ITAT allows CSR Expenditure on Community Development, and Environment, Health and Safety Expenses [Read Order]

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT), allowed Corporate Social Responsibility (CSR) Expenditure on community development, and environment, health and safety expenses.

The assessee, M/s. GMR Warora Energy Ltd, is a company engaged in the business of power generation and has commenced commercial operation of Unit-1 in the financial year 2012-13 and Unit-2 in the financial year 2013-14. During the year under consideration, the assessee filed its return of income declaring a total income at Rs. nil.

The assessee, during the year under consideration, debited an amount of Rs.2,43,98,882, as community development and welfare expenses in its profit and loss account. Out of the aforesaid amount, Rs.61,28,827, is claimed to be incurred towards community development expenses, while Rs.1,82,70,055, was incurred towards environment health and safety expenses.

In this regard, it is the plea of the assessee that it incurred certain expenditures directly and some amount for community development was incurred through a charitable organisation, namely, GMR Varalakshmi Foundation.

The AO did not dispute the fact that the expenditures have been incurred for the purpose of community development, and environment health & safety expenses. As is evident from the record, the AO disallowed the expenditure merely on the basis that the said expenditure is not incurred wholly and exclusively for the purpose of business.

The AO, vide assessment order, did not agree with the claim of the assessee and held that the same is in contravention to the provisions of section 32(1)(iia) of the Income Tax Act which allow additional depreciation only in the year in which the plant and machinery are acquired and put to use.

In this regard, it is pertinent to note that vide Finance (No.2) Act, 2014, w.e.f. 01/04/2015, Explanation-2 was inserted in section 37(1) of the Act, whereby expenses incurred on the activities relating to corporate social responsibility are specifically excluded from the purview of section 37(1) of the Act. Since the year under consideration is the assessment year 2014-15, therefore, the aforesaid amendment is not applicable to the present case.

A two-Member Bench of the Tribunal comprising Amarjit Singh, Accountant Member and Sandeep Singh Karhail, Judicial Member observed that “Therefore, in view of the above, once the expenditure has been accepted to be for the community development, and environment health & safety expenses, the same cannot be held to be not incurred wholly and exclusively for the purpose of business in the year under consideration.”

“Further, it cannot be disputed that the expenditure incurred on environment health and safety, as stated above, are relevant considering the business in which the assessee is engaged, i.e. development and implementation of coal-based thermal power project” the Bench held.

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