ITAT Upholds Disallowance of CSR Expenses u/s 37 [Read Order]

The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) has upheld the disallowance of Corporate social responsibility (CSR) expenses under Section 37 of the Income Tax Act 1961.

The assessee, Hindustan Construction Company Limited is a multinational company engaged in the business of construction of technically complex and high-value projects across all business segments. The major projects executed across India are roads and expressways, tunnels, bridges, dams and barrages and also India’s 1st and longest open sea cable stayed bridge.

The Assessing Officer disallowed Rs.74.32 lakhs, being expenditure incurred towards Corporate social responsibility, by invoking provisions of Explanation 2 to section 37(1) of the Act, which states that any expenditure incurred on the activity relating to the Corporate social responsibility referred to in Section 135 of the Companies’ Act 2013, shall not be deemed to be expenditure incurred for the purpose of business or profession.

According to Section 37, any expenditure that is planned or spent entirely and solely for business or professional purposes (as opposed to capital expenses or the assessee’s personal expenses) shall be taken into account when determining the income that must be paid under the “profits and gains of business or profession” tax.

H.P. Mahajani, who appeared on behalf of the assessee submitted that the assessee had incurred expenditure towards Corporate social responsibility under various heads like Salary to skill development institution for promoting education, Sanitation facility for community, Rural development works, Sports support, Disaster support, Environmental sustainability etc. He further submitted that there was live nexus with the business carried on by the assessee and hence it was allowable as deduction.

Yogesh Kamat, appeared on behalf of the revenue.

B.R. Baskaran (AM) & Shri Rahul Chaudhary (JM) observed that, these expenses had been incurred towards community welfare activities as required under the Companies Act as CSR activities only, i.e., the assessee had not demonstrated as to how these expenses have nexus with the business carried on by the assessee. Further Explanation 2 to section 37(1) specifically provided for disallowance of the expenditure incurred towards corporate social responsibility.

Accordingly,  this ground of appeal, along with the appeal, was dismissed, while the disallowance  CSR expenses were upheld.

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