Section 37 of Income Tax Act, 1961—Disallowance of CSR expenditure—In the instant case, AO was of the opinion that assessee incurred expenses under head ‘Corporate Social Responsibilities’ and it cannot be allowed.

Assessee submitted that these expenses may be allowed under section 35 AC and 80 G of the Act.

Department alleged that by way of amendment inserted by Finance Act (No. 2) 2014, no expenses are deductible incurred towards CSR against business income.

Held that— In our opinion Explanation 2 has been inserted in the section 37 (1) w.e.f. 01/04/15 and is prospective in nature. In our considered opinion amendment by way of Explanation 2 to Sec.37(1) cannot be construed as disadvantage to the assessee in the period prior to the amendment. It is a disabling provision, as set out in Explanation 2 to Sec.37(1), and refers to such Corporate Social Responsibility expenses u/s 135 of Companies Act, 2013 and as such cannot have application for period not covered by this Statutory Provision which itself came into existence in 2013.

Thus we reject this argument of DR and hold that this amendment would not affect allowability of such expenses for the year under consideration, being assessment year 2012-13. It is observed that authorities below rejected claim of assessee only on the ground that Explanation 2 to Sec.37(1) is applicable to year under consideration.[THE NATIONAL SMALL INDUSTRIES CORP LTD. VERSUS THE NATIONAL SMALL INDUSTRIES CORP LTD.][2019] 10 ITCD Online (55) [ITAT DELHI]