Section 115JB – Provision made for Corporate Social Responsibility, in accordance with the guidelines issued by the Department of Public Enterprises, constitutes an unascertained liability and needs to be added back while computing ‘book profits’ when how the amount is to be spent has neither been determined nor specified by the assessee

FACTS
The assessee, a public sector undertaking, filed its return of income for A.Y. 2014-15 declaring its total income to be a loss of Rs. 1,89,90,55,165 and paying taxes u/s 115JB on a declared book profit of Rs. 66,18,51,561. In the course of assessment proceedings, the A.O. noticed that the assessee has created a provision for Corporate Social Responsibility (CSR) in its books of accounts. The A.O. held that the said provision was an unascertained liability as the assessee had only created the provision but where the amount was to be spent was unascertained. He rejected the assessee’s contention that the provision had been created on the basis of the guidelines issued by the Department of Public Enterprises (DPE) which the assessee was bound to follow. The A.O. disallowed the sum of Rs. 35,09,480 being provision of CSR u/s 115JB considering it as an unascertained liability.

Aggrieved, the assessee preferred an appeal to the CIT(A) who confirmed the action of the A.O. who, while holding the disallowance to be justified, noted that the guidelines issued by the DPE were not the determinative factor to decide the allowability of the provisions.

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD
The essential question before the Tribunal was whether or not the provision for CSR as made by the assessee amounting to Rs. 35,09,480 can be considered as an ascertained liability. The Tribunal noted that the assessee has made the impugned provision in terms of the calculation provided as per the DPE guidelines. However, although the amount to be provided towards meeting the liability of the CSR expenditure has been quantified in accordance with the said guidelines, how the amount is to be spent has neither been determined nor specified by the assessee. Considering the meaning of the word ‘ascertained’ as explained by dictionaries, the Tribunal held that, at best, it is just an amount which has been set aside for being spent towards CSR but without any further certainty of its end-use. Thus, it cannot be said that the liability is an ascertained liability. The decisions relied upon on behalf of the assessee were held to be distinguishable on facts as in those cases the nature / mode of expenditure ear-marked for CSR spending was very much determined and specified, i.e., the nature / mode of expenditure was ‘ascertained’. The Tribunal dismissed the ground of appeal filed by the assessee.