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2018 (12) TMI 744 - AT - Income TaxDisallowance of expenditure claimed by the assessee company as CSR u/s. 37(1) - allowable busniss expenditure - Held that - Since the CSR expenses are mandatory for companies incorporated as per the Companies Act, 2013 and the expenditure have been incurred by the assessee as envisaged under the Companies Act, 2013. So we are of the opinion that it has to be allowed and we take note that the Tribunal in Jindal Power Ltd. 2016 (7) TMI 203 - ITAT RAIPUR has already held that the introduction of explanation 2 to sec. 37(1) of the Act w.e.f. from 1st August, 2015 cannot be held to be retrospective in operation. Therefore, the expenditure incurred by assessee on account of CSR as envisaged u/s. 135 of the Companies Act, 2013 need to be allowed as deduction. Therefore, the CSR expenditure which the assessee company was obliged to discharge because it was a statutory obligation upon the assessee company so, the deduction should have been allowed as per the law in force for this assessment year and we direct the AO to allow the expenditure. - Decided in favour of assessee.
Issues:
Disallowance of expenditure claimed as CSR under section 37(1) of the Income-tax Act, 1961. Analysis: The appeal involved the disallowance of expenditure claimed by the assessee company as Corporate Social Responsibility (CSR) under section 37(1) of the Income-tax Act, 1961. The Assessing Officer (AO) disallowed the claimed amount of ?39,06,724 on the grounds that the expenditure was not wholly and exclusively for the purpose of the assessee's business. The AO observed that the vocational training expenses paid by the assessee to an institute were not directly related to the business of development of housing projects. The AO further noted that Explanation 2 to section 37(1) of the Act, which applies from AY 2015-16, does not allow CSR expenditure unless it is incurred wholly and exclusively for the business. The AO disallowed the expenditure, which was confirmed by the Ld. CIT(A), leading to the assessee's appeal before the ITAT Kolkata. During the appeal hearing, the assessee argued that the CSR expenditure was mandatory under section 135 of the Companies Act, 2013, and therefore should be allowed as a deduction. The ITAT Kolkata referred to a similar case, ACIT Vs. Jindal Power Ltd., where the Tribunal allowed CSR expenditure as it was considered to be in line with the evolving concept of business, including social responsibility. The ITAT Kolkata held that the introduction of Explanation 2 to section 37(1) of the Act from 1st April 2015 should not be applied retrospectively. Since the expenditure was incurred as per the statutory obligation of the Companies Act, 2013, the ITAT Kolkata directed the AO to allow the CSR expenditure claimed by the assessee. Consequently, the appeal of the assessee was allowed, and the disallowance of the expenditure was overturned. In conclusion, the ITAT Kolkata ruled in favor of the assessee, allowing the claimed CSR expenditure as a deduction since it was mandatory under the Companies Act, 2013, and not solely for the purpose of business. The judgment highlighted the evolving concept of business to include social responsibility and emphasized that the introduction of Explanation 2 to section 37(1) should not be applied retrospectively. The decision was based on the principle that expenses incurred under a statutory obligation should be allowed as deductions, leading to the reversal of the disallowance by the AO and the Ld. CIT(A).
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