2021 (3) TMI 779 - AT - Income Tax

Disallowance of provision of CSR u/s 115JB - whether the provision for CSR as made by the assessee can be considered as an ascertained liability or not? - HELD THAT - Although the assessee has set-aside an amount ear-marked for spending towards the CSR obligation, how the ear-marked amount will be finally spent has not been determined. As per the Cambridge Advanced Learner s Dictionary, the meaning of the word ascertained is to make certain . In dictionary.com, the word ascertain has been described as to make certain, clear or definitely known . In the present case, how the amount ear-marked for spending towards the CSR obligation will be spent is not certain , clear or definitely known . At best, it is just an amount which has been set aside for being spent towards Corporate Social Responsibility but without any further certainty of its end-use. Thus, it cannot be said that the liability is an ascertained liability. Although, the Ld. AR has placed reliance on numerous judicial precedents, the same are distinguishable on facts as in those cases the nature/mode of expenditure ear-marked for Corporate Social Responsibility spending was very much determined and specified i.e. the nature/mode of expenditure was ascertained . Therefore, on the peculiar facts of this case we are unable to agree to the contention of the Ld. AR that the impugned disallowance u/s 115JB was an ascertained liability. We dismiss the grounds raised by the assessee.

Summary

Issues:
Disallowance of provision for Corporate Social Responsibility under section 115JB of the Income Tax Act, 1961.

Analysis:
The appeal was filed by the assessee against the order of the Commissioner of Income Tax (Appeals) for Assessment Year 2014-15. The assessee, a Public Sector Undertaking, had declared a loss under the normal provisions of the Income Tax Act but paid taxes under Minimum Alternate Tax (MAT) on the declared book profit. The Assessing Officer disallowed the provision for Corporate Social Responsibility (CSR) created by the assessee, considering it an unascertained liability under section 115JB of the Act. The Commissioner upheld the disallowance, stating that guidelines by the Department of Public Enterprises were not determinative. The assessee contended that the provision was created as per guidelines and was a mandatory expenditure under the Indian Companies Act. The assessee argued that the provision was an ascertained liability and should not be disallowed for computing book profit under section 115JB. The assessee relied on various judgments to support their case.

The Departmental Representative argued that the provision for CSR was not an ascertained liability as the nature of the provision was not known. The net profit, as per Explanation-1 to section 115JB, should be adjusted by amounts set aside for provisions made for liabilities other than ascertained liabilities. The Tribunal considered whether the provision for CSR could be considered an ascertained liability. Although the amount was calculated based on guidelines, how it would be spent was not determined by the assessee. The Tribunal noted that an ascertained liability means a certain, clear, or definitely known liability. In this case, the end-use of the earmarked amount for CSR was not certain or definitely known, making it not an ascertained liability. The Tribunal distinguished the case from previous judgments where the nature/mode of expenditure for CSR was determined and specified. Consequently, the Tribunal dismissed the grounds raised by the assessee and upheld the disallowance under section 115JB.

In conclusion, the Tribunal dismissed the appeal of the assessee, holding that the provision for Corporate Social Responsibility was not an ascertained liability and therefore should be disallowed for computing book profit under section 115JB of the Income Tax Act, 1961.