CSR expenditure provision treated as unascertained liability and added back in book-profit computation under section 115JB.

A provision for corporate social responsibility expenditure was treated as an unascertained liability for book-profit computation under section 115JB because the earmarked amount was only set aside for future CSR spending and its actual application remained uncertain. The text applies the principle that, under clause (c) of Explanation 1 to section 115JB, only provisions for unascertained liabilities are added back, and a liability is ascertained only when it is certain, clear, and definitely known. On these facts, the CSR provision did not meet that standard and was correctly added back while computing book profit against the assessee.

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Issues: Whether the provision made for corporate social responsibility expenditure could be treated as an ascertained liability and therefore excluded from adjustment while computing book profit under section 115JB of the Income-tax Act, 1961.

Analysis: The provision was quantified with reference to the guidelines issued by the Department of Public Enterprises, but the actual nature and end-use of the earmarked amount had not been determined or specified. The amount was only set aside for future CSR spending and its application remained uncertain. For the purpose of clause (c) of Explanation 1 to section 115JB, only provisions made for unascertained liabilities are liable to be added back, and a liability can be regarded as ascertained only when it is certain, clear, and definitely known. On the facts, the CSR provision did not satisfy that standard.

Conclusion: The provision for CSR expenditure was held to be an unascertained liability and was correctly added back while computing book profit under section 115JB, against the assessee.

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