ITC available on CSR expenditure, rules Telangana: AAR

ITC available on CSR Expenditure rules Telangana: AAR

In a recent ruling by the Authority for Advance Rulings, Telangana (AAR) in the case of M/s Bambino Pasta Food Industries Private Limited, ruled that Input Tax Credit (ITC) can be availed on Corporate Social Responsibility (CSR) Expenses.

The applicant sought an advanced ruling on whether ITC is available on CSR expenditure incurred by the company. The applicant is a private limited company and is a manufacturer of Vermicelli and pasta Products.

The appellant contended that CSR expenses are not incurred voluntarily hence it doesn’t qualify as a ‘gift’ and therefore its credit cannot be restricted under Section 17(5) of the CGST Act, 2017. The applicant further argued that non-spending of CSR funds will definitely have an impact on the functioning of the company as penal provisions under the Companies Act 2013 hets attracted and will have a financial impact.

The applicant also contended that the company incurs CSR expenditure under statutory compulsion, which is certainly incurred for the furtherance of business and by no stretch of the imagination, could it be considered as a ‘gift’ for any reason.

The Bench observed that “Under the Companies Act, 2013, Companies with a specified net worth or net profit are obliged to incur a minimum of 2 % of their net profit towards their corporate social responsibility (CSR) and failure to do so will attract penalty under subsection 7 of Section 135 of the Companies Act, 2013 which may go up to a maximum of Rs.1 Cr.” “Thus, the running of the business of a company will be substantially impaired if they do not incur the said expenditure.

Therefore, the expenditure made towards CSR under section 135 of the Companies Act, 2013, is an expenditure made in the furtherance of the business.”