The Delhi bench of the Income Tax Appellate Tribunal (ITAT) has held that CSR expenses cannot be added to book profit under section 115JB of the Income Tax Act, 1961.
The assessee company, GE Power Systems India, is engaged in the business of manufacturing turbines and generators for thermal projects. The Assessing Officer noted that from the financial statements, it has been noticed that the assessee company has debited an amount of Rs.48,00,000/- towards expenditure on corporate social responsibility. The Assessing Officer asked the assessee that Rs.48 Lakhs has been shown as expenditure but the same has not been added back in your MAT computation and confirmed the addition rejecting the contentions of the assessee.
The assessee contended that since in the income tax out such expenditure is not allowed, the assessee has disallowed the same while computing income under the normal provisions of the Income Tax Act.
A two-member bench of the Tribunal comprising Shri Shamim Yahya (Accountant Member) and Shri Yogesh Kumar US (Judicial Member), while allowing a second appeal by the assessee, held that none of the clauses above provides that CSR expenses have to be added to book profit.
“Except for the wild imagination of the Assessing Officer by no stretch of the imagination, it can be said expenditure on CSR expenses is a transfer to/from the reserve. Hon’ble Apex Court in Apollo Tyers (supra) has clearly laid down that the Assessing Officer or assessee, none can tinker with book profit disclosed in the audited account. It is not the case that the accounts have not been prepared as per accepted accounting principles. Once the accounts have been prepared in accordance with standards in this regard, this tinkering by the Assessing Officer has no sanction of law. We have no hesitation in setting aside the addition to book profit in this regard,” the Tribunal said.
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