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TMI Blog2022 (9) TMI 815X X X X Extracts X X X X X X X X Extracts X X X X ..... TA No.9120/DEL/2019 - - - Dated:- 10-8-2022 - SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND SHRI YOGESH KUMAR US, JUDICIAL MEMBER Assessee by Sh. Ravi Sharma, Adv., Sh. Rishabh Malhotra, AR, Ms. Shubhangi Arora, AR Revenue by Md. Gayasuddin Ansari, SR. DR ORDER PER SHAMIM YAHYA, AM, This appeal by the assessee is directed against the order of the Ld. CIT(A)-4, New Delhi, dated 23.09.2019 pertaining to Assessment Year 2016-17. 2. The grounds of appeal reads as under:- 1. That on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming the action of the Learned Assessing Officer ( Ld. AO ) in increasing book profits by INR 48,00,000, computed as per section 115JB of the Act. 2. That on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in holding that the Profit and Loss Account of the Appellant is not prepared in accordance with generally accepted accounting principles ( GAAP ), and thus, holding that the Hon ble Supreme Court s decision in the case of Apollo Tyres Ltd. vs. CIT [2002] 255ITR 273 (SC) is not applicable in the present case. 3. That on the facts and circumstances of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purposes of MAT computation. 4. The Assessing Officer noted during the year under consideration, the assessee incurred a sum of Rs.48 lakhs towards CSR, and this entire sum was disallowed by the assessee company in computation of its taxable income under the normal provision of the Income Tax Act but the Assessing Officer noted that the same was not deducted from the book profit. He noted that as per the explanation (2) to section 37(1), the CSR expenditure is not allowable under the normal provision of the Act. The Assessing Officer was of the opinion that CSR expenses are not allowable primarily for two reasons (a) it is in the nature of appropriation of profits and (b) it is in the nature of reserve. That the provision of CSR expenses are created on the basis of profits earned. That any liability created out of profits takes the character of appropriations that income tax is not an allowable deduction primarily because it is in the nature of appropriation of profits. That as per accepted norms of accountancy, the appropriation does not take the character of expenditure. The Assessing Officer proceeded to disallow the same and increase the book profit to that extent. He he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... below the line item and would be seen as deduction from the profit and loss account, then the base figure of Profit as per Section 115JB of the Act would change, as the same would not entail any effect of deduction of CSR amount paid. 6.5 In this regard, reference is drawn to the Circular Number 1/2015 issued by CBDT On 21/01/2015, wherein, CBDT clearly stated that the amount spend on CSR activities is an application of income and not a deduction of expenditure. Furthermore, also on reading of the provisions of CSR provided under Section 135 of the Companies Act, 2013, it is noted that the same is computed as a percentage of net profit and thus should be a below the line item. CSR was introduced for the corporates to discharge their responsibility towards society by spending part of their income for welfare of the society. In such a scenario, CSR would be like Dividend which is part of profit and instead of payment being made to shareholders, the amount is spent on welfare of the society. 6.6 In this backdrop, it is noted that since the CSR amount of Rs. 48,00,000/- is shown as deduction of expense in the profit and loss account of the assessee, the same has reduced the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out of book profit u/s 115JB of the Act. It was further submitted that there is applicability of section 145 of the Act while preparing the financial under the Companies Act, 2013. The ld. Counsel for the assessee reiterated that adjustment of book profit can be done only specified in the Act and the section 115JB is a self contained code. In this regard, the ld. Counsel for the assessee further referred to the decision of the Hon ble Supreme Court in the case of Apollo Tyers Ltd. vs CIT. The Ld. Counsel for the assessee submitted that the assessee has prepared the account in accordance with the Standard Accounting issued by the ICAI. The Ld. Counsel for the assessee referred to the guidelines issued by the ICAI, wherein on the question whether CSR expenditure is an operating expenditure or an appropriation of profits. Answer was given that CSR expenditure is not an operating expenditure but is to be disclosed as other expense in Statement of Profit and Loss. Disclosure is not to be made in surplus account under reserve and surplus in balance sheet. The Ld. Counsel for the assessee further referred to the following case laws:- In the case of M/s. HTC Global Services (India) P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or (b) being a company, to which the second proviso to sub-section (1) of section 129 of the Companies Act, 2013 (18 of 2013) is applicable, shall, for the purposes of this section, prepare its statement of profit and loss for the relevant previous year in accordance with the provisions of the Act governing such company: Provided that while preparing the annual accounts including statement of profit and loss,- (i) the accounting policies; (ii) the accounting standards adopted for preparing such accounts including statement of profit and loss; (iii) the method and rates adopted for calculating the depreciation, shall be the same as have been adopted for the purpose of preparing such accounts including statement of profit and loss and laid before the company at its annual general meeting in accordance with the provisions of section 129 of the Companies Act, 2013 (18 of 2013) : Provided further that where the company has adopted or adopts the financial year under the Companies Act, 2013 (18 of 2013), which is different from the previous year under this Act,- (i) the accounting policies; (ii) the accounting standards adopted for preparing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... change in carrying amount of said units or the amount of loss on transfer of units referred to in clause (xvii) of section 47; or (fd) the amount or amounts of expenditure relatable to income by way of royalty in respect of patent chargeable to tax under section 115BBF; or (g) the amount of depreciation, (h) the amount of deferred tax and the provision therefor, (i) the amount or amounts set aside as provision for diminution in the value of any asset, (j) the amount standing in revaluation reserve relating to revalued asset on the retirement or disposal of such asset, (k) the amount of gain on transfer of units referred to in clause (xvii) of section 47 computed by taking into account the cost of the shares exchanged with units referred to in the said clause or the carrying amount of the shares at the time of exchange where such shares are carried at a value other than the cost through statement of profit and loss, as the case may be; if any amount referred to in clauses (a) to (i) is debited to the statement of profit and loss or if any amount referred to in clause (j) is not credited to the statement of profit and loss, and as reduced by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose vehicle to a business trust in exchange of units allotted by that trust referred to in clause (xvii) of section 47; or (B) notional gain resulting from any change in carrying amount of said units; or (C) gain on transfer of units referred to in clause (xvii) of section 47, if any, credited to the statement of profit and loss; or (iif) the amount of loss on transfer of units referred to in clause (xvii) of section 47 computed by taking into account the cost of the shares exchanged with units referred to in the said clause or the carrying amount of the shares at the time of exchange where such shares are carried at a value other than the cost through statement of profit and loss, as the case may be; or (iig) the amount of income by way of royalty in respect of patent chargeable to tax under section 115BBF; or (iih) the aggregate amount of unabsorbed depreciation and loss brought forward in case of a- (A) company, and its subsidiary and the subsidiary of such subsidiary, where, the Tribunal, on an application moved by the Central Government under section 241 of the Companies Act, 2013 (18 of 2013) has suspended the Board of Directors of such com ..... 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