By TIOL News Service

MUMBAI, JAN 16, 2019: THE ISSUE BEFORE THE TRIBUNAL IS - Whether CSR expenses incurred before 1st April, 2015 are valid deductibles not falling under the sweep of section 37(1) of the Income Tax Act, 1961. YES IS THE VERDICT.

Facts of the case:

The assessee is a PSU which filed the income return for the relevant AY claiming deductions of CSR expenses. The income return was selected for scrutiny and then the ACIT (LTU) completed the assessment allowing the expenses on CSR. Subsequently, the CIT (LTU) issued a revision notice directing the AO to disallow the CSR expenses on the grounds that the completed assessment was prejudicial to the Revenue.

On appeal the Tribunal held,

++ section 37 of the Act of 1961 makes certain business expenses as allowable deductions providing that they are not mentioned specifically in sections 30 to 36. An amendment was introduced by Finance (No. 2) Act, 2014 which inserted explanation 2 to section 37(1). This amendment provided that any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to have been incurred for the purpose of business and hence shall not be allowed as deduction under said section 37(1). This amendment took effect prospectively from 1st April, 2015. The income of the assessee in question under the relevant AY was 2013-14,

++ in light of the principles on retrospectivity or prospectivity laid down by the Supreme Court in the case of CIT vs. Vatika Township (P.) Ltd., the relevant assessment fell outside the purview of the explanation 2 of section 37(1).

(See 2019-TIOL-160-ITAT-MUM)