N.K. Billaiya, Accountant Member - ITA Nos. 81 & 82/PNJ/2014 are the appeals by the Revenue directed against the two separate orders of Ld. CIT (A), Panaji, Goa, dated 11/11/2013 pertaining to A.Ys. 2008-09 & 2009-10. C.O.No. 24/PNJ/2014 is a Cross Objection filed by the assessee for A.Y. 2008- 09. As these appeals were heard together and involve common issues therefore, they are disposed of by this common order for the sake of convenience and brevity.

ITA Nos. 81 & 82/PNJ/2014

2. The common issue in both these years relates to the deletion of addition made u/s. 14A read with Rule 8D for A.Y. 2008-09 Rs. 22,44,429/- and for A.Y. 2009-10 Rs. 34,75,801/-.

While scrutinizing the return of income for the years under consideration, the Assessing Officer noticed that the assessee-company has shown other income from share of profit from partnership firm and income from dividend. These income were claimed as exempt from tax. The assessee was asked to submit explanation regarding application of sec. 14A read with Rule 8D in case of expenditure in relation to exempt income. The assessee vide order sheet entry dated 03/12/2010 submitted that since there is no borrowed fund, there is no question of any disallowance. This explanation of the assessee did not find favour with the Assessing Officer, who was of the firm belief that the provisions of sec. 14A(1) of the Act mandates that the exercise of making disallowance is started with tracing out the exempt income and then the expenditure incurred in relation to such exempt income is worked out. The stipulation of sec. 14A is to quantify the amount of expenditure which is not allowable as relatable to the exempt income and not to consider the expenses one by one for ascertaining if any of these have resulted in exempt income and thereafter considering such expenses as disallowable u/s. 14A. The Assessing Officer further observed that the method prescribed in Rule 8D pertains to both direct and indirect expenditure. The Assessing Officer proceeded by computing the disallowance as formally provided in Rule 8D and computed the disallowance for A.Y. 2008-09 Rs. 22,44,429/- and for A.Y. 2009-10 Rs. 34,75,801/-.

3. Aggrieved by this, the assessee carried the matter before the Ld CIT(A). Before the Ld. CIT(A), it was strongly submitted that the assessee has earned dividend income from the investments made in certain shares and mutual funds and the assessee has earned share of profit from partnership firm, which has been claimed as exempt from tax. It was explained that the investments have been made out of own funds and no borrowed fund was used for making such investment. It was pointed out to the Ld. CIT(A) that the investment in partnership firm is not a new investment made during the year. It was brought to the notice of the Ld. CIT(A) that the assessee suo motu disallowed Rs. 1,47,706/- in A.Y. 2008-09 & Rs. 11,82,924/- in A.Y. 2009-10. Therefore, there is no question of any further disallowance of the expenditure debited to the P & L account or related to the normal business operation of the assessee.

After considering the facts and submissions and certain judicial decisions, the Ld. CIT(A) observed that the assessee had sufficient own funds to make investments and the Assessing Officer has not disputed this fact in the assessment order. The Ld. CIT(A) further observed that the assessee had appointed a portfolio manager and the payment made to the said portfolio manager have been suo motu disallowed by the assessee. Relying upon the decisions of the Tribunal Mumbai Bench in the case of Auchtel Products Ltd. v. Asstt. CIT [2012] 52 SOT 39 (URO)/22 taxmann.com 99 and Delhi Bench in the case of Priya Exhibitors (P.) Ltd. v. Asstt. CIT [2012] 27 taxmann.com 88/54 SOT 356 observed that the Assessing Officer was not justified in invoking the provisions of sec. 14A read with Rule 8D automatically in a routine manner without recording his satisfaction or dissatisfaction on the explanation of the assessee. The Ld. CIT(A) deleted the disallowance made by the Assessing Officer for the years under consideration.

4. Aggrieved by this, the Revenue is before us.

5. Learned DR strongly supported the assessment orders. It is the say of the learned DR that application of the provisions of sec. 14A read with Rule 8D is mandatory and, therefore, the Assessing Officer has rightly applied the same.

6. Per contra, the counsel for the assessee reiterated what has been stated before the Ld. CIT(A).

7. We have heard rival contentions and carefully perused the orders of the authorities below. The undisputed fact is that the investments have been made out of own funds and no borrowed fund was utilized. It is also undisputed fact that in both the years under consideration, the assessee has disallowed suo motu fees paid to the portfolio manager. It is also an admitted fact that the Assessing Officer has nowhere recorded his dissatisfaction on the claim of expenditure attributable to the disallowance u/s. 14A made by the assessee. The Ld. CIT(A) has rightly followed the decision of the coordinate Benches mentioned hereinabove, we, therefore, decline to interfere with the findings of the Ld. CIT(A).

C.O.No. 24/PNJ/2014

8. With this cross objection, the assessee has challenged the correctness of the order of the Ld. CIT(A) in confirming the partial disallowance of expenditure incurred by the company on advertisement taking a narrow view and without appreciating the commercial expediency involved in it.

9. This issue has been considered by the Assessing Officer at para 7 of his order. While scrutinizing the return of income during the course of scrutiny assessment proceedings, the assessee was asked to furnish the ledger account for advertisement expenses. On perusal of the said ledger account, the Assessing Officer noticed that an amount of Rs. 11,71,431/- was debited on account of donations. The assessee was asked to give the details of donations in the advertisement expenditure. The reply of the assessee reads as under:-

"The amount of Rs. 11,71,431/- expended towards Charities to some social groups/schools are in the nature of promotions of sports, cultural and religious activities for the villagers and other business associates from Goa. The expenditure is more out of social obligation and welfare of the people which in turn helps in carrying out mining activities in a smooth manner. The said expenditure indirectly helps in promotion of business activities and hence it is an allowance expenditure."

The Assessing Officer did not accept this explanation of the assessee and who was of the firm belief that this expenditure is not related to the business activity of the assessee nor do they help in attaining any of the objectives of the business. The Assessing Officer added the expenditure of Rs. 11,71,431/- to the return of income of the assessee. Aggrieved by this, the assessee carried the matter before the Ld. CIT(A). The Ld. CIT(A) considered this issue at para 5.4 at page 11 of his order. After considering the facts and submissions and carefully perusing the details, Ld. CIT(A) found that out of total expenditure of Rs. 11,71,431/-, Rs. 10,00,000/- has been spent towards renovation of Bandeshwar temple in the name of advertising, company's name has been displayed. The Ld. CIT(A) was of the firm belief that this expenditure is clearly in the nature of religious expenditure, related to faith and not the business of the assessee. The Ld. CIT(A) further observed that only expenditure amounting to Rs. 23,925/- can be considered for allowance u/s. 37(1) of the Act and, accordingly, directed the Assessing Officer to allow expenses amounting to Rs. 23,925/- as corporate social responsibility expenses, thereby affirming the disallowance of Rs. 11,47,506/-.

10. Aggrieved by this, assessee has filed cross objection before us.

11. Before us, counsel for the assessee strongly relied upon the decision of the Tribunal, Panaji Bench in the case of Prime Mineral Exports (P.) Ltd. v. Asstt. CIT in I.T. Appeal Nos. 28/PNJ/2013 & 52/PNJ/2013. It is the say of the counsel that the Tribunal had an occasion to consider the disallowance of expenditure amounting to Rs. 10.70 Lac. incurred on renovation of temple, the counsel heavily relied upon the findings of the Tribunal in the said case, which read as under:-

"3.1 We have heard the rival submissions and carefully considered the same. We have also gone through the order of the tax authorities below. It is not denied that transportation of the iron ore was not possible without the co-operation of the villagers as the movement of the trucks had to be through the village where the temple was located for which the Assessee has contributed the amount for renovation. The expenditure incurred for renovation of the temple is also not denied. For carrying on the business smoothly, it was necessary for Assessee to maintain cordial relation to ensure smooth movement of the trucks otherwise the Assessee would not have been able to transport the ore from the mines to the jetty for the purpose of the export. It would have affected the export earnings and income of the Assessee. The expenditure has been incurred, in our opinion, during the course of the business. Business expediency demands such expenditure to be incurred. The expenditure is neither a capital expenditure nor personal expenditure of the Assessee. Therefore, we do not find any illegality or infirmity in the order of CIT(A) while allowing this deduction. Thus, we confirm the order of CIT(A) on this issue. Thus, this ground stands dismissed."

It is say of the counsel that the facts being identical, decision of the coordinate bench should be followed.

12. Per contra, learned DR strongly opposed to this and stated that the said expenditure has nothing to do with the business of the assessee and, therefore, cannot be allowed.

13. We have carefully considered the rival contentions and have given a thoughtful consideration to the decision of the Tribunal in the case of Prime Mineral Exports (P.) Ltd. (supra). With our utmost respect to the decision of the coordinate bench, we failed to persuade ourselves to follow the same. In our considered opinion, religious expenditure cannot be considered at par with expenditure on social cause. The undisputed fact is that in guise of advertisement expenditure, the assessee has incurred expenditure towards renovation of Bandeshwar temple. This expenditure cannot be considered having been incurred towards corporate social responsibility. In our considered opinion, only expenditure incurred towards discharge of corporate social responsibility can be considered as allowable u/s. 37(1) of the Act. As mentioned elsewhere, we have failed to persuade ourselves to follow the decision of the coordinate bench, we, therefore, refer this issue to the Hon'ble President to be considered by a Special Bench. The question that has to be considered by the Special Bench, so constituted by the Hon'ble President is:-

"Can the expenditure incurred on the renovation of a temple be considered as expenditure incurred towards corporate social responsibility and hence allowable u/s. 37(1) of the Act?"

14. As we have referred the issue to the Hon'ble President for constitution of a Special Bench, the cross objection filed by the assessee is kept pending for the decision of the Special Bench.

15. In the result, both the appeals filed by the Revenue are dismissed and the cross objection filed by the assessee is pending.