April 2023
Corporate social responsibility expenditure — Business expenditure — Amendment providing for disallowance of such expenditure — Circular issued by the CBDT stating amendment to have effect from A. Y. 2015-16 onwards — Binding on the Department — Corporate social responsibility expenditure for earlier years allowable.
By K. B. Bhujle, Advocate
2 Principal CIT vs. PEC Ltd and Anr
[2023] 451 ITR 436 (Del):
A. Ys.: 2013-14, 2014-15
Date of order: 29th November, 2022
Section 37 of ITA 1961
Corporate social responsibility expenditure — Business expenditure — Amendment providing for disallowance of such expenditure — Circular issued by the CBDT stating amendment to have effect from A. Y. 2015-16 onwards — Binding on the Department — Corporate social responsibility expenditure for earlier years allowable.For the A.Ys. 2013-14 and 2014-15, the AO disallowed the claim of the assessees under section 37 of the Income-tax Act, 1961 of the expenses on account of corporate social responsibility endeavor undertaken by them. According to the Department, the funds utilized by the assessees to effectuate their corporate social responsibility obligations involved application of income and not an expense incurred wholly and exclusively for carrying on the business.
The Tribunal relied upon Circular No. 1 of 2015 dated 21st January, 2015 issued by the CBDT and held that the amendment brought about in section 37(1) by the way of Explanation 2 was prospective in nature and was not applicable for the A. Ys. 2013-14 and 2014-15, and accordingly deleted the disallowances.
On appeals by the Revenue, the Delhi High Court upheld the decision of the Tribunal and held as under:
“i) Explanation 2 was inserted in section 37 of the Income-tax
