ITAT Kolkata Upholds Section 80G Deduction for Eligible CSR Contributions

DCIT Vs Peerless General Finance & Investment & Co. Ltd. (ITAT Kolkata)

Kolkata ITAT Deletes Section 14A Disallowance for Lack of AO Satisfaction; Kolkata ITAT Treats Property Rights Sale as Capital Gains Following Past Consistency; ITAT Kolkata Upholds Deduction of Education Cess under Section 37(1); Revenue Appeals Dismissed on Section 14A, CSR, Capital Loss and Cess Issues.

Background and Procedural History

Both appeals were filed by the Revenue against separate orders passed by the Learned Commissioner of Income Tax (Appeals)-1, Kolkata [“ld. CIT(A)”] under section 250 of the Income-tax Act, 1961 (“the Act”). The orders were dated 08/03/2019 for Assessment Year (AY) 2013-14 and 04/03/2019 for AY 2015-16.

There was a delay of five days in filing both appeals. After considering the Revenue’s petitions for condonation, the Tribunal was satisfied that the Department was prevented by sufficient cause from filing the appeals within time. The delay was accordingly condoned and both appeals were admitted.

The appeals concerned M/s. The Peerless General Finance & Investment & Co. Ltd. in ITA Nos. 1469 & 1470/Kol/2019 for AYs 2013-14 and 2015-16.

Assessment Year 2013-14

Long-Term Capital Loss

The first ground concerned the carrying forward of long-term capital loss of Rs.160,65,10,531/-. The ld. CIT(A) recorded that the assessee’s claim was agreed to and directed the Assessing Officer to consult the files of previous years and, if the amount was due and unclaimed, allow the same.

The Tribunal found no infirmity in the direction of the ld. CIT(A). The Assessing Officer was directed to verify the assessee’s claim and allow it in accordance with law. The Revenue’s ground was therefore dismissed.

Disallowance under Section 14A read with Rule 8D

Ground Nos. 2, 3 and 4 related to the disallowance under section 14A read with Rule 8D(2) of the Income-tax Rules, 1962. The ld. CIT(A) had held that, in the absence of a satisfaction note recorded by the Assessing Officer, the addition made under section 14A was not in accordance with law.

The Tribunal noted that the Departmental Representative could not demonstrate that the Assessing Officer had recorded the satisfaction required by law before invoking Rule 8D. The Tribunal also noted that the issue was covered in favour of the assessee by the Kolkata Tribunal’s decision in REI Agro Ltd. vs. DCIT [2013] 144 ITD 141 (Kolkata – Trib.), as referred to in the supplied material.

Consistent with that view, the Tribunal dismissed Ground Nos. 2, 3 and 4 of the Revenue.

Disallowance under Section 40(a)(ia)

Ground No. 5 challenged deletion of the disallowance made under section 40(a)(ia) of the Act.

The ld. CIT(A) considered the assessee’s submissions concerning various payments and concluded that the relevant tax deduction at source provisions were not applicable. Payments to parties amounting to Rs.30,000/- were treated as not constituting a single transaction for purposes of section 194C. In relation to Vyapar Bharati Press, the ld. CIT(A) accepted that TDS at 1% had been deducted. Payments to NG Gosai Printing Pvt. Ltd. were treated as purchases of goods and therefore section 194C was held inapplicable. In relation to Jivan Ratan Chatterjee Legal, the payment of Rs.31,517/- was stated to comprise advocate fees and service tax, with advocate fees being below Rs.30,000/-, and section 194J was therefore held inapplicable. The ld. CIT(A.) similarly examined the other payments and concluded that the provisions relating to TDS did not apply.

The Tribunal noted that the ld. Departmental Representative could not contradict these factual findings. It therefore upheld the ld. CIT(A)’s findings and dismissed Ground No. 5.

Ground No. 6 was general in nature. The Revenue’s appeal for AY 2013-14, ITA No. 1469/Kol/2019, was dismissed.

Assessment Year 2015-16

Disallowance under Section 14A read with Rule 8D

Ground No. 1 concerned deletion of an addition under section 14A read with Rule 8D. As in AY 2013-14, the ld. CIT(A) had concluded that the Assessing Officer had not recorded the satisfaction required before invoking Rule 8D.

The Tribunal found that the Revenue was unable to demonstrate that the Assessing Officer had recorded the requisite satisfaction. Following its view for AY 2013-14, the Tribunal upheld the ld. CIT(A)’s finding and dismissed this ground of the Revenue.

Sale of Rights in Property and Carry Forward of Loss

Ground No. 2 concerned deletion of an addition of Rs.29,09,680/- relating to the sale of rights in property and the carrying forward of the loss to future years, whereas the assessee had claimed indexed long-term capital loss of Rs.36,60,000/-.

During AY 2015-16, the Assessing Officer treated the income from the sale of rights in property as income from business. The assessee disputed this treatment before the ld. CIT(A), contending that the income was assessable under the head “capital gains”. The supplied material states that the assessee had sold the rights in property in AYs 2013-14 and 2014-15 and had declared the income under the head capital gains in its returns for those years. The Assessing Officer had accepted the assessee’s position and assessed the income under the head capital gains in the earlier years.

The assessee relied upon the Supreme Court decision in Radhasoami Satsang vs. CIT (1992) 193 ITR 321 (SC) for the proposition concerning consistency where the facts permeating over the years remained the same. The ld. CIT(A) also referred to Union of India Kanmudini Narayan Dalal 249 ITR and the Kolkata ITAT decision in DCIT vs. M/s. ABCI Infrastructure Pvt. Ltd. (ITA No. 990/Kolkata/2013).

The ld. CIT(A) recorded that the Assessing Officer had not been consistent with the approach adopted in the earlier year and had not stated reasons for not following the earlier position where the facts were the same or similar. The ld. CIT(A) further recorded that 37 flats of different configurations had been purchased under an agreement, with an approximate total area of 50,051 sq. ft.; the entire purchase consideration was paid by the assessee; the property was reflected as an investment in the audited accounts; and the assessee had declared total consideration of Rs.16,10,57,228/-. The last date of payment in all 37 cases/flats was stated to be 18.02.2015, after three years, and the position had been accepted in earlier years.

The Tribunal found no infirmity in the ld. CIT(A)’s findings and dismissed the Revenue’s ground.

CSR Expenditure and Section 80G

Ground No. 3 concerned deduction of CSR expenditure of Rs.55,42,400/-.

The Revenue’s ground stated that the ld. CIT(A) had erred in allowing deduction of CSR expenditure as expenditure incurred for business or profession, referring to activities relating to corporate social responsibility under section 135 of the Companies Act, 2013.

The ld. CIT(A), however, recorded that the expenditure of Rs.55,42,400/- had apparently been made by way of contributions for CSR activities undertaken by various offices of Ramakrishna Mission, Bharat Sevashram Sangh and others, which were eligible for deduction under section 80G(5)(vi) of the Act. The ld. CIT(A) held that, for the year under consideration, expenditure towards eligible CSR activities which also fell within the expenditure/contributions specified in section 80G, other than Swachh Bharat Kosh or Clean Ganga Fund, was allowable as deduction under section 80G.

The Tribunal noted that the Revenue did not dispute the ld. CIT(A)’s finding that the expenditure was allowable under section 80G. It further noted that the ld. CIT(A) had not held that the expenditure was allowable under sections 36/37 of the Act and had instead taken the view that the deduction was allowable under Chapter VIA and not under Chapter IV.

As this finding had not been challenged in the ground, the Tribunal dismissed the Revenue’s ground.

Education Cess under Section 37(1)

Ground No. 4 concerned the allowance of deduction of education cess of Rs.95,23,489/- under section 37(1) of the Act.

The ld. CIT(A) relied upon the Kolkata Tribunal decision in M/s. ITC Limited vs. ACIT, Range-8, Kolkata in ITA No. 685/Kol/2014. The supplied material records that the Tribunal in that case referred to the Rajasthan High Court’s decision in Chambal Fertilisers Ltd. vs. DCIT, DB Income Tax Appeal No. 52/2018, decided on 31.07.2018, and a CBDT circular dated 18.05.1967, and treated the relevant cess as allowable under section 37 of the Act.

The ld. CIT(A) observed that the Tribunal’s decision was that of a higher judicial forum and that, even where there might be divergent views, the decision of the higher judicial forum ought to be accepted. The assessee accordingly succeeded on this ground.

The Tribunal found no infirmity in the ld. CIT(A)’s finding and upheld it. Ground No. 4 of the Revenue was dismissed.

Ground No. 5 was general in nature.

Final Decision

The Tribunal dismissed both appeals filed by the Revenue, namely ITA Nos. 1469 & 1470/Kol/2019 for AYs 2013-14 and 2015-16. The order was pronounced at Kolkata on 5 December 2019.

For the related section 14A issue, a TaxGuru publication specifically discussing REI Agro Ltd. vs. DCIT [2013] 144 ITD 141 was verified and is relevant to the issue addressed in the supplied material: REI Agro Ltd. A TaxGuru publication concerning deduction of education cess and expressly discussing the present Peerless decision was also verified and is relevant to the education-cess issue: education cess. A TaxGuru publication specifically addressing section 80G deduction for CSR expenditure was also verified as relevant to the CSR issue. section 80G deduction on CSR expenditure.