The Income Tax Appellate Tribunal (ITAT), New Delhi Bench held that the payments to church, police station, summits, schools, etc are not Corporate Social Responsibility (CSR) expenses.
The assessee, Vedanta Ltd. receives Strategic Planning and Consultancy Services from Vedanta Resources Plc (VRPL) under a Management Consultancy Agreement. The relevant clauses of that agreement show that VRPL agreed to provide Strategic planning and consultancy services to Sesa Sterlite and its subsidiaries in various areas of business such that Sesa Sterlite is able to finalize and implement their plans for growth and are able to raise necessary finances.
The assessee claimed that services received from VRPL included consultancy services, strategic advice which included a global profile, assistance in formulating and implementing short, medium, and long term plans and strategic and assistance on all opportunities for growth and diversification, legal advice, and advice on account of financial treasury, marketing, human resource management and IT support.
During the course of scrutiny assessment proceedings, the Assessing Officer noticed that the assessee has claimed an expenditure of Rs. 50,36,663 on account of CSR.
The Assessing Officer was of the opinion that expenditure so incurred does not qualify as expenditure incurred for the purpose of business in terms of section 37 of the Act.
The Tribunal in the case of National Small Industries Corporation Limited has held that amendments made to section 37 of the Act vide Finance Act, 2014 are prospective in nature and hence would not be applicable to the period prior to the said amendment which is the case of the assessee.
Though the amendment to Section 37 of the act may be prospective, at the same time, the assessee had to justify the claim of expenditure being spent on CSR. Details in the present case do not justify the claim of expenditure on account of commercial expediency.
The two-member bench of Judicial Member Kuldip Singh and Accountant Member N.K.Billaiya considering the claim from all possible angles, did not find any merit in such a claim of expenditure.
“Disallowance of Rs. 50.37 lakhs stands confirmed. A plain reading of the aforementioned detail shows that these expenses are either in the nature of charity or donation. In our considered view, these expenses are not in the nature of CSR. Payments made to church, police station, summits, schools, etc cannot be considered to have been spent on CSR,” the tribunal noted.
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