Mistakes to avoid penal provisions of CSR
One of the three situations which generally attracts #Corporate Social Responsibility provisions of the Companies Act, is that the Net Profit of a company is Rs.5cr or more during any financial year.
Net profit for this purpose as used in Sect 135(1) means #Profit after tax which implies that amount which is available to shareholders for appropriation.
Sec 135(5) elaborates on how the amount to be used for CSR activities is to be computed :- 2% of the average net profits of last 3 preceding financial years. This average net profit is to be computed as per section 198.
It is very important to note that #Board report should mention
1.) composition of CSR committee and its policy,
2.) annual report of CSR and
3.) if CSR money is not spent the reason for the same.
Contravention in Boards report attracts heavy penal provisions including imprisonment under section 134 (8).
Rule 3(2) : This rule states that once a company is covered under CSR provisions, it shall stay attracted for at least 3 years and that too only if it reports Net Profit of less than Rs. 5 crores consecutively for 3 years.