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Case Law Details

Case Name : PCIT Vs Steel Authority of India Ltd. (Delhi High Court)
Appeal Number : CM APPL.159/2023
Date of Judgement/Order : 06/01/2023
Related Assessment Year :
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PCIT Vs Steel Authority of India Ltd. (Delhi High Court)

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 out of their profit towards CSR activities. Prior to amendment to section 37(1) of the Act by the Finance Act, 2014 by insertion of Explanation – 2, CSR expenses were allowed as deduction under section 37(1) of the Act, as, there was no specific bar either under section 37(1) of the Act or under any other provision for claiming deduction for CSR expenses. There are number of judicial precedents which have expressed the aforesaid view, some of these decisions have been cited before us by learned counsel for the assessee. Thus, prior to insertion of Explanation – 2 to section 37(1) of the Act, w.e.f., 01.04.2014, as per settled legal position, it is an allowable expenditure under Section 37(1). A specific bar for allowing such expenditure under section 37(1) of the Act was brought to the statue by Finance Act, 2014 effective from 01.04.2014. Therefore, the amendment, no doubt, will apply prospectively. Thus, following the various judicial precedents cited before us, we hold that CSR expenses incurred by the assessee are allowable as deduction under section 37(1) of the Act. This ground is allowed.

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 and exclusively for the purposes of the business or profession.

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