A practical framework for CSR computation, unspent amounts, project delays and an evidence-backed ROC response
“The strongest regulatory response is not the longest one. It is the one in which every number, date and conclusion can be traced to the law and the underlying evidence.”
A notice under Section 206 of the Companies Act, 2013 should never be treated as a routine request for information.
The immediate task may be to answer questions raised by the Registrar of Companies (ROC). The more important task is to reconstruct the company’s complete CSR position—from the statutory obligation and Section 198 computation to actual expenditure, unspent amounts, project status, transfers, disclosures and supporting records.
That leads to the most important practical principle:
DON’T START WITH THE NOTICE. START WITH THE RECONCILIATION.
Section 206 enables the ROC to seek further information, explanations and documents where scrutiny of filed documents or information warrants it. If the response is inadequate, further books, papers and explanations may be called for.
Therefore, a CSR response should not be prepared as a collection of explanations. It should be prepared as a reconciled evidence file.
THE CSR COMPLIANCE CHAIN
The complete position should ideally be reconstructed in this sequence:
CSR Applicability
↓
Section 198 Net Profit
↓
CSR Obligation @ 2%
↓
Eligible CSR Expenditure
↓
Unspent Amount, if any
↓
Ongoing Project / Other Unspent
↓
Statutory Transfer / Utilisation
↓
Board’s Report & CSR Disclosures
↓
CSR-2
↓
Books + Bank + Project Evidence
↓
ROC Response - A mismatch at any stage can create questions at the next.
ESTABLISH THE CSR OBLIGATION BEFORE EXAMINING THE SPEND
The first question is not: “How much CSR did the company spend?”
It is: “How much CSR was the company legally required to spend?”
Section 135 applies where the prescribed thresholds relating to net worth, turnover or net profit are met in the immediately preceding financial year.
Once applicable, the company generally has to spend at least 2% of the average net profits of the three immediately preceding financial years, calculated in accordance with Section 198. Where the company has not completed three financial years since incorporation, the prescribed computation is based on the completed preceding financial years.
A simple working paper
| Financial Year | Section 198 Net Profit | CSR Base | 2% CSR Obligation |
|---|---|---|---|
| Year 1 | ₹X | ||
| Year 2 | ₹Y | ||
| Year 3 | ₹Z | ||
| Average | ₹A | ₹A × 2% |
This computation should be capable of being traced to the audited financial statements and the underlying Section 198 adjustments.
A CSR reconciliation built on the wrong base will produce the wrong conclusion, however perfect the subsequent documentation may appear.
BUILD ONE MASTER CSR RECONCILIATION
Before drafting the ROC response, prepare one master statement covering the entire relevant financial year.
| Particulars | Amount / Date / Status |
|---|---|
| CSR obligation | ₹_____ |
| Eligible CSR expenditure | ₹_____ |
| Unspent amount | ₹_____ |
| Nature of unspent amount | Ongoing project / Other |
| Statutory action required | _____ |
| Amount transferred | ₹_____ |
| Date of transfer | _____ |
| Applicable due date | _____ |
| Amount actually utilised | ₹_____ |
| Amount reported in Board’s Report | ₹_____ |
| Amount reported in CSR-2 | ₹_____ |
| Present status | _____ |
| Supporting evidence available | Yes / No |
This table often exposes issues before the ROC does. For example:
Books say ₹60 lakh spent.
Board’s Report says ₹75 lakh.
CSR-2 says ₹60 lakh.
The problem is no longer simply CSR expenditure. It is now a reconciliation and disclosure issue.
UNSPENT CSR: CLASSIFY BEFORE EXPLAINING
“Unspent CSR” is a factual position. Its legal treatment depends on the circumstances.
Broadly, the company must distinguish between:
| Situation | Statutory treatment |
|---|---|
| Unspent amount relating to an ongoing project | Transfer to the prescribed Unspent CSR Account within the specified statutory period and utilisation in accordance with Section 135 |
| Other unspent amount | Transfer to a Schedule VII fund within the prescribed statutory period |
For an ongoing project, the amount transferred to the Unspent CSR Account is required to be spent within the statutory period; failure to spend the amount within that period triggers the subsequent transfer requirement prescribed under Section 135. For other unspent amounts, the transfer to a Schedule VII fund is required within the prescribed six-month period from the end of the financial year.
The professional mistake
A response should not simply say:
“The project was delayed, therefore the amount remained unspent.”
That explains the fact, but not the legal treatment.
The response must establish:
What was the project?
Why did it qualify as ongoing, if that is the position?
How much was actually spent?
How much remained unspent?
What statutory action was required?
Was that action taken within time?
What happened thereafter?
CASE STUDY: THE PROJECT WAS GENUINE — BUT DELAYED
Consider a company with a genuine CSR project having an approved budget of ₹1 crore.
During the year:
- ₹40 lakh was actually spent;
- the balance ₹60 lakh remained unspent;
- implementation was delayed because of land, regulatory, contractor or other documented issues.
Three statements must be kept separate:
1. COMMITMENT IS NOT EXPENDITURE
Approval of a ₹1 crore project does not establish that ₹1 crore was spent.
The accounts, bank records, invoices, utilisation evidence and project records must support actual expenditure.
2. PROJECT DELAY IS NOT NECESSARILY PROJECT ABANDONMENT
If the project genuinely satisfies the statutory conditions for an ongoing project, the prescribed unspent-CSR mechanism must be followed.
A delay should therefore be analysed under the ongoing-project provisions, rather than automatically labelled a default.
3. SUBSEQUENT UTILISATION IS NOT THE SAME AS TIMELY COMPLIANCE
If an amount was required to be transferred within a statutory deadline and was transferred later, the later action may demonstrate remediation, but it does not retrospectively convert a delayed statutory action into a timely one.
This distinction is critical in a regulatory response.
MCA guidance also makes an important point: mere disbursal of funds to an implementing agency does not by itself establish CSR expenditure where the amount has not actually been utilised; the utilisation position and supporting certification must be examined.
IF THE STATUTORY TRANSFER WAS DELAYED, SEPARATE THE TWO STORIES
A mature ROC response should distinguish between:
| Historical position | Present position |
|---|---|
| What was required by law? | What has now been done? |
| What was actually done? | What remains outstanding? |
| What was the applicable due date? | Has the position been regularised? |
| Was there a delay? | What corrective action was taken? |
| What evidence existed at the relevant time? | What evidence now supports remediation? |
The temptation is to write: “The amount has now been transferred; therefore there is no default.”
That is an unsafe formulation where the statutory deadline had already expired.
The better approach is factual: Acknowledge the historical position → explain the circumstances → establish the present status → document corrective action → address the applicable statutory consequences.
Section 135(7) prescribes penalties for failure to comply with the transfer requirements, subject to the statutory limits.
Do not convert a remediation fact into a historical compliance claim.
MAKE THE ROC RESPONSE MIRROR THE RECONCILIATION
A Section 206 response should preferably follow the ROC's questions one by one.
| ROC Query | What the response should establish |
|---|---|
| CSR obligation | Section 135 applicability and Section 198 computation |
| Amount spent | Actual eligible expenditure and accounting support |
| Unspent amount | Exact reconciliation |
| Project status | Ongoing / other, with factual basis |
| Delay | Specific reasons and documentary evidence |
| Transfer | Amount, account/fund, date and proof |
| Utilisation | Actual utilisation and supporting records |
| Disclosures | Agreement with Board’s Report and CSR-2 |
| Present status | Current position and corrective action, if any |
A useful drafting formula is: QUERY → LAW → FACT → RECONCILIATION → EVIDENCE → CONCLUSION
This keeps the response factual and prevents lengthy explanations from obscuring the actual issue.
EVIDENCE SHOULD FOLLOW THE ASSERTION
Every material statement in the response should have an evidence trail.
| Assertion | Evidence that should ordinarily support it |
|---|---|
| CSR obligation was ₹X | Section 198 computation + financial statements |
| ₹X was spent | Ledger + bank statement + invoices |
| Project was ongoing | Project approval + project documentation + implementation records |
| Delay was genuine | Correspondence, approvals, regulatory/contractual records |
| Amount was transferred | Bank statement + transfer proof |
| Amount was utilised | Utilisation records/certification + project expenditure |
| Disclosure was correct | Board’s Report + CSR-2 + reconciliation |
| Corrective action was taken | Transfer/payment proof + revised internal reconciliation |
The principle is simple: Every important conclusion should be traceable backwards—from the ROC reply to the document, from the document to the accounting entry, and from the accounting entry to the underlying transaction.
FIVE RED FLAGS THAT CAN WEAKEN A CSR RESPONSE
1. CSR LIABILITY DOES NOT RECONCILE
The obligation differs between the working, Board’s Report and CSR-2.
2. “SPENT” DOES NOT AGREE WITH THE BOOKS
The response claims expenditure that cannot be traced to actual utilisation.
3. WRONG TREATMENT OF UNSPENT AMOUNT
The company explains the project delay but does not establish the statutory treatment of the unspent amount.
4. FILINGS TELL A DIFFERENT STORY
Annual Report, CSR disclosures, CSR-2, financial statements and the ROC response contain inconsistent figures or descriptions.
5. OVER-CLAIMING COMPLIANCE
A response attempts to describe a historical delay as complete compliance merely because the position was subsequently corrected.
A precise admission supported by evidence is usually stronger than an aggressive denial unsupported by reconciliation.
THE BOARD-LEVEL TEST BEFORE SIGNING THE RESPONSE
Before the response goes to the ROC, management and the Board should be able to answer YES to these questions:
- Do we know exactly how the CSR obligation was computed?
- Does the computation agree with Section 198 and the financial statements?
- Does actual CSR expenditure agree with the books and bank records?
- Have all unspent amounts been correctly classified?
- Have the applicable statutory transfers been identified and evidenced?
- Do the Board’s Report disclosures agree with CSR-2?
- Is every project-delay explanation supported by contemporaneous evidence?
- Have we separated historical compliance from subsequent remediation?
- Can every material figure and date in the response be independently verified?
If the answer to any is NO, the response should not be finalised merely because the deadline is approaching.
THREE POSSIBLE COMPLIANCE POSITIONS
Not every Section 206 response is a defence of a perfect compliance record.
The company may fall into one of three broad positions:
| Position | Best response strategy |
|---|---|
| Compliant + well documented | Reconcile and demonstrate compliance clearly |
| Substantively correct + poorly documented | Reconstruct, substantiate and strengthen the evidence trail |
| Historical compliance gap | State the position accurately, explain the circumstances, remediate where possible and address the statutory consequences |
This is an important professional distinction. The objective is not to make every historical position look perfect. The objective is to make the present response accurate, complete and defensible.
THE BIGGER PROFESSIONAL LESSON
CSR compliance is often viewed as a 2% calculation.
In practice, a regulatory review can turn it into a much broader exercise involving:
Profit computation → obligation → expenditure → project classification → unspent amount → statutory transfer → utilisation → accounting → Board disclosures → CSR-2 → evidence.
That is why a CSR compliance file should not be maintained as a collection of disconnected documents.
It should be maintained as a single audit trail. And the discipline should be year-wise.
CSR planning may extend across multiple years, but the statutory treatment of obligation, expenditure and unspent amounts must still be examined for each relevant financial year.
THE PROFESSIONAL FORMULA - INTERNAL COMPLIANCE
RECONSTRUCT
↓
RECONCILE
↓
VERIFY
↓
REMEDIATE, IF REQUIRED
↓
DOCUMENT
↓
RESPOND
ROC RESPONSE
QUERY
↓
LAW
↓
FACT
↓
EVIDENCE
↓
CONCLUSION
This is far more effective than beginning with a narrative and trying to find supporting documents afterwards.
FINAL TAKEAWAY
The most important question after receiving a CSR notice under Section 206 is not: “How do we reply to the ROC?”
It is: “What exactly was the company required to do, what did it actually do, what happened subsequently, and can we substantiate every material number, date and conclusion?”
That is the real compliance exercise.
DON’T START WITH THE NOTICE. START WITH THE RECONCILIATION.
Because in regulatory compliance, credibility is built not by the strength of the explanation, but by the consistency of the evidence behind it.
LEGAL REFERENCE
Companies Act, 2013: Sections 135, 198 and 206, read with the applicable CSR Rules and MCA guidance on CSR implementation, unspent CSR and utilisation.
This article expresses general professional views for educational purposes. A response to a Section 206 notice should be finalised only after reviewing the specific notice, relevant financial years, statutory timelines, CSR records, books of account, filings and supporting evidence.
