2021 (12) TMI 861 - AT - Income Tax

Disallowance of CSR expenses - Addition by invoking Explanation 2 to Section 37(1) - HELD THAT - Representatives of both the sides have agreed that the same is squarely covered in favour of the assessee by the decision of this Tribunal in the case of Misrilall Mines Pvt. Ltd. 2018 (6) TMI 893 - ITAT KOLKATA wherein it was held that deduction claimed by the assessee on account of CSR expenses actually incurred can be disallowed by invoking Explanation 2 to Section 37(1 of the Act, only from Assessment Year 2015-16 as the same was applicable prospectively w.e.f. 01/04/2015. Provision made for CSR expenses - .As rightly pointed out by the Id. D/R, this claim of the Id. Counsel for the assessee requires verification by the Assessing Officer inasmuch as if the provision made by the assessee is found to be ascertained liability representing actual expenditure incurred by the assessee on CSR, the same is allowable as deduction as held by this Tribunal in the case of Misrilall Mines Pvt. Ltd. (supra). We, therefore, restore this issue to the file of the Assessing Officer for deciding the same afresh after necessary verification from the relevant record. Appeal of the assessee is treated as allowed for statistical purposes

Summary

Issues: Disallowance of Corporate Social Responsibility (CSR) expenses.

Analysis:
1. The appeals involved cross-appeals against the order of the Commissioner of Income Tax (Appeals) regarding the disallowance of CSR expenses.
2. The primary issue was the disallowance of ?4,48,12,000 by the Assessing Officer, upheld to ?2,86,00,000 by the Commissioner.
3. The company, engaged in mining and copper business, filed returns with CSR expenses debited. The Assessing Officer disallowed the expenses citing Explanation 2 to Section 37(1).
4. The Tribunal in a similar case held that CSR expenses were allowable deductions, not appropriation of profits, and deleted the disallowance.
5. The Commissioner deleted the disallowance for actual CSR expenses incurred but sustained it for provision made. Both parties appealed.
6. The Tribunal agreed with the deletion of disallowance for actual expenses, citing prospective applicability of Explanation 2 from 2015-16.
7. Regarding the provision for CSR expenses, the Tribunal noted the distinction between reserves and provisions, requiring verification by the Assessing Officer.
8. The Tribunal allowed the appeal of the assessee for statistical purposes and dismissed the revenue's appeal, remanding the provision issue for fresh assessment.

This judgment clarifies the treatment of CSR expenses, distinguishing between actual expenses and provisions, and emphasizes the prospective application of tax provisions. The decision highlights the importance of verifying the nature of provisions to determine their deductibility, ensuring compliance with tax laws.