IMPORTANT POINT
The Assessing Officer must be satisfied with the correctness of the claim of the assessee in respect of expenditure under Section 14A of the Act, and there must be a causal connection between the subject expenditure and the exempted income.

JUDGMENT

Girish Kathpalia, J. - By way of this appeal, brought under Section 260A of the Income Tax Act 1961, the revenue has assailed order dated 30.06.2022 passed by the Income Tax Appellate Tribunal in ITA No. 272/Del/2019 pertaining to the Assessment Year 2014-15. On notice of the appeal, the respondent/assessee entered appearance through counsel. We heard learned counsel for both sides in the light of the judicial precedents cited by them.

2. Briefly stated, circumstances relevant for present purposes are as follows.

2.1. The respondent/assessee, a public sector undertaking engaged in the business of designing and printing of bank notes, minting of coins, medallion seals and tokens etc, filed its return of income for the Assessment Year 2014-15 on 09.10.2014, declaring its income to be Rs.512,53,01,630/-.

2.2. The case of the respondent/assessee came under scrutiny and the Assessing Officer passed Assessment Order dated 19.12.2016 under Section 143(3) of the Act, thereby assessing the concerned income to be Rs.518,41,94,170/- after making additions to the tune of Rs.1,92,91,622/- on account of disallowance made under Section 14A of the Act and a further amount to the tune of Rs.3,96,00,919/- on account of Corporate Social Responsibility (CSR) expenses claimed by the assessee.

2.3. The respondent/assessee challenged the said Assessment Order before the Commissioner Income Tax (Appeals) [CIT (A)], but the said appeal of the respondent/assessee was dismissed vide order dated 05.10.2018, thereby upholding the additions made by the Assessing Officer.

2.4. However, the respondent/assessee succeeded before the Tribunal in the second appeal. Placing reliance on its earlier decisions in the case of the respondent/assessee for the Assessment Years 2012-13 and 2013-14, the learned Tribunal allowed the appeal and deleted both the impugned additions.

2.5. Hence, the present appeal by the appellant/revenue.

3. As would be evident, the present dispute revolves around the disallowance of CSR expenses and disallowance of expenditure under Section 14A of the Act. It would be apposite to briefly examine the view taken by the different authorities on these two aspects.

3.1. As regards CSR expenses, in its profit & loss account, the respondent/assessee recorded a sum of Rs.3,96,00,919/- towards the same and was called upon by the Assessing Officer to explain as to why the said expenditure be not disallowed, being capital in nature. The respondent/assessee in reply dated 24.10.2016 took a plea that the said expenses had been legitimately claimed since no enduring benefit accrued or arose to the respondent/assessee in the future years. Taking note of the earlier decisions of CIT(A), wherein similar disallowance had been confirmed, the Assessing Officer found the submissions of the respondent/assessee as untenable and treated the CSR expenses as capital expenditure and added back the same to the total income of the respondent/assessee for the reason that CSR expenses are incurred for enduring long term benefits for communities, cultures and societies in which the respondent/assessee operates.

3.2. As regards disallowance under Section 14A of the Act, the Assessing Officer observed that the respondent/assessee had invested substantial money in mutual funds, dividend whereon is exempt from tax; and that the respondent/assessee also held shares of a joint venture company, which shares being assets, can yield exempt income. Therefore, the respondent/assessee was called upon by the Assessing Officer to show cause why the expenditure related to earning of the exempt income should not be disallowed in view of Section 14A of the Act read with Rule 8D of the Income Tax Rules. The explanation advanced on behalf of the respondent/assessee to the effect that being a cash rich company, it did not have to incur any expenditure or deploy any person by way of any special efforts which could be treated as directly or indirectly an expenditure incurred to earn the dividend