CSR is not a part of operational expendtiure. Eligible entities must spend at least 2% of their average net profits from the preceding three financial years. However, many companies are showing this under CSR spend under Expenses Head- Defimnitely, Income Tax will not allow it. What about AS? Why Big ticket audit firms are not flagging against such reflection.
Please guide.
Regards,
J Bandyopadhyay
Regarding the treatment of CSR expenses in financial statements:
CSR expenditure is not considered part of operational expenditure.
As per the Companies Act and accounting standards, CSR spend should be disclosed separately and not be classified under normal operational expenses.
Income Tax Act does not allow CSR expenditure as a deduction for computing taxable income, which is correct.
Coming to Accounting Standards (AS):
Ind AS (Indian Accounting Standards) and AS don't explicitly allow CSR expenses tobe shown under the "Expenses" head in the profit and loss statement is a way that distorts the picture of operatiional expenses.
Big ticket audit firms might flag this because CSR spend needs to be transparentely disclosed as per regulatory requiremets, ensuring clarity on the nature of these expenses.
For guidance:
Companies should disclose CSR expenses separately i their financial statements to comply with regulatory requirements and ensure transparency.
Ensure compliance with Companies Act, 2013, and relevant accounting standards for CSR reporting.
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