The Authority for Advance Rulings, Telangana (AAR) ruled that Income Tax Credit (ITC) can be availed on Corporate Social Responsibility (CSR) Expenses in the case of M/s Bambino Pasta Food Industries Private Limited, the applicant.
The applicant has sought advanced ruling on whether ITC is available on CSR expenditure spent by the company. The applicant is a private limited company engaged in the is a manufacturer of Vermicelli and pasta Products.
The Counsel for the appellant contended that CSR expenses are not incurred voluntarily hence the applicant stated that it doesn’t qualify as ‘gift’ and therefore its credit is not restricted under Section 17(5) of the CGST Act, 2017 and non-spending of CSR funds will definitely have an impact on the functioning of company as penal provisions under Companies Act 2013 will have financial impact as well as on how the brand is perceived by the customers.
The appellant also contended that the company incurs CSR expenditure under statutory compulsion, which is certainly incurred because of running of business and by no stretch of imagination, could it be considered as ‘gift’ for any reason.
The Two Member Bench of the Authority consisting of S.V. Kasi Visweswara Rao, Additional Commissioner (State Tax) Sahil Inamdar, Additional Commissioner (Central Tax) observed that “Under the Companies Act, 2013, the Companies with a specified net worth or net profit are obliged to incur a minimum of 2 % of their net profit towards their corporate social responsibility (CSR) and failure to do so will attract penalty under sub section 7 of Section 135 of the Companies Act, 2013 which may go up to a maximum of Rs.1 Cr.”
“Thus, the running of the business of a company will be substantially impaired if they do not incur the said expenditure. Therefore, the expenditure made towards corporate responsibility under section 135 of the Companies Act, 2013, is an expenditure made in the furtherance of the business.”
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