costs relating to internally generated intangible assets be capitalized until the asset reaches the stage where it is capable of operating in the manner intended by management. The Co-ordinate Bench noted that such accounting treatment was adopted solely for the purpose of compliance with accounting standards and did not alter the character of expenditure for the purpose of the Income-tax Act. 80. The learned AR submitted that the Co-ordinate Bench in the aforesaid decision also relied upon the judgments of the jurisdictional High Court in the following cases: * CIT v. Reliance Footprint Ltd., ITA No. 948 of 2014 * PCIT v. Reliance Fresh Ltd., ITA No. 985 of 2017 wherein it was held that expenditure incurred for expansion of an already existing business would be allowable as revenue expenditure even if the same was capitalized in the books of account. 81. It was accordingly s....
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....development of the online portal but was incurred for promotion and scale up of website operations after the AJIO business had commenced in F.Y. 2016-17. The assessee specifically stated that the expenditure consisted of advertisement, business promotion, product samples and marketing expenses, did not create any asset, and did not provide enduring benefit in the capital field. It was also specifically asserted that no depreciation was claimed on the impugned marketing expenditure, and depreciation was claimed only on amounts directly related to development of the e-commerce platform. 86. The CIT(A), while deleting the addition, recorded that the assessee had already been carrying on retail business and that AJIO was merely an extension of the existing business through an online platform. The CIT(A) also noted the year-wise sales and marketing data, namely, sales of Rs. 250.36 crore in F.Y. 2017-18 Rs. 454.62 crore in F.Y. 2018-19 and Rs. 857.49 crore in F.Y. 2019-20, along with corresponding marketing expenditure, and further found that the impugned expenditure consisted of routine marketing and advertisement campaigns on platforms such as Facebook, YouTube, print and TV, under....
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....ing benefit and was for promotion of the platform rather than day-to-day sale, we are unable to accept the same. The record shows that the expenditure was on advertisement, business promotion, product samples and marketing, and that the campaigns were run to solicit prospective customers to buy products listed on AJIO. The co-ordinate Bench has already held on identical material that such expenditure is routine sales and marketing expenditure and does not create any capital asset or intangible. The mere fact that expenditure may strengthen market visibility or expand customer reach does not, in the facts of this case, convert recurring sales-promotion expenditure into capital outlay. 92. Third, as regards the contention that the assessee continued to capitalize such expenditure in subsequent years, that again is only a reiteration of the accounting treatment argument. Once it is accepted that capitalization in the books is driven by compliance with accounting standards and not by the decisive legal character of the expenditure under the Act, continuation of such accounting treatment in later years does not advance the Revenue's case. The co-ordinate Bench has already accepted th....
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....nce of deduction under section 80G in respect of CSR donations amounting to Rs. 10,53,00,000/- (being 50 percent of donation of Rs. 21,06,00,000/-); and ii. Non-grant of additional Foreign Tax Credit (FTC) amounting to Rs. 78,67,620/- on the ground that Form No. 67 was not filed before the due date of filing the return of income. 97. We shall deal with the issues seriatim. Ground No. 4 - Deduction under section 80G on CSR contribution-Rs. 10,53,00,000/- 98. During the assessment proceedings, the Assessing Officer noticed that the assessee had made donation of Rs. 21,06,00,000/- to Reliance Foundation. The assessee treated the said payment as expenditure incurred towards Corporate Social Responsibility (CSR) under section 135 of the Companies Act, 2013 and, while disallowing the entire amount in the computation of business income, claimed deduction of Rs. 10,53,00,000/-, being 50 percent thereof, under section 80G of the Act. 99. The assessee submitted before the Assessing Officer that although CSR expenditure is not allowable under section 37(1) in view of Explanation 2, the deduction in the present case was claimed not under section 37(1) but under section 80G....
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....d while computing business income. Therefore, denial of deduction under section 80G would result in double disallowance, which was never intended by the legislature. The assessee further argued that the Assessing Officer had travelled beyond his jurisdiction in examining whether CSR funds could be donated under the Companies Act, whereas his proper enquiry under the Income-tax Act ought to have been confined to whether the conditions of section 80G were fulfilled. The assessee also submitted that Schedule VII of the Companies Act is only illustrative and inclusive in nature, and that the MCA Circular dated 12.01.2016 clarifies that the Government does not approve or implement CSR projects and that the company retains discretion in choosing the mode and recipient of CSR spending. It was also contended that the mandatory nature of CSR expenditure does not rob the payment of its philanthropic character, especially when no reciprocal benefit is received from the donee. In support of these propositions, the assessee relied upon several judicial precedents including Naik Seafoods Pvt. Ltd., National Seeds Corporation Ltd., Goldman Sachs Services Pvt. Ltd., FNF India Pvt. Ltd., Sling Medi....
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....able to concur with the view taken by the lower authorities. At the outset, it is necessary to note that Explanation 2 to section 37(1) merely clarifies that expenditure incurred on CSR activities shall not be deemed to be expenditure incurred for the purposes of business or profession and therefore cannot be allowed as deduction while computing income under the head "Profits and gains of business or profession." The said Explanation does not impose any restriction on deductions allowable under other provisions of the Act. Section 80G, on the other hand, falls under Chapter VI-A and provides for deduction in respect of sums paid as donations to specified funds and institutions while computing total income. Therefore, the two provisions operate in distinct fields. 108. In the present case, the assessee has admittedly disallowed the entire CSR expenditure while computing business income, and the claim under section 80G has been made only while computing total income under Chapter VI-A. In such circumstances, denial of deduction under section 80G would effectively result in double disallowance, which does not appear to be the legislative intent. 109. A careful reading of section....
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....lkata ITAT), wherein the Tribunal has consistently taken the view that deductions allowable under Chapter VI-A cannot be denied merely because the expenditure was disallowed while computing business income. 113. The decision of the Co-ordinate Bench in M/s. Naik Seafoods Pvt. Ltd. v. Pr. CIT (ITA No. 490/Mum/2021) also supports the principle that deductions under Chapter VI-A must be considered independently of the computation of income under other heads, subject to fulfilment of statutory conditions. 114. In the present case, the learned AR has also invited our attention to Paper Book pages 137 to 139, wherein the donation receipts issued by Reliance Foundation have been placed on record. These documents establish that the payment was actually made to an institution duly registered under section 80G. Importantly, the genuineness of the donation and the eligibility of the donee institution under section 80G have not been disputed by the Assessing Officer. 115. In view of the above factual and legal position, we are of the considered opinion that the deduction claimed by the assessee under section 80G cannot be denied merely on the ground that the payment also formed part o....
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....t claimed during the assessment proceedings as the analysis of eligibility for such relief was undertaken subsequently. The assessee therefore requested that the taxes paid in China be disallowed as business expenditure and that foreign tax credit of Rs. 78,67,620/- be granted instead. The assessee also submitted that Form 67, containing the statement of income from a country outside India and the foreign tax credit claim, had been filed on 21.12.2022 on the income-tax e-filing portal along with supporting documents. 119. The learned CIT(A), however, did not accept the claim of the assessee. The learned CIT(A) observed that under Rule 128 of the Income-tax Rules, an assessee claiming foreign tax credit is required to furnish Form 67 on or before the due date prescribed under section 139(1) for filing the return of income. In the present case, the assessee had filed Form 67 on 21.12.2022, which was admittedly after the due date for filing the return of income.The learned CIT(A) therefore held that the assessee had failed to comply with the procedural requirement prescribed under Rule 128 of the Income-tax Rules. According to the learned CIT(A), since Form 67 was not filed within ....
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.... credit by the learned CIT(A) is therefore solely on the ground of delay in filing Form 67. 126. We find that the co-ordinate in the assessee's own case for A.Y. 2018-19 has already examined an identical issue and, following the judgment of the Hon'ble Madras High Court in Duraiswamy Kumaraswamy v. PCIT (460 ITR 615), held that delay in filing Form 67 is a procedural lapse and cannot be a ground for rejecting a legitimate claim of foreign tax credit where the form has been filed before completion of the assessment proceedings. 127. The relevant principle laid down by the Hon'ble High Court is that the requirement of furnishing Form 67 is procedural in nature and the substantive relief available under section 90 read with the applicable DTAA cannot be denied merely for a procedural delay, particularly when the necessary details are already available on record. 128. Respectfully following the decision of the co-ordinate bench in the assessee's own case and the judgment of the Hon'ble Madras High Court referred to above, we are of the considered view that the claim of the assessee cannot be rejected solely on the ground that Form 67 was not filed within the due date prescribe....