Bombay H.C : The Commissioner of Income Tax was justified in invoking the jurisdiction under Section 263 of the Income Tax Act to remand the matter to the Assessing Officer in respect of allowance of Corporate Social Responsibility claim of the appellant – assessee

High Court Of Bombay

MOIL Ltd. vs. CIT-I, Nagpur

Section 37(1), 263

Assessment year 2009-10

Smt. Vasanti A. Naik And Mrs. Swapna Joshi, JJ.

IT Appeal No. 67 Of 2016

April  26, 2017

JUDGMENT

Smt. Vasanti A. Naik, J. – The Income Tax Appeal is admitted on the following substantial question of law :—

“Whether the Commissioner of Income Tax was justified in invoking the jurisdiction under Section 263 of the Income Tax Act to remand the matter to the Assessing Officer in respect of allowance of Corporate Social Responsibility claim of the appellant – assessee ?”

2. Few facts giving rise to the Income Tax Appeal are stated thus : —

The appellant – assessee is a public sector undertaking wholly owned by the Government of India. The assessee – Company is involved in the business of extraction and sale of manganese ore, generation of electricity and manufacturing and sale of EMV and ferro minerals. An E-return was filed by the assessee – Company for the assessment year 2009-10 on 26.9.2009 declaring the total income of nearly Rs.1008,53,44,720/-. The notice under Section 142 (1) of the Income Tax Act pertaining to the assessment year 2009-10 for furnishing the details in respect of twenty items mentioned in the notice dated 20.11.2011 was served on the appellant – assessee. As in this case we are concerned with the admissibility or otherwise of the claim of the assessee for deduction in respect of the Corporate Social Responsibility, it would be necessary to only refer to item no.9 in the notice under Section 142 (1) of the Act. As per the said item, the Assessing Officer asked the assessee to give a detailed note of expenditure for the Corporate Social Responsibility along with the bifurcation of the expenses under different heads. In pursuance of the said notice, a reply dated 23.12.2011 was served by the assessee on the Assistant Commissioner of Income Tax, Nagpur. In paragraph 8 of the reply, which runs into more than five pages, the appellant – assessee had given the bifurcation of the expenses under various heads towards the Corporate Social Responsibility claim. The Assessing Officer considered the claim of the assessee for disallowance/additions and while allowing certain claims without making a specific reference to them in the assessment order, disallowed some claims after giving detailed reasons for the disallowance. The Commissioner of Income Tax supposedly invoked the jurisdiction under Section 263 of the Act after holding that the Assessing Officer had passed the assessment order without making any enquiry regarding the allowability of expenses claimed by the assessee under the head “Corporate Social Responsibility” and hence, the order was erroneous and prejudicial to the interest of the Revenue. After having held so, the Commissioner of Income Tax remanded the matter to the Assessing Officer to redo the assessment in respect of the claim of the appellant-assessee pertaining to the Corporate Social Responsibility. Being aggrieved by the exercise of the jurisdiction by the Commissioner of Income Tax under Section 263 of the Act, the appellant-assessee filed an appeal before the Income Tax Appellate Tribunal. The Income Tax Appellate Tribunal, however, by the order dated 25.2.2016 dismissed the appeal filed by the assessee while upholding the order of the Commissioner of Income Tax invoking the jurisdiction under Section 263 of the Act and remanding the matter to the Assessing Officer for redoing the assessment in respect of the said claim. The orders of the Tribunal and the Commissioner of Income Tax are challenged by the appellant-assessee in this appeal.

3. Shri Dewani, the learned Counsel for the appellant submitted that the Commissioner of Income Tax was not justified in exercising the jurisdiction under Section 263 of the Act by holding that the Assessing Officer had not made any enquiry regarding the allowability of the expenses towards the Corporate Social Responsibility claim. It is submitted by taking this Court through the notice issued by the Assistant Commissioner of Income Tax under Section 142 (1) of the Act and specially item no.9 therein as also the reply filed by the appellant-assessee to the said item that the Assessing Officer was satisfied about the explanation tendered by the assessee and hence, the Assessing Officer had allowed the claim in respect of Corporate Social Responsibility. It is submitted that during the previous assessment years similar claims made by the assessee were allowed by the Assessing Officer and there was no interference with the assessment orders during the previous years. It is submitted that similar claim was granted in respect of Corporate Social Responsibility during the previous years and the Commissioner of Income Tax has wrongly invoked the jurisdiction under Section 263 of the Act though the Assessing Officer had applied his mind to the explanation tendered by the assessee and while allowing the said claim had refused to allow the others after recording reasons for doing so. The learned Counsel took this Court though the judgments of the Bombay High Court in the case of CIT v. Fine Jewellery (India) Ltd. [2015] 372 ITR 303/230 Taxman 641/55 taxmann.com 514 and CIT v. Nirav Modi [2017] 390 ITR 292/241 Taxman 255/[2016] 71 taxmann.com 272 (Bom.) to submit that if a query is raised during the assessment proceedings and if the assessee responds to the said query, merely because the said aspect is not dealt with in the assessment order, would not lead to a conclusion that the Assessing Officer had not applied his mind to the response of the assessee. It is stated that while holding so, the Bombay High Court has relied on an earlier judgment of the Bombay High Court in the case of Idea Cellular Ltd. v. Dy. CIT [2008] 301 ITR 407. It is submitted that the assessee – Company is a Government of India undertaking and the Government has a control over the expenses of the undertaking of the assessee. It is submitted that some incentives like placing the Company in the category of mini Navratna or Navratna are granted if Corporate Social Expenses are made to the extent of at least 2% to 3% of the total income. It is submitted that it is absolutely necessary for the Companies like the assessee-Company to expend towards Corporate Social Responsibility. It is submitted that in the circumstances of the case, the Commissioner of Income Tax could not have invoked the jurisdiction under Section 263 of the Act merely because the Assessing Officer has not formally recorded in the order of assessment that the claim made by the assessee towards the Corporate Social Responsibility is allowed.

4. Shri Parchure, the learned Counsel for the Revenue has supported the order of the Commissioner of Income Tax as also the Income Tax Appellate Tribunal. It is submitted by taking this Court through the assessment order that the Assessing Officer has specifically dealt with certain items like pay revision, forest land diversion expenses, cenvet credit, R and D expenses, depreciation on leasehold land etc. in the assessment order but the Assessing Officer has not stated a word in the assessment order pertaining to the allowance of the claim towards the Corporate Social Responsibility. It is submitted that after going through the assessment order, the Commissioner of Income Tax had found that the Assessing Officer had not made any enquiry regarding the allowability of expenses under the head “Corporate Social Responsibility”. It is submitted that in the circumstances of the case, specially when the assessment order is silent in regard to the allowability of the claim towards the Corporate Social Responsibility, the Commissioner of Income Tax has rightly exercised the jurisdiction under Section 263 of the Act.

5. On a perusal of the orders passed by the Authorities, it appears that before the assessment order was passed, a notice was served on the assessee under Section 142 (1) of the Act and 20 queries pertaining to different heads were made therein. The ninth query in the notice under Section 142 (1) of the Act pertains to the expenditure for the Corporate Social Responsibility. By the said query, the assessee was directed to give a detailed note of expenditure for the Corporate Social Responsibility along with bifurcation of the expenses under different heads. An exhaustive reply was submitted by the assessee to the notice under Section 142 (1) of the Act. In paragraph 8 of the reply, the assessee gave the detailed note pertaining to the expenditure for the Corporate Social Responsibility under different heads that runs into several pages. The heads under which the expenses were made towards the Corporate Social Responsibility were specifically mentioned as health, environment, sports, education etc. and for each of the different heads, particulars were given in respect of every minor or major expenses. A detailed note on the expenditure on the Corporate Social Responsibility claim was given in paragraph 8 which runs into more than five pages. It is not disputed that the appellant – assessee is a Government of India undertaking and the Government has a control over the expenses of the undertaking. It is pertinent to note that during the previous assessment years, similar claims were made by the assessee – Company and the assessment orders allowing the claims have attained finality. We have minutely perused the assessment order. The claims for deductions were made by the assessee at least under 20 heads and queries were made in the notice under Section 142 (1) of the Act to the assessee in respect of nearly all of them. We, however, find from the assessment order that the Assessing Officer has dealt with nearly nine claims of deductions. These claims have been specifically mentioned in the assessment order and they have been discussed therein because the Assessing Officer appears to have disallowed those claims either partially or totally. In respect of the claim for the Corporate Social Responsibility and some other claims that were allowed by the Assessing Officer, the Assessing Officer has not made a specific reference in the assessment order. It is apparent from the assessment order that the Assessing Officer has expressed in detail about the claims that were disallowable. Where the claims were allowable, as we find from the reading of the assessment order, the Assessing Officer has not referred to those claims. The Corporate Social Responsibility claim is one of them. It is apparent from the notice under Section 142 (1) of the Act that a specific query in regard to the claim pertaining to the Corporate Social Responsibility was made and a detailed note after giving bifurcation of the expenses under different heads was sought. We have perused the response in respect of this query which is exhaustive. We find that the assessee has given the details, as are sought under query no.9 in the notice under Section 142 (1) of the Act. If that is so, the judgments, reported in Fine Jewellery (India) Ltd. (supra) and Nirav Modi (supra) and on which the learned Counsel for the assessee has placed great reliance would come into play. It is held in the judgments referred to herein above by relying on the judgment in the case of Idea Cellular Ltd. (supra) that if a query is raised during the assessment proceedings and the query is responded to by the assessee, the mere fact that the query is not dealt with in the assessment order would not lead to a conclusion that no mind has been applied to it. In the case of Fine Jewellery (India) Ltd. (supra) this Court found that from the nature of the expenditure as explained by the assessee in that case the Assessing Officer took a possible view and therefore, it was not a case where the provisions of Section 263 of the Act could have been resorted to. Considering the explanation of the assessee in this case, we are also of the view that the Assessing Officer had taken a possible view. In the case of Nirav Modi (supra) this Court held that the Tribunal was justified in that case in cancelling the order under Section 263 of the Act as the assessee had responded to the query made to it during the assessment proceedings and merely because the assessment order did not mention the same, it would not lead to a conclusion that the Assessing Officer had not applied his mind to the case. In the instant case, we find that the Assessing Officer has applied his mind to the claims made by the assessee and wherever the claims were disallowable they have been discussed in that assessment order and there is no discussion or reference in respect of the claims that were allowed. In view of the law laid down in the judgments in the case of Fine Jewellery (India) Ltd. (supra) and Nirav Modi (supra) it would be necessary to hold that in the circumstances of the case, it cannot be said that merely because the Assessing Officer had not specifically mentioned about the claim in respect of the Corporate Social Responsibility, the Assessing Officer had passed the assessment order without making any enquiry in respect of the allowability of the claim of Corporate Social Responsibility. In our view, the provisions of Section 263 of the Act could not have been invoked by the Commissioner of Income Tax in the circumstances of this case. The Tribunal was not justified in holding that the query under Section 142 (1) of the Act was very general in nature and the reply of the assessee was also very general in nature. In our considered view, the query pertaining to Corporate Social Responsibility was exhaustively answered and the appellant – assessee had provided the data pertaining to the expenditure under each head of the claim in respect of Corporate Social Responsibility, in detail. The Tribunal was not justified in holding that the reply/explanation of the assessee was not elaborate enough to decide whether the expenditure claim was admissible under the provisions of the Income Tax Act. The Assessing Officer is not expected to raise more queries, if the Assessing Officer is satisfied about the admissibility of claim on the basis of the material and the details supplied. In the facts and circumstances of the case, we answer the question of law in the negative and against the Revenue.

6. For the reasons aforesaid, the Income Tax Appeal is allowed. The orders passed by the Commissioner of Income Tax and the Income Tax Appellate Tribunal are quashed and set aside. No order as to costs.