2019 (8) TMI 1642 - AT - Income Tax

Disallowance of expenses incurred on account of Corporate Social Responsibility Expenses and disallowance of sales promotions - HELD THAT - Assessing Officer as well as CIT(A) ignored the fact that the said expenditure was incurred relating to promotion and spreading awareness about sustainability and environmentally friendliness of metal packaging which is important to can making industry. Thus the expenses incurred by the assessee are coming under purview of Section 37(1) of the Income Tax Act 1961. Therefore the appeal of the assessee is allowed.

Summary

Issues:
1. Disallowance of Corporate Social Responsibility Expenses.
2. Disallowance of sales promotions expenses.

Analysis:

Issue 1: Disallowance of Corporate Social Responsibility Expenses
The assessee filed an appeal against the order of the CIT(A) regarding the disallowance of expenses incurred on Corporate Social Responsibility (CSR) Expenses. The Assessing Officer disallowed &8377; 19,66,901/- as CSR expenses and assessed the income of the assessee accordingly. The assessee argued that the expenses were related to promoting sustainability and environmentally friendly practices in the canmaking industry. The expenses were debited under Misc. expenses, and the assessee highlighted the positive response and recognition received for their efforts in promoting recycling and awareness about metal packaging sustainability. The Tribunal referred to a previous judgment where expenditure on CSR activities was allowed as a business expense. The Tribunal held that the expenses incurred by the assessee were related to promoting awareness about sustainability and environmentally friendly practices, which are crucial for the canmaking industry. Therefore, the expenses were considered to be incurred wholly and exclusively for the purpose of business under Section 37(1) of the Income Tax Act, 1961. The appeal of the assessee was allowed.

Issue 2: Disallowance of sales promotions expenses
The Assessing Officer also disallowed sales promotions expenses amounting to &8377; 1,46,894/-. However, there was no detailed discussion or argument presented in the judgment regarding this specific issue. The CIT(A) partly allowed the appeal of the assessee, but the judgment did not provide further information on the specific grounds or reasoning for this decision. Therefore, the judgment primarily focused on the disallowance of Corporate Social Responsibility Expenses, and the decision regarding sales promotions expenses was not extensively discussed.

In conclusion, the Appellate Tribunal ITAT DELHI allowed the appeal of the assessee concerning the disallowance of Corporate Social Responsibility Expenses, emphasizing the importance of promoting sustainability and environmentally friendly practices in the canmaking industry. The judgment highlighted the relevance of such expenses under Section 37(1) of the Income Tax Act, 1961, and referred to a previous judgment supporting the allowance of similar expenses.