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“explanation to section 37”

Business ExpensesSection 37Section 37317 judgments

The decision most relied on for explanation to section 37 is ACIT v. Vireet Investment Pvt. Ltd. (165 ITD 27), cited in 882 judgments on BharatTax.

Leading authorities on explanation to section 37

ACIT v. Vireet Investment Pvt. Ltd.
165 ITD 27 · 2017 · ITAT
882
citing judgments

No disallowance under section 14A can be made while computing book profits under section 115JB unless the expenditure is debited to the profit and loss account and satisfies clause (f) of Explanation 1 to section 115JB(2).

Union of India v. Dharmendra Textile Processors
306 ITR 277 · 2008 · Supreme Court
501
citing judgments

Penalty under Section 271(1)(c) of the Income-tax Act, 1961 is a strict civil liability, and willful concealment is not an essential ingredient for attracting it. The explanation appended to the section indicates this element of strict liability for concealment or furnishing inaccurate particulars of income.

Sony Ericsson Mobile Communications India Pvt. Ltd. v. CIT
374 ITR 118 · 2015 · High Court
499
citing judgments

The existence of an international transaction for Advertising and Marketing Promotion (AMP) expenditure requires the revenue to discharge the burden of proof. An explanation inserted under Section 92B does not automatically make AMP expenditure an international transaction.

Reliance Jute and Industries Ltd. v. CIT
1 SCC 139 · 1980 · Supreme Court
214
citing judgments

The cardinal principle of tax law dictates that the law applicable to an assessment is the law in force for the relevant assessment year, unless the statute expressly or implicitly provides otherwise. A clarificatory statutory explanation must be read into the main provision from its inception.

CIT v. S.G. Pgnatale
124 ITR 391 · 1980 · High Court
181
citing judgments

An Explanation to Section 9(1)(ii) of the Income Tax Act that widens the scope of the provision, rather than merely clarifying it, cannot be applied retrospectively to assessment periods prior to its effective date. Assessments must be made according to the law in force at the relevant time.

616 (Raj.) and 9. CIT v. Hemla Embroidery Mills (P) Ltd.
217 Taxmann 207 · 2013 · High Court
170
citing judgments

Prior to the insertion of Explanation 2 to Section 36(1)(va) of the Income-tax Act, there was an ambiguity regarding the due date for payment of employees' contribution to provident fund and ESI. The ambiguity was whether the due date was as per the respective Acts or the due date for filing the assessee's return of income.

Apex Laboratories Pvt. Ltd. v. CIT
135 Taxmann.com 286 · 2022 · Supreme Court
148
citing judgments

Expenditure incurred by pharmaceutical companies on freebies provided to medical practitioners is not deductible under Explanation 1 to Section 37(1) of the Income-tax Act, as such gifting is prohibited by the Medical Council Regulations, 2002. The court also held that what is directly prohibited by law cannot be indirectly evaded through contrivance.

CIT v. Ganpat Ram Bisnoi
296 ITR 292 · 2008 · High Court
145
citing judgments

An assessment order cannot be revised under Section 263 for being erroneous due to a perceived lack of enquiry if the Assessing Officer has already conducted an enquiry, applied their mind, and accepted the assessee's explanation.

Judgments citing explanation to section 37

Haryana Urban Development Authority, Panchkula, Haryana vs. Principal Commissioner of Income Tax, Panchkula, Haryana

In the result, the appeal filed by the assessee is dismissed

ITA 668/CHANDI/2025[2021-22]Status: DisposedITAT Chandigarh29 Dec 2025AY 2021-22
For Respondent: Ms. Rattan Kaur & Shri A.K. Jindal, C.A's
Section 263Section 37Section 37(1)Section 43B

clearly penal in nature. The steep hike is intended to deter continued default, thereby bringing it within the ambit of the Explanation to Section 37(1), which disallows expenditure incurred for any purpose that is an offence or prohibited by law (penalty). The payment of interest after 3 months loses ... committed an error. The AO simply accepted the nomenclature of "interest" without applying his mind to the definition u/s 2(28A) or the Explanation to Section 37(1). 13. In light of the specific provisions of the Haryana VAT Act providing for a penal rate of 3%, the PCIT

Deputy Commissioner of Income Tax, Central Circle, Sambalpur vs. Smt. Indrani Patnaik, Rourkela

Appeals of the Revenue are dismissed

ITA 182/CTK/2020[2010-11]Status: DisposedITAT Cuttack11 Dec 2025AY 2010-11

Bench: Shri Duvvuru Rl Reddy, Vp & Shri Rajesh Kumar, Am

For Appellant: Shri S.C. Bhadra, ARFor Respondent: Shri Ashim Kumar Chakraborty, DR
Section 143(2)Section 147Section 148Section 271(1)(c)Section 37

deleting the addition of ?9129,42,25,780/- as made by the assessee on account of illegal expenses in the light of explanation to Section 37(1) of the Act. 6.1. The facts in brief are that the Id. AO during the course of assessment proceedings noted that assessee ... expenses corresponding to this illegally mined tron ore would also be ‘illegal in nature and thus liable to be disallowed as per the Explanation to Section 37(1) of the LT Act, 1961 Since the AO has invoked the Explanation to section 37

Deputy Commissioner of Income Tax, Central Circle, Sambalpur vs. Smt. Indrani Patnaik, Rourkela

Appeals of the Revenue are dismissed

ITA 181/CTK/2020[2010-11]Status: DisposedITAT Cuttack11 Dec 2025AY 2010-11

Bench: Shri Duvvuru Rl Reddy, Vp & Shri Rajesh Kumar, Am

For Appellant: Shri S.C. Bhadra, ARFor Respondent: Shri Ashim Kumar Chakraborty, DR
Section 143(2)Section 147Section 148Section 271(1)(c)Section 37

deleting the addition of ?9129,42,25,780/- as made by the assessee on account of illegal expenses in the light of explanation to Section 37(1) of the Act. 6.1. The facts in brief are that the Id. AO during the course of assessment proceedings noted that assessee ... expenses corresponding to this illegally mined tron ore would also be ‘illegal in nature and thus liable to be disallowed as per the Explanation to Section 37(1) of the LT Act, 1961 Since the AO has invoked the Explanation to section 37

Deputy Commissioner of Income Tax, Cental Circle, Sambalpur vs. Smt. Indrani Patnaik, Rourkela

Appeals of the Revenue are dismissed

ITA 180/CTK/2020[209-10]Status: DisposedITAT Cuttack11 Dec 2025

Bench: Shri Duvvuru Rl Reddy, Vp & Shri Rajesh Kumar, Am

For Appellant: Shri S.C. Bhadra, ARFor Respondent: Shri Ashim Kumar Chakraborty, DR
Section 143(2)Section 147Section 148Section 271(1)(c)Section 37

deleting the addition of ?9129,42,25,780/- as made by the assessee on account of illegal expenses in the light of explanation to Section 37(1) of the Act. 6.1. The facts in brief are that the Id. AO during the course of assessment proceedings noted that assessee ... expenses corresponding to this illegally mined tron ore would also be ‘illegal in nature and thus liable to be disallowed as per the Explanation to Section 37(1) of the LT Act, 1961 Since the AO has invoked the Explanation to section 37

Deputy Commissioner of Income Tax, Cental Circle, Sambalpur vs. Smt. Indrani Patnaik, Rourkela

Appeals of the Revenue are dismissed

ITA 179/CTK/2020[2009-10]Status: DisposedITAT Cuttack11 Dec 2025AY 2009-10

Bench: Shri Duvvuru Rl Reddy, Vp & Shri Rajesh Kumar, Am

For Appellant: Shri S.C. Bhadra, ARFor Respondent: Shri Ashim Kumar Chakraborty, DR
Section 143(2)Section 147Section 148Section 271(1)(c)Section 37

deleting the addition of ?9129,42,25,780/- as made by the assessee on account of illegal expenses in the light of explanation to Section 37(1) of the Act. 6.1. The facts in brief are that the Id. AO during the course of assessment proceedings noted that assessee ... expenses corresponding to this illegally mined tron ore would also be ‘illegal in nature and thus liable to be disallowed as per the Explanation to Section 37(1) of the LT Act, 1961 Since the AO has invoked the Explanation to section 37

Madhushree Enterprises, Kampli, Hospet vs. DCIT, Bengaluru

In the result, the appeal filed by the assessee is dismissed

ITA 697/BANG/2024[2011-12]Status: DisposedITAT Bangalore11 Dec 2025AY 2011-12

Bench: Shri Prashant Maharishi, Vice – & Shri Soundararajan K.Assessment Year : 2011-12

For Appellant: NoneFor Respondent: Shri Muthu Shankar, CIT-DR
Section 142(1)Section 143(2)Section 144Section 148Section 276CSection 37(1)Section 41(1)

incurred for earning the above income Page 3 of 7 since the entire activity is an illegal mining and therefore as per the Explanation to section 37(1) of the Act, not allowed while computing the taxable income. 3. Thereafter the AO based on the information that

Lic Housing Finance Limited, Mumbai vs. ACIT 2(2)(1), Mumbai, Aaykar Bhavan

In the result, the appeal of the assessee is allowed

ITA 5037/MUM/2025[2017-18]Status: DisposedITAT Mumbai26 Nov 2025AY 2017-18

Bench: Shri Om Prakash Kant () & Shri Raj Kumar Chauhan () Assessment Year: 2017-18

For Respondent: Mr. Sunil Bhandari &
Section 143(3)Section 147Section 148Section 148ASection 151ASection 80G

State indirectly funding a third of such indirectly funding a third of such expenditure, precisely the expenditure, precisely the outcome that the Explanation to section 37(1) sought to prevent. outcome that the Explanation to section 37(1) sought to prevent. outcome that the Explanation to section 37(1) sought

Nirman Sonestaa Developers, Bengaluru vs. Deputy Commissioner of Income Tax, Circle- 4(1)(1), Bangalore

In the result, the appeal by the assessee is dismissed

ITA 1536/BANG/2025[2018-19]Status: DisposedITAT Bangalore14 Nov 2025AY 2018-19

Bench: Shri Prashant Maharishi & Shri Sandeep Singh Karhailassessment Year: 2018-19

For Appellant: NoneFor Respondent: Sri Subramanian, D.R
Section 142(1)Section 143(2)Section 250Section 37Section 37(1)

held allowable. Hero Cycles Ltd. v. CIT [17 DTR 281 (P&H HC)] – Routine business lapses not involving moral turpitude not hit by Explanation to Section 37(1). Kaira Can Company Ltd. [32 DTR 485] – Regularization charges not considered penal and hence allowable. DCIT v. Bharat C. Gandhi ... incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure.” When the explanation to section 37 of the Act defines that the expenditure incurred for any purpose which is an offence or which is prohibited

Indiabulls Securities Limited (Earlier Known As Dhani Stocks Limited), Delhi vs. DCIT, Circle-7(1), Delhi

In the result, Appeal of the Assessee is allowed

ITA 718/DEL/2025[2023-24]Status: DisposedITAT Delhi24 Oct 2025AY 2023-24

Bench: Shri S. Rifaur Rahman & Shri Yogesh Kumar U.S.Indiabulls Securities Limited Vs Deputy Commissioner Of (Earlier Known As Dhani Income Tax, Circle 7 (1), Stocks Limited) 1/1E, First Delhi Floor, East Patel Nagar, Delhi Pan: Aabc12081F Appellant Respondent Assessee By Sh. Tapas Mishra, Adv Revenue By Sh. Om Prakash, Sr. Dr Date Of Hearing 16/09/2025 Date Of Pronouncement 24/10/2025 Order

Section 143(1)Section 37Section 37(1)

Stock Exchange for violation of their regulation are not an account of an offence or which is prohibited by law. Hence, theinvocation of explanation to section 37 of the Income Tax Act, 1961 is not justified. In our opinion, in the facts and circumstances of the presentcase, no fault

Vodafone Idea Ltd. (Earlier Knwon As Vodafone Mobile Services Ltd.), Mumbai vs. ACIT, . Circle-26(2), New Delhi

In the result, all above said grounds are allowed for statistical purpose

ITA 8361/DEL/2019[2012-13]Status: DisposedITAT Delhi24 Oct 2025AY 2012-13

Bench: Shri S. Rifaur Rahman & Shriyogesh Kumar U.S.Vodafone Idea Ltd Vs. Acit, (Earlier Known As Vodafone Circle-26(2), Mobile Services Ltd) New Delhi 10Th Floor, Birla Centurion, Century Mills Compound, Pandurang Budhkar Marg, Worli, Mumbai, Maharastra (Appellant) (Respondent) Pan: Aaacb2100P

For Appellant: Shri Salil Kapoor, AdvFor Respondent: Shri S. K,. Jadav, CIT DR
Section 115JSection 143(3)Section 144C(5)Section 92C

that the said expenditure is on account of contractual liability and not a statutory liability.Hence, the same does not fall under explanation to Section 37(1) of the Act. 6.2 The ldAO observed that penalty is on account of non-adherence to law and not on account of contractual violation ... Accordingly, he disallowed the same in terms of Explanation to section 37(1) of the Act. 6.3 The ld DRP upheld the action of the ld AO. 6.4 At the time of hearing,ld counsel for the assessee submitted that this issue is covered in favour of the assessee

Rishabh Instruments Limited, Mumbai vs. PCIT -3, Mumbai

In the result, appeal filed by the assessee is allowed

ITA 3358/MUM/2025[2020-21]Status: DisposedITAT Mumbai16 Oct 2025AY 2020-21

Bench: Hon’Ble Shri Sandeep Gosain & Shri Girish Agrawalrishabh Instruments Ltd Vs. Pcit – 3 F-31, Satpur Midc, Nashik Room No. 612, 6Th Nashik – 422007 Floor, Aayakar Bhavan, Mk Road Pan/Gir No. Aaacr2228Q (Applicant) (Respondent)

Section 135Section 142(1)Section 143(3)Section 250Section 263Section 37Section 80G

computed after making necessary allowances / disallowances in accordance with 10 Rishabh Instruments Ltd, Mumbai. Section 28-44BB of the Act including Explanation to Section 37(1). Thus, Section 37(1) and Section 80G of the Act are independent and the principles governing what is not allowable u/s. 37

Diosma Lifesciences Private Limited, Mumbai vs. Income Tax Officer Ward 4(1) Thane, Thane

In the result, the appeal of the assessee is dismissed

ITA 4271/MUM/2025[2018-19]Status: DisposedITAT Mumbai16 Sept 2025AY 2018-19

Bench: Ms. Kavitha Rajagopal & Shri Prabhash Shankardiosma Lifesciences Private V/S. Income Tax Officer, Ward – Limited बनाम 4(1), Qureshi Mansion, Shop No. 77, C-Wing, Gokhale Road, Naupada, Harmony Mall Commercial Thane West, Thane - 400 Premises, Bhagat Singh Nagar 602, Maharashtra No.1, Link Road, Goregaon(West), Mumbai - 400 104, Maharashtra स्थायी लेखा सं./जीआइआर सं./Pan/Gir No: Aafcd0525R Appellant/अपीलार्थी .. Respondent/प्रतिवादी

For Appellant: Shri Vipul Shah, ARFor Respondent: Shri Aadesh Rai, Addl. CIT, (Virtually appeared)
Section 133(6)Section 143(2)Section 143(3)Section 37(1)

captioned circular of CBDT would have its applicability in respect of the cases of the earlier period years as well. The Explanation to section 37(1) is on the statute w.e.f. 1st April, 1962. The same has simply been clarified by way of a circular issued by CBDT ... dealt with the amount illegally paid to the police authorities for running their business. The Court categorically held that after insertion of the Explanation to section 37(1) by the Finance Act, 1998, with effect from April 1, 1962, the assessee could not claim such payment as expended for commercial

Shyam Metalics Amd Energy Limited, Kolkata vs. DCIT, Central Circle 1(1), Kolkata

In the result, the appeal of the assessee is partly allowed for statistical purpose

ITA 1074/KOL/2025[2014-2015]Status: DisposedITAT Kolkata15 Sept 2025AY 2014-2015

Bench: Shri Rajesh Kumar & Shri Pradip Kumar Choubeyassessment Year: 2014-15 Shyam Metalics & Engery Ltd…...………..............................……….……Appellant 83, Trinity Tower, 7Th Floor, Topsia, Kol-700046, [Pan: Aahcs5842A] Vs. Dcit, Central Circle-1(1), Kolkata…………………………...……...…..…..Respondent Appearances By: Shri Akkal Dudhewala, Ar, Appeared On Behalf Of The Appellant. Shri Praveen Kishore, Dr, Appeared On Behalf Of The Respondent. Date Of Concluding The Hearing : July 23, 2025 Date Of Pronouncing The Order : September 15, 2025 Order Per Rajesh Kumar: The Present Appeal Has Been Preferred By The Assessee Against The Order Dated 08.04.2025 Of The Commissioner Of Income Tax (Appeals)- 22, Kolkata [Hereinafter Referred To As The “Ld. Cit(A)”] Passed U/S 250 Of The Income Tax Act, 1961 [Hereinafter Referred To As The “Act”].

Section 250Section 68

business and it did not involve payment of penalty for infraction of any law. According to him therefore, the impugned disallowance made under Explanation to Section 37(1) of the Act was unwarranted and prayed for deletion of the same. On the other hand, the ld. DR urged ... parties. The limited issue before us is whether the penalty expenses of Rs.34,71,274/-incurred by the assessee was amenable to Explanation to Section 37(1) of the Act or not. From the details placed on record, it is evident that the aforesaid sum comprised of fines paid

Chandan Steel Limited, Mumbai vs. Principal Commissioner of Income Tax Officer, Mumbai 4, Mumbai

ITA 3444/MUM/2025[2020-21]Status: DisposedITAT Mumbai15 Sept 2025AY 2020-21

Bench: Shri Vikram Singh Yadav & Shri Rahul Chaudhary

For Appellant: Shri Rakesh JoshiFor Respondent: Shri R.A. Dhyani, CIT-DR
Section 143(3)Section 263Section 37(1)Section 80G

statutory CSR obligations u/s.135 of the Companies Act, they cease to qualify as voluntary donations. It was submitted that as per explanation to section 37(1), the CSR expenses are mandated by law, and as such, they lack the essential characterstic of voluntariness, which is a core requirement for claiming

Savex Technologies Private Limited, Mumbai vs. Principal Commissioner of Income Tax, Mumbai

The appeal stands allowed

ITA 4185/MUM/2025[2020-21]Status: DisposedITAT Mumbai12 Sept 2025AY 2020-21

Bench: Justice (Retd.) C.V. Bhadang & Ms. Padmavathy S.: A.Y. : 2020-21

For Appellant: Shri Vishal Shah, CAFor Respondent: Shri Arun Kanti Datta, CIT-DR
Section 135Section 143(1)Section 143(3)Section 263Section 37Section 37(1)Section 80G

that the learned PCIT has, inter alia, placed reliance on the Explanatory note to Finance Bill, 2014, which relates to introduction of the Explanation to Section 37 of the Act, in coming to the conclusion that CSR donations are not eligible for deduction under Section

DCIT-7(1)(1), Mumbai vs. Goldman Sachs (India) Securities Pvt. Ltd., Mumbai

ITA 4276/MUM/2025[2013-14]Status: DisposedITAT Mumbai09 Sept 2025AY 2013-14

Bench: Shri Om Prakash Kant () & Shri Raj Kumar Chauhan ()

For Appellant: Mr. Fenil BhattFor Respondent: Ms. Neena Jeph, CIT-DR
Section 143(2)Section 143(3)Section 144C(1)Section 37(1)Section 92C

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “K” MUMBAI BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND SHRI RAJ

Prudent Insurance Brokers Private Limited, Mumbai vs. PCIT-8, Mumbai

In the result, the appeal of the assessee stands allowed

ITA 3186/MUM/2025[2020-21]Status: DisposedITAT Mumbai04 Sept 2025AY 2020-21

Bench: SHRI AMIT SHUKLA (Judicial Member), SHRI GIRISH AGRAWAL (Accountant Member)

Section 143(3)Section 263Section 263(1)Section 37Section 37(1)Section 80G

gross total income which is computed after making necessary allowances / disallowances in accordance with Section 28-44BB of the Act including Explanation to Section 37(1). Thus, Section 37(1) and Section 80G of the Act are independent and the principles governing what is not allowable u/s. 37

Bruker India Scientific Private Limited, Mumbai vs. Principal Commissioner of Income Tax Circle 4(1)(1), Mumbai

In the result, the appeal of the assessee stands allowed

ITA 3793/MUM/2025[2020-21]Status: DisposedITAT Mumbai28 Aug 2025AY 2020-21

Bench: SHRI AMIT SHUKLA (Judicial Member), SHRI GIRISH AGRAWAL (Accountant Member)

Section 135Section 263Section 80GSection 80G(2)(iihk)Section 8G

gross total income which is computed after making necessary allowances / disallowances in accordance with Section 28-44BB of the Act including Explanation to Section 37(1). Thus, Section 37(1) and Section 80G of the Act are independent and the principles governing what is not allowable u/s. 37

Canara Bank, Bengaluru vs. Deputy Commissioner, Bengaluru

In the result, the appeal filed by the assessee is partly allowed as

ITA 499/BANG/2025[2016-17]Status: DisposedITAT Bangalore25 Aug 2025AY 2016-17

Bench: Shri Prashant Maharishi, Vice – & Shri Prakash Chand Yadav

For Appellant: Shri S. Ananthan, CAFor Respondent: Shri Shivanand Kalakeri
Section 143(3)Section 14ASection 36Section 36(1)(vii)Section 36(1)(viii)Section 37Section 37(1)Section 90

Excess Claim of Depreciation on ATM, Note Counting Machine & Weighing Machine 13,26,22,004.00 6 Penalty under Explanation to Section 37(1) 10,00,000.00 7 Disallowance u/s 14A 112,57,34,064.00 8 Depreciation on Investments 92,54,04,660.00 9 Depreciation on Leased Assets

Hemani Industires Limited, Mumbai vs. PCIT-6, Mumbai

In the result, appeal of the assessee is allowed, in terms of our aforesaid observations

ITA 2963/MUM/2025[2020-21]Status: DisposedITAT Mumbai21 Aug 2025AY 2020-21

Bench: Shri Amit Shukla & Shri Arun Khodpiaआयकर अपील सं. / Ita No.2963/Mum/2025 "नधा"रण वष" / Assessment Year :2020-21 Hemani Industries Limited C-701-703, 7Th Floor, Neelkanth Business Park, R.N Road, Vidyavihar (West) Mumbai-400 086 Pan : Aaach1117Q

For Appellant: Shri Malav P. Sheth, CAFor Respondent: Shri Ritesh Mishra, Sr. DR
Section 115BSection 143(3)Section 263Section 80G

from the gross total income which is computed after making necessary allowances/ disallowances in accordance with Section 28- 44BB of the Act including Explanation to Section 37(1). Thus, Section 37(1) and Section 80G of the Act are independent and the principles governing what is not allowable u/s. 37