Expenses For Community Development, Environment Health & Safety : ITAT Allows CSR Expenditure

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has held that once the expenditure has been accepted to be for community development and environmental health and safety expenses, the same cannot be held to have not been incurred wholly and exclusively for the purpose of business in the year under consideration.

The bench of Sandeep Singh Karhail (Judicial Member) and Amarjit Singh (Accountant Member), while allowing the expenditure, observed that expenditure incurred on community development or CSR is allowable under Section 37(1) of the Income Tax Act.

The appellant/assessee is in the business of power generation. During the assessment proceedings, on perusal of the profit and loss account, it was observed that the assessee has claimed expenses of Rs. 2,43,98,882 towards community development expenses under the heading "other expenses".

The assessee was asked to explain how the expenses were allowable. The assessee submitted that the expenditure incurred on community development in and around the surrounding villages of the plant is for the purpose of the business of the assessee and therefore is an allowable expenditure.

The Assessing Officer held that expenditures are not incurred wholly and exclusively for the purpose of business. The CIT (A) allowed the appeal filed by the assessee and deleted the addition made by the AO on this issue.

The Tribunal, while upholding the observation of CIT (A), noted that the expenditures have been incurred for the purpose of community development and environmental health and safety expenses.

Case Title: Dy. Commissioner of Income Tax Versus M/s. GMR Warora Energy Ltd.

Case No.: ITA no.597/Mum./2023

Date: 15/06/2023

Counsel For Appellant: Yogesh Thar, Hiloni Shah

Counsel For Respondent: Kishore Dhule

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