Hindustan Coca Cola Beverages Private Ltd. Vs ACIT (ITAT Delhi)
ITAT Delhi held that the expenditure incurred on CSR activities may not have direct nexus with the activities of the assessee but it may have indirect and may bring goodwill to the assessee. Thus, CSR expenditure incurred in order to bring goodwill to the assessee is allowable.
Facts- AO while making the disallowance on account of CSR for A.Y 2014-15 relied upon Explanation 2 to section 37 of the Act to disallow expenditure incurred on account of CSR. Against this order, assessee preferred an appeal before CIT(A). CIT(A) agreed with the submission of the assessee that Explanation 2 to section 37 would not apply in the year under consideration, however, he sustained the said disallowance on the basis that CSR expenditure does not assume the character of business expenditure which is required to claim deduction u/s 37 of the Act.
Conclusion- Held that the Assessing Officer himself acknowledged the fact that expenses pertained to CSR activities are effective from AY 201516. The issue involved under consideration is related to AY 2014-15. Even the amendment made in Companies Act, 2013 as per the policies, it is effective from 01.04.2014, as held in the case of PEC Limited and Steel Authority of India Limited, the amendment made in Companies Act as well as in section 37 are not applicable to the current assessment year. Therefore, these expenditures are incurred without there being any obligation on the assessee. Further we observed that ld. CIT (A) also came to the same conclusion, however he has taken a different view after examining the nature of CSR expenditure holding that such expenses have no direct nexus with respect to the business of the assessee. We observed that the expenditure incurred on CSR activities may not have direct nexus with the activities of the assessee but it may have indirect and may bring goodwill to the assessee. We observed that similar view was expressed by the coordinate Bench in the case of Ranbaxy Laboratories Ltd. (supra) and decided the issue in favour of the assessee. Therefore, we are inclined to decide the issue in favour of the assessee as the assessee has incurred expenditure for the development of their own staff/workers as well as in the general public interest without there being any obligation imposed upon them. Accordingly, ground no.4 raised in AY 2014-15 raised by the assessee is allowed.
