DCIT Vs GMR Warora Energy Ltd. (ITAT Mumbai)
ITAT Mumbai held that expenditure incurred on community development/CSR are allowable under section 37(1) of the Income Tax Act.
Facts- The assessee is a company engaged in the business of power generation and has commenced commercial operation of Unit-1 in the financial year 2012-13 and Unit-2 in the financial year 2013-14. During the year under consideration, the assessee filed its return of income on 30/11/2014, declaring a total income at Rs. nil. During the year, the assessee declared a loss of Rs.1400,05,73,040, under normal provisions, and a book loss of Rs.5,62,64,62,047, u/s. 115JB of the Act.
During the assessment proceedings, on perusal of the profit and loss account, it was observed that the assessee has claimed expenses of Rs.2,43,98,882, towards community development expenses under the head “other expenses”. AO not agreeing with the submissions of the assessee and held that expenditure is not incurred wholly and exclusively for the purpose of business.
CIT(A) allowed the appeal filed by the assessee and deleted the addition made by the AO on this issue. Being aggrieved, the Revenue is in appeal before us.
Conclusion- Held that expenditure incurred on community development/CSR are allowable under section 37(1) of the Act. Further, it cannot be disputed that the expenditure incurred on environment health and safety, as stated above, are relevant considering the business in which the assessee is engaged, i.e. development and implementation of coal-based thermal power project. Therefore, in view of the above, once the expenditure has been accepted to be for the community development, and environment health & safety expenses, the same cannot be held to be not incurred wholly and exclusively for the purpose of business in the year under consideration. Accordingly, we find no infirmity in the impugned order passed by the learned CIT(A) on this issue.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The present appeal has been filed by the Revenue challenging the impugned order dated 30/12/2022 passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [“learned CIT(A)”], for the assessment year 2014-15.
2. In this appeal, the Revenue has raised the following grounds:-
“1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in deleting the addition of Rs.2,43,98,882/- on the issue of community development expenses made in the assessment order without appreciating the fact of the case and finding of the Assessing Officer.
1.1 Whether Ld. CIT(A) has erred in allowing the assessee’s appeal on this issue without appreciating the decision of the Hon’ble Supreme Court in the case of Madras Refineries Ltd. Wherein, on the same issue, the Hon’ble Supreme Court has allowed the SLP (Civil) No(s), 7000/2005 filed by the Revenue?
2. Whether on the facts and in the circumstances of the case and in law, the Ld CIT (A) had erred in allowing additional depreciation Rs.200,80,07,557/- @ 10% (50% of applicable rate of 20%), since the plant and machinery was acquired and was put to use for less than 180 days in assessment year 201314, however, as per second proviso of section 32(1) of the Income Tax Act, 1961, additional depreciation is allowable only in the year in which new plant and machinery is acquired and put to use.
3. The appellant prays that the order of the CIT (A) on the above grounds ‘be set aside and that of the Assessing Officer be restored.
4. The appellant craves leave to amend, or alter any grounds or add a new ground, which may be necessary.”
3. The issue arising in ground no.1, raised in Revenue’s appeal, is pertaining to the deletion of addition of Rs.2,43,98,882, on account of community development expenses.
4. The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is a company engaged in the business of power generation and has commenced commercial operation of Unit-1 in the financial year 2012-13 and Unit-2 in the financial year 2013-14. During the year under consideration, the assessee filed its return of income on 30/11/2014, declaring a total income at Rs. nil. During the year, the assessee declared a loss of Rs.1400,05,73,040, under normal provisions, and a book loss of Rs.5,62,64,62,047, under section 115JB of the Act. During the assessment proceedings, on perusal of the profit and loss account, it was observed that the assessee has claimed expenses of Rs.2,43,98,882, towards community development expenses under the head “other expenses”. The assessee was asked to explain as to how the said expenses are allowable. In response thereto, the assessee submitted that the expenditure incurred on community development in and around the surrounding villages of the Plant is for the purpose of the business of the assessee and therefore is an allowable expenditure. The Assessing Officer (“AO”) vide order dated 26/12/2016, did not agree with the submissions of the assessee and held that expenditure is not incurred wholly and exclusively for the purpose of business. The learned CIT(A), vide impugned order, allowed the appeal filed by the assessee and deleted the addition made by the AO on this issue. Being aggrieved, the Revenue is in appeal before us.
5. We have considered the submissions of both sides and perused the material available on record. The assessee is incorporated with the main object of development and implementation of coal-based thermal power project in Waroa Taluka, Chandrapur District of Maharashtra. The assessee, during the year under consideration, debited an amount of Rs.2,43,98,882, as community development and welfare expenses in its profit and loss account. Out of the aforesaid amount, Rs.61,28,827, is claimed to be incurred towards community development expenses, while Rs.1,82,70,055, was incurred towards environment health and safety expenses. As per the assessee, the amount of Rs.61,28,827, was incurred on community development of nearby villages around the Plant area, which needs to be developed for the purpose of development of power generation business. It is further the claim of the assessee that the above expenditure incurred on community development was to further power generation business and was wholly and exclusively incurred in order to facilitate the business of the assessee to run in a smooth manner and to assist the employees of the assessee company. In this regard, it is the plea of the assessee that it incurred certain expenditures directly and some amount for community development was incurred through a charitable organisation, namely, GMR Varalakshmi Foundation. During the assessment proceedings, the assessee furnished the following details of the community development expenses incurred by the assessee, during the year under consideration:-
