May 2019

Explanation 2 to section 37(1) – Explanation 2 to section 37(1) inserted with effect from 01.04.2015 is prospective

Jagdish T. Punjabi | Devendra Jain | Tejaswini Ghag
Chartered Accountants

7. [2019] 103 taxmann.com 288 (Del) National Small Industries Corp Ltd. vs. DCIT ITA No.: 1367/Del/2016 A.Y.: 2012-13 Dated: 25th February, 2019

 

Explanation 2 to section 37(1) – Explanation 2 to section 37(1) inserted with effect from 01.04.2015 is prospective

 

FACTS


The assessee, a public sector undertaking, established to promote and develop “Skill India” through cottage and small industries, incurred expenses under the head “Corporate Social Responsibility” (CSR) and claimed the same as deduction in the return of income.

 

The Assessing Officer (AO) was of the opinion that the claim of such expenses was towards CSR and therefore could not be allowed. He invoked Explanation 2 to section 37(1) of the Act and disallowed the expenditure so claimed.

 

Aggrieved, the assessee preferred an appeal to the CIT(A) who confirmed the action of the AO.

 

Still aggrieved, the assessee preferred an appeal to the Tribunal.

 

HELD


The Tribunal held that Explanation 2 has been inserted in section 37(1) with effect from 01.04.2015 and the same is prospective. The amendment could not be construed as a disadvantage to the assessee for the period prior to the amendment. The Tribunal observed that the expense sought to be disallowed under Explanation 2 to section 37(1) of the Act was the expenditure on CSR which provision itself came into existence under the Companies Act in the year 2013. It observed that the lower authorities disallowed the expenditure merely on the ground that Explanation 2 to section 37(1) of the Act applied to the year under consideration and the expenditure was therefore to be disallowed.
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