ITAT Delhi Allows PNB Housing Finance's CSR Deduction Claim, Deletes ₹3.36 Crore Penalty On Cash EMI Repayments

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has granted relief to PNB Housing Finance Ltd. by allowing its claim for deduction in respect of eligible CSR-related donations and deleting a ₹3.36 crore penalty imposed for accepting cash EMI repayments from borrowers.

A bench of Judicial Member Satbeer Singh Godara and Accountant Member Naveen Chandra passed the order while deciding a batch of appeals filed by the housing finance company for assessment years 2017-18 to 2020-21.

The issue arose in assessment year 2018-19, where PNB Housing Finance claimed a deduction of ₹5.35 crore in respect of CSR expenditure. The tax authorities disallowed the claim.

Before the tribunal, the company contended that disallowance of CSR expenditure as a business deduction did not prevent it from claiming a separate deduction under Section 80G.

The tribunal noted that the issue was covered by its earlier decision in Cheil India Pvt. Ltd. v. DCIT. Adopting the reasoning in that decision, it accepted the company's claim and held that there is no correlation between disallowance under Section 37(1) and a claim for deduction under Section 80G.

Following the precedent, the tribunal accepted the company's claim for assessment year 2018-19. It applied the same reasoning to assessment years 2019-20 and 2020-21, where similar claims had been made.

In a separate appeal relating to assessment year 2018-19, the tribunal examined a penalty of ₹3.36 crore imposed on the company. The penalty related to acceptance of EMI repayments in cash from borrowers.

The tax department's case was that the company had accepted instalments in cash from its customers. According to the department, this attracted a penalty.

The tribunal noted that PNB Housing Finance is a non-banking finance company engaged in providing housing loans. It further noted that the transactions in question involved receipt of EMIs against loan accounts already availed by regular customers.

Deleting the penalty, the bench observed:

“That being the clinching factual position, we are of the considered view that it has successfully pleaded and proved its case justifying the cash repayments of EMIs that there exists cogent and sufficient reason so as to satisfy the rigor of both section 269ST as well as section 271AD of the Act”

The tribunal further noted that the Explanatory Memorandum to the Finance Act, 2017 and CBDT Circular No. 2/2018 dated February 15, 2018 recognise that mitigating circumstances could indeed be accepted as a justifiable explanation against the penalty.

Accordingly, the tribunal deleted the penalty of ₹3.36 crore.

Apart from these issues, the tribunal also dealt with disputes relating to additions on account of interest income from sub-standard assets, dividend distribution tax, TDS credit, and other claims. Some of those issues were restored to the Assessing Officer for fresh adjudication.