2021 (3) TMI 779 - AT - Income Tax

Corporate Social Responsibility provision disallowed for book profit calculation under Income Tax Act

M/s Pawan Hans Ltd. Versus Dy. CIT, Circle-19 (2), New Delhi

M/s Pawan Hans Ltd. Versus Dy. CIT, Circle-19 (2), New Delhi - TMI Issues:Disallowance of provision for Corporate Social Responsibility under section 115JB of the Income Tax Act, 1961.Analysis:The appeal was filed by the assessee against the order of the Commissioner of Income Tax (Appeals) for Assessment Year 2014-15. The assessee, a Public Sector Undertaking, had declared a loss under the normal provisions of the Income Tax Act but paid taxes under Minimum Alternate Tax (MAT) on the declared book profit. The Assessing Officer disallowed the provision for Corporate Social Responsibility (CSR) created by the assessee, considering it an unascertained liability under section 115JB of the Act. The Commissioner upheld the disallowance, stating that guidelines by the Department of Public Enterprises were not determinative. The assessee contended that the provision was created as per guidelines and was a mandatory expenditure under the Indian Companies Act. The assessee argued that the provision was an ascertained liability and should not be disallowed for computing book profit under section 115JB. The assessee relied on various judgments to support their case.The Departmental Representative argued that the provision for CSR was not an ascertained liability as the nature of the provision was not known. The net profit, as per Explanation-1 to section 115JB, should be adjusted by amounts set aside for provisions made for liabilities other than ascertained liabilities. The Tribunal considered whether the provision for CSR could be considered an ascertained liability. Although the amount was calculated based on guidelines, how it would be spent was not determined by the assessee. The Tribunal noted that an ascertained liability means a certain, clear, or definitely known liability. In this case, the end-use of the earmarked amount for CSR was not certain or definitely known, making it not an ascertained liability. The Tribunal distinguished the case from previous judgments where the nature/mode of expenditure for CSR was determined and specified. Consequently, the Tribunal dismissed the grounds raised by the assessee and upheld the disallowance under section 115JB.In conclusion, the Tribunal dismissed the appeal of the assessee, holding that the provision for Corporate Social Responsibility was not an ascertained liability and therefore should be disallowed for computing book profit under section 115JB of the Income Tax Act, 1961.