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2021 (8) TMI 1186 - AT - Income TaxDisallowance of CSR expenses - allowable revenue expenditure or not? - Assessee argued that expediture 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 - HELD THAT - As decided in own case 2018 (11) TMI 1717 - ITAT DELHI and 2018 (4) TMI 1664 - ITAT DELHI issue in dispute is squarely covered in favour of the assessee - thus direct the Assessing Officer to allow the assessee s claim for expenditure on account of Corporate Social Responsibility. - Decided in favour of assessee. Allowable business expenditure - expenses on tree plantation etc u/s 37 - HELD THAT - As decided in own case expenses incurred as wholly and exclusively for the purpose of the business. Thus, the expenses incurred in the year under consideration are also eligible for deduction under section 37 of the Act.- Decided in favour of assessee.
Issues:
Disallowance of Corporate Social Responsibility (CSR) expenses under section 37 of the Income Tax Act, 1961. Analysis: 1. The appellant contested the disallowance of ?169.55 lakhs on CSR expenses by the Ld. Commissioner of Income-tax (Appeals) for the assessment year 2014-15. 2. The assessee company, a joint-venture owned by NTPC Ltd and Steel Authority of India, filed its return of income declaring total income of ?350,86,03,340/- for the year under consideration, which was selected for scrutiny assessment. 3. The Ld. CIT(A) sustained the disallowance of ?1,69,55,406/- on the issue of CSR, leading the assessee to appeal before the Tribunal. 4. During the proceedings, the counsel of the assessee argued that a similar disallowance in a previous year had been deleted by the Tribunal, indicating that the issue is in favor of the assessee. 5. The Learned DR contended that expenses on CSR are not eligible for deduction under section 37(1) of the Act due to Explanation-2. 6. The Tribunal noted that the assessee had incurred ?169.55 lakhs on CSR activities, including tree plantation, community development, and other CSR expenses. 7. Referring to previous Tribunal decisions, the Tribunal found that expenses on CSR were allowable under section 37 if incurred wholly and exclusively for the business purpose, as in the present case. 8. The Tribunal cited precedents where CSR expenses were allowed as revenue expenditure prior to the insertion of Explanation-2 to section 37(1) of the Act, which came into effect from 1.4.2015. 9. Consequently, the Tribunal allowed the assessee's claim for CSR expenditure, directing the Assessing Officer to permit the deduction for the expenses incurred. 10. The Tribunal clarified that Explanation-2 to section 37(1) was applicable from the assessment year 2015-16 onwards, and thus, for the year under consideration, CSR expenses could not be disallowed under this provision. 11. Based on the above discussion, the Tribunal allowed the sole ground raised by the assessee, resulting in the appeal being allowed in favor of the assessee. This detailed analysis of the judgment highlights the issues related to the disallowance of CSR expenses under section 37 of the Income Tax Act, 1961, and the Tribunal's decision in favor of the assessee based on precedents and legal provisions.
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