9911796707
TMI Blog2019 (7) TMI 1484X X X X Extracts X X X X X X X X Extracts X X X X ..... CSR. 2. The brief facts of the case are that the appellant is a Private Limited Company incorporated on 1.9.2005. The appellant company made a net profit (profit after tax) of Rs. 4,60,14,897/- and net profit (profit before tax) of Rs. 5,68,70,023/- for the FY ended 31.3.2014. The company filed its financial statement alongwith Board Report with the ROC. On observing the Board Report of the company, ROC issued Show Cause Notice dated 23.1.2017 (Page 39 and 40) to the Company as to why they have not complied with Section 135(1), 135(5) and Section 134(3)(o) of the Companies Act, 2013. In its reply dated 6.2.2017 (Page 41 and 42) the company intimated to the ROC that Section 135(1) of the Act is not applicable to the company, therefore, question of spending 2% of the average net profit and constitution of CSR Policy/CSR Committee pursuant to Section 135(4) does not arise. The company further replied that when Section 135(1) is not applicable to it, then Section 134(3)(o) is also not applicable and there is also no obligation on the part of the company to incur any expenditure and Section 135(2) does not apply. 3. The appellant filed Company Petition before the NCLT, Chennai under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Company is directed to adhere to the other provisions of Section 135 regarding constitution of the Board's committee on CSR and evolving a policy for implementing the same. Hence the company is permitted to file an application for revision of financial statements or board's report after incorporating the information regard CSR for the FY 2014-15 as the FY in question falls within the "three preceding financial years", the section 131 reads as follows: "131 (1) If it appears to the directors of a company that- (a) The financial statement of the company; or (b) The report of the Board Do not comply with the provisions of Section 129 or Section 134 they may prepare revised financial or revised report in respect of any of the three preceding financial years after obtaining approval of the Tribunal on an application made by the company in such form and manner as may be prescribed and a copy of the order passed by the Tribunal shall be filed with the Registrar." With the above directions the company petition CP/270/(131)/2018 stands disposed of." 6. Being aggrieved by the impugned order dated 20.7.2018 the appellant has preferred the present appeal. The appellant ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Section 135 is as per Section 198 of the Companies Act, 2013 which is primarily Profit Before Tax that shall be considered for determining the Net Profit and as such in the present case, the appellant's profit before tax for the FY ending 31.3.2014 admittedly is Rs. 5,68,70,023/-, which amount is above the threshold limit for Net Profit in terms of Section 135(1) of Companies Act, 2013.. 11. Respondent further submitted that the Respondent strictly disagrees to the contentions of the appellant that even if it is attracted by Section 135(1) of the Act, since the Average Net Profit (ANP) for the 3 preceding FY 2011-12, 2012-13 and 2013-14 was negative, it cannot be held accountable under the Section 135(5) of the Companies Act, 2013. 12. Rejoinder has been filed by the appellants reiterating its statement as stated in the appeal. Learned counsel for the appellant stated that even for the FY 2014-15 the appellant has already spent the amount on CSR activities and the same is reported in the Board's Report for the FY 2016-17. 13. We have heard the learned counsel for the parties and perused the record. 14. Learned counsel for the Appellant argued that the net profit earned by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... culation of net profit under Section 198 of the Act and average profit under section 135(5) of the Companies Act, 2013 at Page 38 of the appeal paper book (Annexure -1) which is as under:- 16. We have heard the parties on this issue. The issue involved is whether the appellant is covered under Section 135(1) of the Act or not. Section 135(1) of the Act provides that every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crores or more during the immediately preceding financial year shall constitute a Corporate Social Responsibility of the Board consisting of three or directors, out of which at least one director shall be as independent director. As per the appellant's own calculation as quoted above the net profit is Rs. 5,68,70,023/- for the FY 2013-14 which is apparently more than Rs. 5 crores i.e. threshold limited prescribed under Section 135(1) of the Act. Therefore, the company is covered under Section 135(1) of the Act. As such Appellant was liable to constitute Corporate Social Responsibility Committee of the Board in the year 2014-15. Section 135(5) of the Act stipulates that Boa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen it will defy the logic of provisions contained in the Act. If 2% of net profit of 2013-14 is required to be spent in FY 2014-15 on the same logic, 2% of net profit for the FY 2014-15 will be spent in 2016-17 and so on. Hence the company would never be covered under the average net profit of three preceding years. 20. We have also gone through the calculation of appellant at page 38 of appeal book and the argument of the appellant that net profit of three years comes to negative. In the said calculation the figures of FY 2011-12 and 2012-13 has been deducted twice from the figures of 2013-14, therefore, the figures have reached at negative level. We do not appreciate that the appellant has resorted to deducting the losses twice over to somehow arrives at a negative figure to show that it is not required to spend any amount on the CSR for the FY 2014-15. In the chart reproduced above Rs. 1,38,69,595/- will be the net profit of three years and dividing the same by three the average net profit for three years will have to be considered. Formula would be-from the net profit before Tax of 2014, first deduct the loss as reflected in 2012 and 2013 and the yield being still positive, w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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