TMI Blog2019 (11) TMI 856X X X X Extracts X X X X X X X X Extracts X X X X ..... PER ANADEE NATH MISSHRA, AM [A] This appeal has been filed by the assessee against impugned appellate order dated 16.01.2017 of learned Commissioner of Income Tax (Appeals)-39, New Delhi. The grounds of appeal are as under:- 1. The learned CIT(A) has erred in confirming the disallowance of ₹ 237.81 lacs on Corporate Social Responsibility (CSR for Short) by AO, the CSR expenses incurred under the directions of BPE Govt. of India requiring Companies to spend a prescribed percentage of its profits on CSR and now also made mandatory under the Companies Act. 2. That the above grounds are independent and without prejudice to each other. [B]. The only issue in dispute in this present appeal is regarding the allowability of the claim of the assessee for expenditure amounting to ₹ 237.80,958/- on account of Corporate Social Responsibility ( CSR for short ). During appellate proceedings in Income Tax Appellate Tribunal ( ITAT, for short ), the following particulars were filed from the assessee s side: 1. Tribunal Order dated 29.11.2018 in ITA No. 4733/Del/2015, for 1-6 AY 2012-13 holding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nium Development Goals adopted by the country to ensure gender sensitivity, skill enhancement, entrepreneurship development and employment generation by co-operating value with local intuitions/people and community Development etc. In fact the same has since been made a part of the Companies Act 2013 and extended to all companies. Accordingly, the company had incurred expenditure for development of area surrounding plants of the company and it indirectly adding to business of the company, since developed area in and business place always contribute to business of company. 4.3 The reply of the assessee has been duly considered, but it was not found to be acceptable. The assessee company is engaged in the business of production of thermal power. The contention of the assessee is that expenditure incurred in respect of community development and corporate social responsibility expenditure were covered u/s 37(1) of the Income Tax Act, 1961. However, the main requirement of the provision of section 37(1) is that expenditure should have been laid out wholly and exclusively for the purpose of the business. The nexus between the expenditure and the business, in connection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to corporate sustainability. Secondly, under the Income tax Act, the expenditure has to be covered within the ambit of the provisions of Section 37 (1) thereof. The court decisions relied upon by the appellant deals with instances where expenditures have been incurred specifically based on the principle of commercial expediency. Thirdly, existing provisions of the Act (for e.g. Section 35AC, Section 80G, etc.) provide for allowing such expenditures as deduction, subject to fulfillment of conditions therein. Finally, it is observed from the nature of the expenditures claimed above that the requirement u/s 37(1) is hardly fulfilled in respect of the aforementioned expenditures. Accordingly, as the expenditure is claimed to be under CSR and yet there is a claim of deduction thereof in the P L account as any other expenditure incurred to be wholly and exclusively for the purpose of business (except capital and personal expenses), I am inclined to uphold the disallowance made on this issue in the impugned order. The appeal on this point fails. [E] As mentioned earlier, both sides have agreed before us at the time of hearing that the dispute regarding allowability of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be allowed. However, we are unable to concur with the findings of the lower authorities on this issue and we hold that the disallowance under Explanation (2) to section 37(1) will not come into play and there is no such disabling provision even if the expenses in discharge of corporate social responsibility are incurred on voluntary basis. Explanation (2) to section 37(1) comes into play only w.e.f. 1.4.2015 allowable as revenue expenditure. Accordingly, we set aside the order of the Ld. Commissioner of Income Tax (A) on this issue and direct the Assessing Officer to allow the expenses incurred towards corporate social responsibility and accordingly, expenses incurred towards corporate social responsibility incurred prior to this date will necessarily be. ITA No. 4733/Del/2015 2. Coming to ground no. 2 of the assessee s appeal which challenges the expenses incurred towards corporate social responsibility, we find that the Raipur Bench of ITAT in the case of AC1T vs. Jindal Power Ltd. In ITA No. 99/Del/2012 has allowed CSR expenses in assessment year 2008-09. The Raipur Bench has further held that Explanation (2) to section 37 of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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