The Kolkata bench of the Income Tax Appellate Tribunal ( ITAT ) has held that the expenses towards Corporate Social Responsibility ( CSR ) are allowable as a deduction under the provisions of the Income Tax Act, 1961.
The Assessing Officer disallowed the amount of Rs 39,06,724/- have been debited under the head ‘Corporate Social Responsibility’ by the assessee by observing that the payments under this head were made primarily to an institute for the purpose of vocational training provided to some individuals who are neither related nor in the payroll of the assessee company.
Before the authorities, the assessee contended that these expenses were incurred for the purpose of business as well as the social responsibility of the company and therefore, it is an allowable business expense u/s 37(1) of the Income Tax Act.
After hearing both the sides, the Tribunal 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., (supra), 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 the 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. Therefore, the appeal of the assessee is allowed,” the Tribunal said.
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