Addl CIT v. National Research Development Corporation (2020) 78 ITR 56 (SN)(Delhi)(Trib)

S. 37(1) : Business expenditure — Expenses prohibited by law — Grants — Assessee receiving grants on annual basis and grants used in accordance with directions of Government — AO allowing salary expenses in preceding year — AO should not have taken a different stand in current year — Salary paid to all old employees who worked for Assessee and expenses genuine — Expenses wholly and exclusively for purpose of business, hence expenses are deductible.

On appeal, the Tribunal held that ,the assessee received grants from the Ministry of Science and Technology. The grants were to be used in accordance with the directions issued by the Ministry.  In the preceding AY, the Assessing Officer had accepted Assessee’s claim without any objection.  Hence, when the same policy had been followed by the assessee and accepted by the Assessing Officer, he should not have taken a different stand in the year under review.  Further, the assessee had made it very clear that salary was paid to all old employees who had worked for the assessee and the expenses were genuine.  Tax had been deducted on the salary and paid to the Government. All the employees had worked for the assessee.  No case was made out by the Assessing Officer that making salary payment was an offence or something prohibited by law.  Therefore, Explanation 1 to S.37 of the Act, would not be attracted in the present case. (AY.2011-12, 2012-13)