Certain Expenditure is Advantageous in Long run by Creating Goodwill Amounts to Business Expenditure: ITAT Allows Deduction u/s 37(1) to Maruti Suzuki [Read Order]

In a significant case, the Delhi bench of the Income Tax Appellate Tribunal ( ITAT ) allowed the deduction under section 37(1) of the Income Tax Act 1961 to Maruti Suzuki and observed that certain expenditure is advantageous in long run by creating goodwill amounts to business expenditure.

Maruti Suzuki India Ltd, the assessee challenged the disallowance of expenditure of Rs.11,30,00,000/- incurred on account of discharging Corporate Social Responsibility (“CSR”).

CSR refers to the obligations of businessmen to pursue those policies or to follow those lines of relations which are desirable in terms of the objectives and values of our society.  An expense incurred merely for discharging corporate social responsibility is also an expenditure incurred to achieve long-term growth, create goodwill, and secure a sustainable competitive advantage. 

The assessee further sponsored National Road Safety Mission to create awareness amongst persons about road safety.  He further submitted that realizing the gravity of the problem and the need for an efficient and effective driving training infrastructure in the country.  The appellant initiated road safety initiatives offering a well-structured and scientifically designed driving training programme to the public. 

It was implicated that if somebody other than the assessee also benefitted by the incurring of the expenditure does not come in the way of the expenditure being allowed by way of deduction under section 37(1) of the Act. What is important for the allowability of deduction under section 37(1) of the Act is that the expenditure must be incurred for business.

A Coram comprising of Shri Shamim Yahya, an Accountant Member & Shri Kul Bharat, a Judicial Member observed that certain expenditures may not reap profits immediately, but may be advantageous in the long run, by creating goodwill and brand image.

Further held that the expenditure has to be allowed because ultimately impacts the sales promotions of the assessee company and directed to delete the disallowance.

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