Addition of CSR Expenses to book profit disclosed in audited accounts not justified

GE Power Systems India Private Limited Vs ACIT (ITAT Delhi)

Conclusion: Addition of CSR expenses to book profit under section 115JB was not justified as AO or assessee, none could tinker with book profit disclosed in audited account and once the accounts had been prepared in accordance with standards in this regard, this tinkering by AO had no sanction of law.

Held: Assessee-company incurred a sum of Rs.48 lakhs towards CSR, and this entire sum was disallowed by assessee company in computation of its taxable income under the normal provision of the Income Tax Act but AO noted that the same was not deducted from the book profit. He noted that as per the explanation (2) to section 37(1), the CSR expenditure was not allowable under the normal provision of the Act. AO was of the opinion that any liability created out of profits took the character of appropriations that income tax was not an allowable deduction primarily because it was in the nature of appropriation of profits.AO proceeded to disallow the same and increase the book profit to that extent. He held that as per provisions of section 115JB, item no. b to explanation 1, the amount carried to any reserves, by whatever name called, other than a reserve specified under section 33AC was to be added back to the book profits. That the creation of reserves for CSR was clearly not covered by section 33AC. Hence, AO added back to the book profit the CSR provision expenditure. It was held that none of the clauses above provided that CSR expenses had to be added to book profit. Except for the wild imagination of the AO by no stretch of imagination, it could be said expenditure on CSR expenses was a transfer to/from reserve. Hon’ble Apex Court in Apollo Tyers had clearly laid down that AO or assessee, none could tinker with book profit disclosed in audited account. It was not the case that the accounts had not been prepared as per accepted accounting principle. Once the accounts had been prepared in accordance with standards in this regard, this tinkering by AO had no sanction of law. The addition to book profit was set aside.

FULL TEXT OF THE ORDER OF ITAT DELHI

This appeal by the assessee is directed against the order of the Ld. CIT(A)-4, New Delhi, dated 23.09.2019 pertaining to Assessment Year 2016-17.

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