Commissioner Of Income Tax (Ltu v. Gail (India) Ltd

$~2 *IN THE HIGH COURT OF DELHI AT NEW DELHI+ITA 362/2017 COMMISSIONER OF INCOME TAX (LTU)..... AppellantThrough:Mr. Rahul Chaudhary, Sr. StandingCounsel. Versus GAIL (INDIA) LTD. ..... Respondent Through:Mr. Udit Naresh and Ms. Kavita Jha,Advs. CORAM:JUSTICE S.MURALIDHARJUSTICE PRATHIBA M. SINGH O R D E R%03.07.2017 -CM No. 17092/2017 (delay in refiling) 1. For the reasons stated therein, this application is allowed. The delay in re-filing the appeal is condoned. ITA 362/2017 2. This is an appeal by the Revenue against an order dated 29[th]July, 2016passed in ITA No. 1784/Del./2012 for the Assessment Year (‘AY’) 2007-08. 3. The question of law sought to be raised by the Revenue is whether theITAT’s decision in quashing the order dated 24[th]February, 2012 passed bythe Commissioner of Income Tax under Section 263 of the Act wasjustified in law and on facts. 4. The background facts are that the Respondent/Assessee filed its incometax return for the AY 2007-08 on 30[th]October, 2007. The return was picked ITA 362 of 2017 for scrutiny by the Assessing Officer (‘AO’). By the assessment order dated31[st]December, 2009 the AO made certain additions to the taxable income. 5. Subsequently, proceedings were initiated by the CIT/Delhi-IV underSection 263 of the Act by issuing a notice dated 4[th]February, 2011. The CITwas of the view that the assessment order dated 31[st]December, 2009 waserroneous and prejudicial to the interest of the Revenue on account offollowing: (i) Allowability of advertisement and publicity expenditure of Rs.11,72,80,000; (ii)CorporateSocialResponsibility(CSR)expensesofRs.8,53,14,703; and (iii) Applicable rate of depreciation on computer software amountingto Rs. 11,33,77,787/- 6. The Revenue has come before this Court only on the deletion of theadditions under (i) and (ii) above. 7. As far as the issue at (i) above is concerned, expenditure on advertisementand publicity is essentially for business purposes. It is not of an enduringnature and cannot possibly be characterised as capital expenditure. Thefinding of the ITAT as regards (i) above does not give rise to any substantialquestion of law. 8. As regards the expenditure on CSR, the ITAT in the impugned order hasnoticed that a questionnaire was issued by the AO to the Assessee during theassessment proceedings. The Assessee's reply on this aspect in its replydated 10[th]November, 2009 mentioned that the CSR expenses were to the ITA 362 of 2017 tune of Rs. 8.53 crores. The ITAT accepted the contention of the Assesseethat the expenditure in the CSR activity was for the purpose of business and,therefore, allowable under Section 37 of the Act. 9. Mr Rahul Chaudhary, learned Senior Standing Counsel for the Revenuedrew the attention of the Court to Explanation 2 below the Section 37 of theAct which was inserted with effect from 1[st]April 2015 and reads as under: "Explanation 2.-For the removal of doubts, it is hereby declaredthat for the purposes of sub-section (1), any expenditure incurredby an Assessee on the activities relating to corporate socialresponsibility referred to in section 135 of the Companies Act,2013 (18 of 2013)shall not be deemed to be an expenditureincurred by the Assessee for the purposes of the business orprofession." 10. Mr. Chaudhary submitted that although the above amendment wasprospective in nature, it was in fact clarificatory of the existing legal positionthat the initial onus of showing that the CSR expenses were for the purposesof business was on the Assessee. He submitted that in this case apart frommerely placing the figures of the CSR expenditure before the AO, theAssessee failed to justify that the CSR expenses were indeed for thepurposes of business. 10. Mr. Chaudhary submitted that although the above amendment wasprospective in nature, it was in fact clarificatory of the existing legal positionthat the initial onus of showing that the CSR expenses were for the purposesof business was on the Assessee. He submitted that in this case apart frommerely placing the figures of the CSR expenditure before the AO, theAssessee failed to justify that the CSR expenses were indeed for thepurposes of business. 11. The Court is unable to accept the above submission. Explanation 2 onlystates that CSR expenses shall not be deemed to be an expenditure for thebusiness of Assessee. This, however, does not mean that the claim of CSRexpenses as a deduction is not allowable per se. It only places the initialonus on the Assessee to show that the CSR expenses were for businesspurposes. 12. As far as the present case is concerned, when a questionnaire was issuedby the AO raising a specific query as regards the CSR expenses that wasanswered by the Assessee. The AO could have made further enquiries onthis explanation but chose not to do so. That by itself does not make theAO's order erroneous. 13. In fact in the order of the CIT itself in para 6 the explanation offered bythe Assessee is noted. According to the Assessee the expenses on accountof CSR comprised of expenses on helping the poor children in their study,providing medical care to the poor and downtrodden section of society,rehabilitation of mentally handicapped children, providing basic amenitieslike water etc to the poor and other CSR related activities. It was sought tobe explained by the Assessee that being a public sector undertaking itsobjective was not only earning profit but also serving the society. 14. One of the essential components to justify the invocation of Section 263of the Act is that the order of the AO must be erroneous. In this case the saidrequirement cannot be said to be fulfilled. Consequently, the impugnedorder of the ITAT setting aside the order of CIT under Section 263 of theAct cannot also be said to be suffering from any legal infirmity giving rise toany substantial question of law. 15. The appeal is dismissed. S.MURALIDHAR, J JULY 03, 2017/dk PRATHIBA M. SINGH, J ITA 362 of 2017