By Jagdish T. Punjabi | Prachi Parekh
Chartered Accountants | Devendra Jain
Advocate
3 National Building Construction Corporation Ltd. vs. Addl. CIT [TS-815-ITAT-2021 (Del)] A.Y.: 2014-15; Date of order: 11th August, 2021 Section: Explanation 2 to section 37(1)
Explanation 2 to section 37(1) is prospective w.e.f. A.Y. 2015-16
FACTS
The assessee in its return of income claimed deduction of Rs. 5,72,32,442 incurred on account of expenses on corporate social responsibility (CSR). It was submitted before the A.O. that CSR expenses were incurred for the purpose of projecting its business and said the expenditure was incurred in accordance with the guidelines of the Ministry of Heavy Industry and Public Enterprises. It was also submitted that the expenses have enhanced the brand image of the company, which in turn has had a positive long-term impact on the business of the assessee.The A.O. held Explanation 2 to section 37(1) to be clarificatory and consequently disallowed the claim of the CSR expenses of Rs. 5,72,32,442.
Aggrieved, the assessee preferred an appeal to the CIT(A) who confirmed the action of the A.O. Aggrieved, the assessee preferred an appeal to the Tribunal.
HELD
The Tribunal noted that the co-ordinate bench of the Tribunal has in the case of Addl. CIT vs. Rites Limited [ITA Nos. 6447 and 6448/Del/2017; A.Y. 2013-14] held that Explanation 2 to section 37(1) is prospective in nature and applies w.e.f. A.Y. 2015-16. It also noted that the expenses have been incurred on the direction of the relevant Ministry / Government of India and neither the A.O. nor the D.R. have rebutted the contention of the assessee that expenses have been incurred for enhancing the brand image of the company which are wholly and exclusively for the purpose of the business of the assessee – but both the authorities have disallowed the expenses on the ground that Explanation 2 is clarificatory and retrospective in nature.The Tribunal, following the decision of the co-ordinate bench, held that Explanation 2 is prospective in nature and accordingly CSR expenses incurred in the year under consideration cannot be disallowed by invoking Explanation 2 to section 37(1).
This ground of appeal filed by the assessee was allowed.
