Case Note & Summary
The petitioner, Voltas Limited, a company engaged in air conditioning and refrigeration business, filed its return of income for Assessment Year 2015-16. During the year, it incurred CSR expenditure of Rs.3,30,82,713 under Section 135 of the Companies Act, 2013, which was disclosed in Note 25 of the annual accounts. The petitioner also claimed deductions under Sections 35AC and 80G of the Income Tax Act, 1961 for donations made to various institutions. The return was processed under Section 143(1) and later selected for scrutiny under Section 143(2). The Assessing Officer passed an assessment order under Section 143(3) disallowing the CSR expenditure as not being for business purposes under Section 37(1), and also made disallowances under Section 14A read with Rule 8D. Subsequently, the Assessing Officer issued a notice under Section 148 seeking to reopen the assessment on the ground that the CSR expenditure was not allowable. The petitioner challenged the reassessment notice and the original disallowance by way of a writ petition. The court held that CSR expenditure is allowable as business expenditure under Section 37(1) as it is incurred wholly and exclusively for business purposes, and Explanation 2 to Section 37(1) inserted by Finance Act, 2014 is prospective and does not apply to A.Y. 2015-16. The court also held that the reassessment notice was based on a change of opinion and was invalid. The court quashed the reassessment notice and set aside the disallowance of CSR expenditure, directing the Assessing Officer to allow the deduction.
Headnote
A) Income Tax - CSR Expenditure - Allowability under Section 37(1) - Section 37(1) of Income Tax Act, 1961 - CSR expenditure incurred under Section 135 of Companies Act, 2013 is allowable as business expenditure if it is laid out wholly and exclusively for business purposes and not in the nature of capital expenditure or personal expenses - Explanation 2 to Section 37(1) inserted by Finance Act, 2014 is prospective and does not apply to A.Y. 2015-16 - Held that the Assessing Officer erred in disallowing CSR expenditure as not being for business purposes (Paras 5-10). B) Income Tax - Reassessment - Change of Opinion - Section 147, 148 of Income Tax Act, 1961 - Reopening of assessment based on mere change of opinion is invalid - Where the original assessment was completed after due application of mind, subsequent reopening on the same issue is not permissible - Held that the notice under Section 148 was issued on a change of opinion and is liable to be quashed (Paras 11-15). C) Income Tax - Disallowance under Section 14A - Rule 8D - Section 14A of Income Tax Act, 1961 read with Rule 8D of Income Tax Rules, 1962 - Disallowance under Section 14A requires satisfaction of conditions under Rule 8D - Mere recording of satisfaction by Assessing Officer without proper basis is insufficient - Held that the disallowance under Section 14A was not justified (Paras 16-18).
Issue of Consideration
Whether CSR expenditure incurred under Section 135 of the Companies Act, 2013 is allowable as a deduction under Section 37(1) of the Income Tax Act, 1961 for A.Y. 2015-16, and whether the reassessment proceedings under Section 148 were valid.
Final Decision
The court allowed the writ petition, quashed the reassessment notice under Section 148, and set aside the disallowance of CSR expenditure. The Assessing Officer was directed to allow the deduction under Section 37(1) for CSR expenditure.
Law Points
- CSR expenditure under Section 135 of Companies Act
- 2013 is allowable as business expenditure under Section 37(1) of Income Tax Act
- 1961
- provided it is not in the nature of capital expenditure or personal expenses
- Explanation 2 to Section 37(1) inserted by Finance Act
- 2014 is prospective and does not apply to A.Y. 2015-16
- CSR expenditure cannot be disallowed merely because it is also claimed under Sections 35AC or 80G
- disallowance under Section 14A requires satisfaction of conditions under Rule 8D
- reopening of assessment under Section 148 based on change of opinion is invalid.
