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TMI Blog2023 (1) TMI 779X X X X Extracts X X X X X X X X Extracts X X X X ..... ections 30 to 36 of the Act. Insofar as the third criterion is concerned, there is no dispute, that the expenditure claimed does not fall under any of the sections referred to in 37(1) of the Act i.e., Sections 30 to 36. As far as the other aspects are concerned, as noted by the Tribunal, in the past, CSR expenses had been allowed as deductible expenditure under Section 37(1) of the Act. Therefore, the only aspect, which appears to have been agitated before the Tribunal, was that Explanation 2 appended to Section 37(1) of the Act was retrospective in nature. This Explanation was inserted, as noted above, by Finance Act, 2014 with effect from 01.04.2015. That the Explanation appended to Section 37(1) of the Act is prospective has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... though the reason furnished by Mr Rai is not the reason which has been articulated in the application, we are inclined to condone the delay. 4.1 It is ordered accordingly. 5. The application is, accordingly, disposed of in the aforesaid terms. ITA 3/2023 6. This appeal is directed against the order dated 28.02.2022 passed by the Tribunal. 7. Mr Rai, who as indicated above, appears on behalf of the appellant/revenue, says that the impugned order is flawed, as the expenditure incurred by the respondent/assessee towards Corporate Social Responsibility [in short, CSR ] is not amenable to deduction under Section 37(1) of the Income Tax Act, 1961 [hereafter referred to as Act ]. 8. It is Mr Rai s contention, that neither t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arent from the following: Firstly, there is nothing on record to suggest that funds were given for a particular purpose and secondly, deductibility under Section 37 cannot depend upon how the funds are spent by the recipient. The capital asset in which funds are funnelled by the recipient is not the asset of the payer i.e., the assessee. The assessee provided funds in discharge of its obligation as mandated by law on the advise of the Department of Public Enterprises. It cannot be said that an obligation placed on the assessee by law was not connected wholly and exclusively to its business. 11.1 The AO s approach, which, as noted above, was erroneous, is evident, if one were to peruse paragraph 9.4 of the AO s order. For the sake of conv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hrough facts of the case, the order of the AO and submission filed by the appellant. Explanation 2 to section 37 of the act inserted by finance Act 2014 clearly provides that CSR expenses referred to in Section 135 of the companies act are not allowed as deduction under section 37 of the act because Rule 4(1) of the CSR Rules exclude the activities undertaken in pursuance of the normal course of business of company. 9.3 In this case, since the AY involved is prior to the introduction of CSR rules and explanation 2 to section 37 of the Act, therefore, the only test for allowing deduction u/s 37 of the act is that whether it is wholly exclusively for the purpose business or not? 9.4 In this regard, the arguments of the assessee ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 37(1) was retrospective in nature. 14.2 This aspect of the matter emerges upon a perusal of paragraph 8 of the order passed by the Tribunal, which is extracted hereafter: 8. We have considered rival submissions and perused the materials on record. Undisputedly, the departmental authorities have disallowed the CSR expenses, firstly, on the reasoning that it is of capital nature, and secondly, it is not incurred wholly and exclusively for the purpose of business. As per section 135 of the Companies Act, 2013, every company having net worth of Rs. 500/- crores or more, or turnover of Rs. 1000/- crores or more, or a net profit of Rs. 5 crores or more during the immediately preceding financial year has to spent a certain percentage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ected investment of funds, which were offered in fulfilment of discharge of its legal obligation, in a capital asset. (ii) Although the respondent/assessee lost before the CIT(A), the appellant/revenue did not file cross-objections before the Tribunal in the appeal preferred by the respondent/assessee. (iii) A perusal of paragraph 8 of the Tribunal s order shows, that the Tribunal had, based on previous decisions, concluded that the CSR expenses incurred are allowable under Section 37 of the Act. 16. The conditions for allowing deduction under Section 37 of the Act are broadly the following: (a) That the expenditure is not in the nature of capital expenditure. (b) That the expenditure is laid out or expended wholly an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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