By TIOL News Service

NEW DELHI, APR 10, 2019: THE ISSUE BEFORE THE TRIBUNAL IS - Whether CSR expenditure has to be incurred only subsequent to the commencement of business, for claiming deduction on account of same u/s 37. YES IS THE ANSWER.

Facts of the case:

THE assessee company, engaged in the business of thermal power, filed its return admitting ‘Nil’ income under normal provisions as well as u/s 115JB. From the note to the balance sheet relating to expenditure during the construction period pending allotment, the AO noticed that the assessee had derived income from interest & miscellaneous income totaling to Rs. 14.10 lakhs. The assessee was asked to explain why this income should not be treated as income as the business had yet commenced. During the course of assessment, the AO noticed that the assessee had claimed an expenditure of Rs. 170.75 lakhs toward donations & socio economic development expenses in the note to balance sheet during the construction period pending allotment. Observing that since the assessee was not entitled to allocate this amount at the time of capitalization, he disallowed the said expenditure and brought it to tax.

Tribunal held that:

++ as regards the claim of CSR expenditure, it is found that the assessee is required to incur expenditure towards the corporate social responsibility and accordingly it has incurred certain expenditure which is not disputed by the revenue authorities. The Income Tax Act does not provide that, the CSR expenditure has to be incurred only subsequent to the commencement of business. As long as it is CSR expenditure, it has to be allowed as a business expenditure after the business has commenced or it has to be capitalized if the expenditure is prior to commencement of the business.

(See 2019-TIOL-763-ITAT-DEL)