Principal Commissioner Ofincome Tax, Asansol v. M/S. Eastern Coalfields Ltd

ITAT/155/2022IA No.GA/2/2022 IN THE HIGH COURT AT CALCUTTASpecial Jurisdiction (Income Tax)ORIGINAL SIDE PRINCIPAL COMMISSIONER OFINCOME TAX, ASANSOL -Versus- M/S. EASTERN COALFIELDS LTD. Appearance:Ms. Smita Das De, Adv....for the appellant. Mr. Rajeev Kumar Agarwal, Adv....for the respondent. BEFORE: The Hon’ble JUSTICE T.S. SIVAGNANAM -And- The Hon’ble JUSTICE HIRANMAY BHATTACHARYYA Date : 16[th] November, 2022. The Court: This appeal filed by the revenue under Section 260A of the Income Tax Act, is directed against theorder dated 24[th] September, 2020 passed by the Income TaxAppellate Tribunal, “B” Bench, Kolkata (the Tribunal) in ITANo.985 & 986/Kol/2019 for the assessment year 2012-13. The revenue has raised the following substantialquestions of law for consideration: (i)Whether on the facts and circumstances of thecase that the expenses incurred on theactivities relating to CSR shall not be deemedto be an expenditure u/s 37 of the income TaxAct, 1961 which deals with allow ability of onlysuch expenditure laid out wholly and exclusivelyfor the purpose of business or profession andnot otherwise ?case that the expenses incurred on theactivities relating to CSR shall not be deemedto be an expenditure u/s 37 of the income TaxAct, 1961 which deals with allow ability of onlysuch expenditure laid out wholly and exclusivelyfor the purpose of business or profession andnot otherwise ?(ii)Whether on the facts and circumstances of thecase that the assessee company’s claim of CSRexpenses being part of ‘Employees Welfare’ asnegotiated under National Coal Wage Agreementfrom time to time forms part of businessexpenditure, is bad in law and not in good faitof ‘welfare’ as substantiated by disallowabilityof all such expenses under the head ‘CSR’ asbusiness expenditure through amendment ofSection 37(1) of the Income Tax Act, 1961 inFinance Act, 2013 ?case that the assessee company’s claim of CSRexpenses being part of ‘Employees Welfare’ asnegotiated under National Coal Wage Agreementfrom time to time forms part of businessexpenditure, is bad in law and not in good faitof ‘welfare’ as substantiated by disallowabilityof all such expenses under the head ‘CSR’ asbusiness expenditure through amendment ofSection 37(1) of the Income Tax Act, 1961 inFinance Act, 2013 ? (iii)Whether on the facts and circumstances of thecase that why all such expenses shall not bedisallowed by treating it as Capital Expenditureas it mostly caters to creation of new assets ofcompany like hospitals, schools, drinking &sanitation facilities for its employees ?case that why all such expenses shall not bedisallowed by treating it as Capital Expenditureas it mostly caters to creation of new assets ofcompany like hospitals, schools, drinking &sanitation facilities for its employees ? We have heard Ms. Smita Das De, learned standingcounsel appearing for the appellant/revenue and Mr. RajeevKumar Agarwal, learned Advocate for the respondent/assessee. The short question involved in this case is whetherthe assessing officer was justified in making a disallowance with regard to the Corporate Social Responsibility (CSR)expenses incurred by the assessee. The sole reason for whichthe assessing officer disallowed part of such expenses was onthe ground that the expenses under the relevant head could notbe verified for want of details. The assessed carried thematter on appeal before the Commissioner of Income Tax(Appeals), Asansol (CIT(A) and placed all materials in supportof their contention that they are bound to undertake certainworks as part of CSR and this arose under the National CoalWage Agreement and it is a contractual obligation on the partof the assessee. However, the CIT(A) did not agree with theassessee for the self-same reason as mentioned by the assessingofficer that details could not be verified. The assessee filedappeal before the Tribunal. with regard to the Corporate Social Responsibility (CSR)expenses incurred by the assessee. The sole reason for whichthe assessing officer disallowed part of such expenses was onthe ground that the expenses under the relevant head could notbe verified for want of details. The assessed carried thematter on appeal before the Commissioner of Income Tax(Appeals), Asansol (CIT(A) and placed all materials in supportof their contention that they are bound to undertake certainworks as part of CSR and this arose under the National CoalWage Agreement and it is a contractual obligation on the partof the assessee. However, the CIT(A) did not agree with theassessee for the self-same reason as mentioned by the assessingofficer that details could not be verified. The assessee filedappeal before the Tribunal. On going through the order passed by the learnedTribunal, we find that the Tribunal has made an elaborateexercise to consider the factual matrix and noted that theassessee was bound to comply with the obligation. NationalCoal Wage Agreement which is a joint bi-partite agreement forthe coal industries dated 15[th] July, 2005. That apart, thelearned Tribunal has noted that similar expenses incurred byanother public sector undertaking like that of therespondent/assessee namely, Southern Coal Fields, where reliefwas granted by the learned Tribunal in the case of Southern Coalfields vs. JCIT reported in 260 ITR (AT) 1. Accordingly,the appeal stood allowed. Aggrieved by the same, the revenueis before us.After elaborately hearing the parties for the partiesand carefully perusing the materials placed on record, we fullysubscribe to the view taken by the learned Tribunal. Wesupport such conclusion for the following reasons:It is not in dispute that sufficient material wasavailable on the file at the time when the assessment was doneby the assessing officer under Section 143(3) of the Act. Theannual report of the respondent for the assessment year 2011-12clearly shows what are the activities undertaken under CSRduring the said year. Furthermore, the audited final statementfor the financial year 2011-12 also shows that the welfareexpenses forms part of it. More importantly, the Government ofIndia has framed guidelines on Corporate Social Responsibilityfor Central Public Sector Enterprises and every public sectorenterprise is bound to formulate a policy in terms of the saidguidelines issued by the Government of India which has beendown by the respondent/assessee by framing its policy, copy ofwhich has been placed before us for consideration. Thus, it isclearly seen that there is an obligation on therespondent/assessee to fulfil such responsibility which is notonly to take care of his employees but also to rehabilitate the entire area where operations are being carried on by therespective public sector undertaking. The decision rendered inthe case of Commissioner of Income Tax vs. Tamil Nadu TourismDevelopment Corporation Ltd. reported in [2016] 71 taxmann.com333 (Mad.) will aid the assessee’s case, wherein the expensesincurred by the said assessee for maintenance of Thiruvalluvarstatue at Kanyakumari was held to be allowable deduction underSection 37(1) of the Act. On more or less identical facts theHigh Court of Gujarat in the case of Commissioner of Income Taxvs. Gujrat Narmada Valley Fertiliser and Chemicals Ltd.reported in [2020] 121 taxmann.com 82 (Guj.) dismissed therevenue’s appeal affirming the relief granted to the assesseetherein by the learned Tribunal. In the said case the questionwas whether the assessee-company, a State Governmentundertaking, which had incurred expenses towardscontribution/donation made to educational institution, trusts,local bodies for discharging its corporate socialresponsibility was allowable as a deduction under Section 37(1)of the Act. The Hon’ble Court, after elaborately consideringvarious decisions on the point held as follows: “10. Thus, the sum and substance of theprinciple discernible from the above noted decisionsis that the concept of business is not static. Ithas evolved over a period of time to include withinits fold the concrete expression of care and concern for the society at large and the people of thelocality in which the business is located inparticular. The assessee-company in the case on handis engaged in the business of manufacturing chemicalsand chemical products. It has been fairly admittedby the learned counsel appearing for the assessee-company that its client is a polluting company. Theassessee-company is conscious of its socialobligations towards the society at large. Theassessee-company is a government undertaking and,therefore, is obliged to ensure all the protectiveprinciples of State policy as enshrined in theConstitution of India. The moneys has been forvarious purposes as enumerated above cannot beregarded as outside the ambit of the businessconcerns of the assessee. The approval needs to bethat of a practical and prudent businessman ratherthan from the Revenue’s strict classification of aright. The correct test should be of commercialexpediency and not whether the payment was compulsoryfor the assessee to make or not.” At this juncture, it would be immensely beneficial torefer to the decisions of the hon’ble Supreme in the case ofS.A. Builders Ltd. vs. Commissioner of Income Tax reported in[2007] 158 Taxman 74 (SC) wherein it was held that anexpenditure made may not have been incurred under any legalobligation, yet it is allowable as business expenditure if itis incurred on the ground of commercial expediency. The facts of the case on hand is much better as therewas a legal obligation on the part of the respondent/assesseeto incur such expenses. Thus, we find that the learnedTribunal rightly allowed the assessee’s appeal and grantedrelief. Accordingly, appeal filed by the revenue (ITAT/155/2022) is dismissed and the substantial questions oflaw are answered against the revenue.Consequently, the connected application for stay (IANo.GA/2/2022) also stands dismissed. (T.S. SIVAGNANAM, J.) (HIRANMAY BHATTACHARYYA, J.) A/s.S.Das