TMI Blog2019 (7) TMI 1484X X X X Extracts X X X X X X X X Extracts X X X X ..... ate Social Responsibility Committee of the Board in the year 2014-15. Expend sum towards CSR - it is argued by the appellant that even if it is the company is deemed to be covered under Section 135(1) of the Act, then also it is not liable to expend any sum towards CSR in as much since the company had incurred losses in FY 2011-2012 and 2012-13 and the average net profit calculated for the three FY comes in negative - HELD THAT:- The appellant has submitted the calculation at Page 38 (Annexure 1) of the appeal paper book in which net profit for FY 2011-12 is -2,32,31,787/- and for FY 2012-13 is -1,97,68,641 and for FY 2013-14 is ₹ 5,68,70,023/-. Thus in the last three years the company is made a profit of ₹ 1,38,69,595/- and average net profit of three years will come to ₹ 46,23, 198/- - The method of calculation of average net profit for immediately preceding three years as discussed is applicable - The company is liable to spend money towards CSR. The appellant was liable to constitute Corporate Social Responsibility Committee of the Board in terms of Section 135(1) in 2014-15 as net profit of the company in the preceding year was more than ₹ 5 crore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nexed with the appeal. The appellant stated before the NCLT that the company was of opinion that the threshold limit of Net profit in Section 135(1) is profit after tax and hence do not attract provisions of Corporate Social Responsibility (CSR) and even if CSR [provisions are applicable the average net profit under Section 135(5) is negative and hence no amount could be set apart for CSR spending and hence the provisions of Section 135 are not attracted. The appellant further stated that the Act is a New Act and that the CSR provisions are new and the company did not understand the provisions clearly and hence did not disclose the composition of the CSR Committee and the CSR Policy in its Report for the financial year ended 31.3.2015. 4. In reply ROC stated that the appellant should comply with the CSR provisions for the FY 2014-15. ROC further stated that the petition is not maintainable as ignorance of law is no excuse. ROC further stated that it disagrees with the contention of the appellant that even if the appellant fails within the purview of Section 135(1) of the Act since the average net profit for the 3 preceding financial years were negative it was not attra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... following relief:- i) Impugned order dated 20.7.2018 be quashed. ii) The applicant company is not attracted by the provisions of Section 135(1) for the FY 2014-15. iii) The average net profit for the purpose of Section 135(5) shall be calculated considering the Net Profit of all the three preceding financial years; and iv) The average net profit of the last 3 preceding financial years being Negative, the company is not required to appropriate any amount towards CSR expenditure during the Financial Year 14-15. 7. The appellant has stated that the appellant suffered losses in the earlier two financial years i.e. 2011-12 and 2012-13. Appellant further stated that the appellant made a Net Profit of ₹ 4,60,14,897/- (profit after tax) and ₹ 5,68,70,023/- (Profit Before Tax). The appellant stated one of three criteria mentioned in Section 135 of the Companies Act is Net Profit of ₹ 5 crores or more during the immediately preceding financial year. Appellant further stated that if the company is covered by Section 135(1) it has to constitute a CSR Committee and state the CSR Policy in its Board Report under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counsel for the parties and perused the record. 14. Learned counsel for the Appellant argued that the net profit earned by the company in FY 2013-14 has to be calculated as per Rule 2(f) of the Companies (Corporate Social Responsibility Policy) Rules, 2014 and as per Rule 2(f) of Rules 2014 the net profit (profit after tax) earned by the company is not within the threshold limit stipulated in Section 135(1) of the Companies Act, 2013. Learned counsel further argued that the explanation appended to Section 135(5) of the Act has no relevance at all for the purpose of calculating the net profit earned by the company as the same was brought about by way of amendment only in the years 2018. Learned counsel further argued that prior to the amendment made to the explanation in the year 2018, there was no method for calculating net profit earned by a company except as per Rule 2(f) and the net profit calculated as per the said Rule is the profit earned after tax. Appellant further argued that the appellant is not attracted by the provisions of Section 135(1) for the FY Year 2014-15. 15. Learned counsel for the Respondent argued that the interpretation of Net P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Board of every company who comes under Section 135(1) of the Act shall ensures that the company spends in every year at least 2% of the average net profit of the company made during the three immediately preceding financial years in pursuance of the CSR. The net profit will be calculated as per Section 198 of the Companies Act, 2013 and that the profit before tax will be taken as Net Profit . 17. The next issue argued by the learned counsel for the appellant that even if it is the company is deemed to be covered under Section 135(1) of the Act, then also it is not liable to expend any sum towards CSR in as much since the company had incurred losses in FY 2011-2012 and 2012-13 and the average net profit calculated for the three FY comes in negative. 18. Learned counsel for the Respondent argued that the appellant has not gone through the contents of Section 198(4)(l) which clearly provides the period from when the deduction of excess expenditure o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll 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, will be the net profit of the three years. The method of calculation of average net profit for immediately preceding three years as discussed is applicable and not as directed in the impugned order. 21. The company has not constituted the CSR Committee. Further though it was asserted that the company did spent money on CSR activities (para 2 of rejoinder) but no proof has been placed before us of the amount spent on this exercise. Therefore, the company is defaulter for spending this amount during the year 2014-15. 22. In the impugned order the company has been permitted to file an application for revision of financial statements or board s report after incorporating the information regarding CSR for FY 2014-15. Appellant has not challenged this observation. Hence we are not expressing our opinion on this issue and direction of NCLT stands. 23. For the above reasons we ..... X X X X Extracts X X X X X X X X Extracts X X X X
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