2019 (11) TMI 856 - AT - Income Tax

Tribunal Recognizes CSR Expenses as Allowable u/s 37(1) Before April 2015, Overturns Previous Order.

The ITAT set aside the CIT(A)'s order, directing the AO to allow the CSR expenses of Rs. 237.80 lacs under Section 37(1) of the Income Tax Act. The ... Corporate Social Responsibility (CSR) expenses - expenses incurred under the directions of BPE Govt. of India requiring Companies to spend a prescribed percentage of its profits on CSR and now also made mandatory under the Companies Act - HELD THAT:- Both sides have agreed before us at the time of hearing that the dispute regarding allowability of CSR expenses is covered in favour of the assessee by aforesaid orders in assessee’s own case [2018 (4) TMI 1664 - ITAT DELHI] in identical facts and circumstances, in assessee’s favour. Neither side has brought any distinguishable facts nor circumstances to our attention to persuade us to take a view different from the view take in the aforesaid orders - Appeal of the assessee is allowed. Issues Involved:1. Allowability of Corporate Social Responsibility (CSR) expenses amounting to Rs. 237.81 lacs under Section 37(1) of the Income Tax Act, 1961.Issue-Wise Detailed Analysis:1. Allowability of CSR Expenses:[A] The appeal was filed by the assessee against the appellate order dated 16.01.2017 of the Commissioner of Income Tax (Appeals)-39, New Delhi, challenging the disallowance of Rs. 237.81 lacs on CSR expenses by the Assessing Officer (AO).[B] The primary issue in dispute was whether the CSR expenses amounting to Rs. 237.80,958/- incurred by the assessee were allowable under the Income Tax Act. The assessee presented prior Tribunal Orders (ITA Nos. 4733/Del/2015 and 5687/Del/2014) which allowed CSR expenses for Assessment Years 2011-12 and 2012-13, respectively.[C] During the hearing, both parties agreed that the issue regarding the allowability of CSR expenses was covered in favor of the assessee by the aforementioned Tribunal Orders.[D] The AO disallowed the CSR expenses, arguing that they were not incurred 'wholly and exclusively for the purpose of the business' as required by Section 37(1). The AO noted that the expenses were incurred following government guidelines, implying they were not voluntary and should be spent from surplus profits after tax, not claimed as deductions.[D.1] The CIT(A) upheld the AO's disallowance, stating that CSR expenses were mandated by government guidelines and not voluntary. The CIT(A) emphasized that such expenses should be covered under specific provisions like Section 35AC or Section 80G, which allow deductions for social activities under certain conditions, and not under Section 37(1).[E] Both parties agreed that the issue was already decided in favor of the assessee in identical circumstances by prior ITAT orders. No new facts or circumstances were presented to warrant a different view.[F] Respecting the precedents set by ITAT Orders dated 27.4.2018 and 29.11.2018, the Tribunal set aside the CIT(A)'s order and directed the AO to allow the CSR expenses amounting to Rs. 237.80,958/-. The Tribunal reiterated that prior to 1.4.2015, CSR expenses were considered revenue in nature and allowable, as established in the cases of ACIT vs. Jindal Power Ltd. and others.[G] The appeal of the assessee was allowed, and the order was pronounced in Open Court on 04/10/19.