ITAT Upholds CSR Pre-2015, Treats FDR Interest As Business Income
ITAT Upholds CSR Pre-2015, Treats FDR Interest As Business Income
In these three-year cross-appeals, the assessee challenged disallowances of CSR, prior period items, revenue recognition, and FDR/Bond interest treatment. The Revenue disputed reliefs granted on prior period expenses, foreign exchange loss, and income characterization for purposes of deduction.
For AY 2012-13, CSR expenditure of Rs. 20.87 crore was disallowed by the Assessing Officer but sanctioned by the first appellant tribunal, deeming Explanation 2 to Section 37(1) was effective from 01.04.2015. Prior period expenses were restored to the Assessing Officer to verify crystallisation. Claims on “revenue recognition in accounts” were rejected because of adverse High Court rulings, but grants-in-aid and recognition of application/processing/front-end fees on a realisation basis were accepted.
For AYs 2014-15 and 2015-16, similar issues arose. Revenue de-recognition claims of Rs.18.12 crore were dismissed. Premium on tax-free bonds was held in revenue in nature. Interest on FDRs/Bonds was considered as business income, impacting the computation of deductions under Sections 36(1)(viia)(c) and 36(1)(viii). Disallowance u/s 14A was curbed by exempt income, on certain grounds, and remanded for statistical purposes.
Issue Before ITAT:
- Whether CSR expenditure before 01.04.2015 is deductible.
- Whether prior period expenses could be allowed on crystallisation.
- Whether revenue de-recognition claims are sustainable.
- Whether disallowance u/s 14A should be restricted.
- Whether FDR/Bond interest is business income; and whether deductions u/s 36(1)(viia)(c) & 36(1)(viii) were correctly computed.
ITAT’s Ruling: The Tribunal permitted CSR expenditure for all three years, restored period expenses to the AO for verification, and turned down the revenue de-recognition reasons. It allowed only partial disallowance u/s 14A, rejected the reasons of Revenue on forex loss, and held interest on FDRs/Bonds to be business income. Deductions u/s 36(1)(viia)(c) and 36(1)(viii) were remanded to fresh adjudication by lower authorities.
Therefore, the assessee’s appeals were partially allowed for statistical reasons, whereas the Revenue‘s appeals were partially allowed and partially rejected.
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