By 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.
The Tribunal,
following the decision of the Supreme Court in the case of CIT vs. Vatika
Townships Pvt. Ltd. [(2014) 367 ITR 466 (SC)] held that the amendment would
not affect the allowability of expenses for the assessment year under
consideration.
The appeal filed by
the assessee was allowed.
