A mandatory transfer to a Special Reserve under the RBI Act is considered an appropriation of profit and must be added back while calculating book profit for MAT purposes.

Issue

Is the amount transferred by a company to a Special Reserve, as mandated by Section 45IC of the RBI Act, 1934, an allowable deduction from its taxable income or an exclusion from its book profit for Minimum Alternate Tax (MAT)?

Facts

The assessee-company, likely a Non-Banking Financial Company (NBFC), transferred approximately ₹52.70 crores to a Special Reserve. This transfer was not voluntary but was required by Section 45IC of the RBI Act.
The company claimed that since this was a statutory transfer, the amount should be allowed as a deduction when computing its income under the normal provisions of the Income-tax Act. It also claimed that the amount should be excluded from its book profit for calculating MAT under Section 115JB.
The Assessing Officer (AO) rejected both claims, treating the transfer as an appropriation of profit after it had been earned, not an expense to earn it.

Decision

The court ruled in favour of the revenue.

It held that a mandatory transfer to a statutory reserve, like the one under the RBI Act, is an appropriation of profit.
As an appropriation, it is not allowable as a deduction when computing income under the normal provisions of the Income-tax Act.
Similarly, it is not an item that can be excluded when calculating book profit for the purpose of MAT under Section 115JB and, therefore, must be added back if debited to the profit and loss account.

Key Takeways

Appropriation vs. Expense: There is a fundamental difference between an expense incurred to earn income (which is deductible) and an appropriation of income after it has been earned (which is not). Statutory reserves are almost always treated as appropriations.
Statutory Compulsion Doesn’t Mean Deductible: The mere fact that another law compels a company to set aside a portion of its profits does not automatically make that amount a deductible business expense for income tax purposes.
Book Profit Calculation: The calculation of book profit for MAT is governed by the specific adjustments laid out in the explanation to Section 115JB. A transfer to a reserve is a classic item that is added back to the net profit unless it is specifically excluded by the section.

A CSR donation is eligible for a deduction under Section 80G of the Income-tax Act, 1961, unless it is made to two specifically excluded government funds.

Issue

Is a company entitled to a deduction under Section 80G for a donation that it has also classified as a Corporate Social Responsibility (CSR) expenditure under the Companies Act, 2013?

Facts

The assessee-company made a donation of ₹3 crore to a charitable institution as part of its CSR initiative and claimed a 50% deduction for this amount under Section 80G. The Assessing Officer (AO) disallowed the claim. The AO’s reasoning was that since CSR expenditure is mandatory under the Companies Act, it cannot be considered a voluntary “donation” and is therefore not eligible for a deduction under Section 80G.

Decision

The court ruled in favour of the assessee.

It pointed to the specific language in Section 80G which explicitly lists only two instances where a CSR-related donation is not eligible for a deduction: contributions made to the Swachh Bharat Kosh and the Clean Ganga Fund.
Since the assessee’s donation was not made to either of these two specific funds but to another eligible charitable institution, the general provisions of Section 80G were applicable.
Therefore, the assessee was entitled to the deduction.

Key Takeways

CSR and 80G Are Not Mutually Exclusive: An expenditure can be both a fulfillment of a company’s CSR obligation and a valid donation eligible for a tax deduction under Section 80G. The mandatory nature of CSR does not change the charitable nature of the payment.
Know the Specific Exceptions: The legal bar on claiming an 80G deduction for CSR spending is very narrow. It is limited only to contributions made to the Swachh Bharat Kosh and the Clean Ganga Fund. Donations to any other registered and eligible trust or fund remain deductible.

An amount transferred to the special reserve, for which a deduction is allowed under Section 36(1)(viii) of the Income-tax Act, 1961, should be excluded when calculating “book profit” for MAT.

Issue

Should an amount transferred to a special reserve, which is allowed as a deduction under Section 36(1)(viii) in the normal computation of income, be added back while calculating “book profit” for MAT under Section 115JB?

Facts

The assessee-company transferred a certain amount to a special reserve and claimed a corresponding deduction under Section 36(1)(viii). The company also argued that this amount should be excluded from its book profit for the purpose of calculating MAT. The Assessing Officer (AO) disagreed and added the amount back to the book profit.

Decision

The Tribunal ruled in favour of the assessee.

It noted that Section 36(1)(viii) has its own complete code for taxation: the amount is deducted when it is transferred to the reserve, and it is taxed in the year it is withdrawn from the reserve.
To add the amount to the book profit in the year of transfer would interfere with this specific taxing mechanism and could lead to practical difficulties or a form of double taxation.
Therefore, the Tribunal held that the amount transferred to the reserve under Section 36(1)(viii) should not be included in the book profit for MAT purposes.

Key Takeways

Specific Provision Overrides the General: The specific tax treatment provided within Section 36(1)(viii) itself (i.e., tax on withdrawal) takes precedence over the general principles of calculating book profit under Section 115JB.
Avoiding Anomalous Outcomes: The court’s reasoning is based on avoiding an illogical situation. Taxing the amount as part of book profit when it is transferred to the reserve and then again under the normal provisions when it is withdrawn would be unjust.
Distinction from Other Reserves: This ruling carves out a specific exception for the reserve under Section 36(1)(viii), distinguishing it from other general or statutory reserves which are typically added back to the book profit.

No disallowance can be made for a one-day delay in depositing EPF/ESIC contributions if the statutory due date was a public holiday and the payment was made on the next working day.

Issue

Can a disallowance be made for the delayed deposit of employees’ contributions to EPF/ESIC if the statutory due date fell on a public holiday and the payment was made on the very next working day?

Facts

The assessee deposited its ESI contribution for the month of September 2017 on October 16, 2017. The actual last day for payment was October 15, 2017, which was a Sunday (a public holiday). The Assessing Officer (AO) treated this as a one-day delay and made a disallowance under Section 36(1)(va) of the Income-tax Act, 1961.

Decision

The Tribunal ruled in favour of the assessee.

It applied the provisions of Section 10 of the General Clauses Act, 1897. This long-standing law provides that if any act is required to be done by a certain day and that day is a public holiday, the act can be validly done on the next day which is not a public holiday.
Since the payment was made on the very next working day, the Tribunal held that there was effectively no delay in compliance.
The disallowance was therefore directed to be deleted.

Key Takeways

The General Clauses Act Provides Relief: Section 10 of the General Clauses Act is a general principle of law that applies to deadlines set under various statutes, including tax laws, unless the tax law specifically excludes its application.
The Next Working Day is Considered On Time: When a statutory deadline for payment or filing falls on a Sunday or a public holiday, compliance on the immediately following working day is considered to be timely and valid compliance.
A Common Sense Approach: This ruling reflects a common sense and practical approach to compliance, recognizing that businesses cannot be expected to perform official acts on a day when offices and banks are closed.

IN THE ITAT KOLKATA BENCH “ D”

SREI Equipment Finance Ltd.

Commissioner of Income-tax (Appeals)

PRADIP KUMAR CHOUBEY, Judicial Member
and Rajesh Kumar, Accountant Member

IT Appeal No. 1019 (KOL.) of 2025
[Assessment year 2018-19]

SEPTEMBER 15, 2025

S.K. Tulsiyan and Miss Lata Goyal, ARs for the Appellant. Sanat Kumar Raha, DR for the Respondent.

ORDER

Rajesh Kumar, Accountant Member.- This is an appeal preferred by the assessee against the order of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 27.03.2025 for the AY 2018-19.

2. The ground No.1, is general in nature and need no specific adjudication.

3. The issue raised in ground number 2 & 3 is against the order of ld. CIT (A) confirming the addition as made by the ld. AO of Rs. 52,69,60,000/-being amount transferred to Special Reserve under section 45IC of RBI Act, 1934.

3.1. The facts in brief are that during the year, the assessee transferred an amount of Rs. 52,69,60,000 to special reserve in accordance with section 45IC of RBI Act, 1934.According to the assessee, since the said amount was transferred to Special Reserve under statutory compulsion and therefore, the amount is to be excluded in computing the total income under the normal provision of the Act, as well as in computing the book profit under section 115JB of the Act. However, the ld. AO did not find reply of the assessee to be cogent and convincing and added the same to the income of the assessee by holding that it is a appropriation of profit of funds which were available to the books of accounts.

3.2. In the appellate proceedings, the ld. CIT (A) also dismissed the appeal of the assessee by holding that the issue decided against the assessee by the decision of the coordinate bench in assessee’s own case for A.Y. 2008-09 in SREI Equipment Finance (P.) Ltd. v. Dy. CIT [IT Appeal No. 424 (Kol.) of 2011, dated 12-9-2024].

3.3. After hearing the rival contentions and perusing the materials available on record, we find that the issue is squarely covered against the assessee by the decision of the coordinate bench in assessee’s own case in ITA No. 424/KOL/2011 for A.Y. 2008-09 and also for assessment year 2011-12, wherein it has been held that transferring of amount to special reserve pursuant to provision of section 45 IC of the RBI Act 1934 is appropriation of profit and therefore, not admissible as deduction while computing the books profit as well as normal profits under the Act. Accordingly, Ground No. 2 and 3 raised by the assessee are dismissed.

4. The issue raised in Ground No. 4 is against the order of ld. CIT (A) upholding the order of ld. AO wherein the AO disallowed the donation under section 80G of the Act while computing the income of the assessee.

4.1. The facts in brief are that during the course of assessment proceedings, the ld. AO noted that the assessee has claimed deduction under section 80G of the Act of Rs. 2,02,83,000/- in respect of donation to certain funds, charitable institutions, etc. as per its return of income and accordingly, the assessee was called upon to furnish the details. Thereof. From the details furnished by the assessee, the AO noted that assessee has donated Rs. 3.00 crore to SREI Foundation and 50% of the same was claimed as deduction under section 80G of the Act. The assessee submitted before the AO that the assessee has donated Rs. 3.00 crore to the SREI institution on account of CSR (Corporate Social Responsibility initiatives).It was further submitted that the said amount was duly added back while computing income in the return of income of the assessee. Thereafter, the deduction under section 80G of the Act was claimed of Rs.1,50,00,000/- equal to 50% of the CSR expenses which are eligible u/s 80G of the Act.

4.2. According to the ld. AO, the CSR is not a voluntary but mandatory expenditure. The Learned AO noted that the Act requires companies to spend certain portion of their profits towards CSR activities as per section 135 of Companies Act, 2013 and therefore, these donations made under CSR expenses could not be allowed as deduction under section 80G of the Act and consequently, disallowed deduction claimed of Rs. 1,50,00,000/-.

4.3. In the appellate proceedings, the Learned CIT (A) also confirmed the order of the Learned AO on this issue.

4.4. After hearing the rival contentions and perusing the materials available on record, we find that the CSR expenditure was incurred by the assessee of Rs. 3.00 crore which was paid to SREI Foundation. According to the AO, the expenditure incurred under CSR is not voluntary but mandatory and therefore, no deduction u/s 80G of the Act was available to the assessee. Though the donation made to CSR Foundation is eligible for 50% deduction under section 80G of the Act but according to the AO, there is no correlation between the provision of section 37(1) and 80G of the Act. In our opinion, the assessee is entitled to the deduction under section 80G of the Act even if the amount is donated under CSR expenses. It is specifically mentioned in section 80G of the Act that no deduction is allowable in two instances namely; contribution towards the Swachh Bharat Kosh (Clean India Fund) and the Clean Ganga Fund respectively, where CSR expenditure is not allowable under section 80G(2)(a)(iiihk) and (Iiihl) of the Act. Therefore, provisions are not applicable to other CSR expenditure. The case of the assessee is clearly covered by the decision of the coordinate Bench in the case of Dy. CIT v. Peerless General Finance & Investment & Co. Ltd. [IT Appeal Nos. 1469 & 1470 (Kol.) of 2019, dated 5-12-2019], wherein it has been held that the assessee is entitled to deduction of donation under section 80G of the Act where the assessee has donated the amount to eligible institutions even the amount is paid under CSR activities.

4.5. Similarly, the case of the assessee also find support from the decision of the coordinate bench in the case of Goldman Sachs Services (P.) Ltd. v. Jt. CIT 535 (Bangalore – Trib.)/IT(TP)A No. 2355/Bang/2019, wherein it has been held as under:-

“16. The last ground of appeal argued by the learned Authorized Representative in respect of disallowance of deduction under Section 80G of the Act. In the financial year 2014-15, the assessee has incurred expenditure of Rs.4,72,00,024/- to meet the CSR (Corporate Social Responsibility) as per Policy formulated under Section 135 of the Companies Act, 2013. Out of the said amount, a sum of Rs.2,25,21,500 qualified for deduction under Section 80G of the Act and therefore the assessee claimed of 50% of amount being Rs.1,12,60,750/- as deduction under Section 80G of the Act. The TPO/A.O. has disallowed substantial portion of donation under Section 80G of the Act on the ground that donations were not in the nature of voluntary contribution as required under CSR Policy. Further the Assessing Officer has allowed the contribution to PM National Relief Fund under Section 80G of the Act as it was a direct contribution to the Government. No other inferences were raised by the TPO/A.O. in respect of other donations which are equally eligible for deduction under Section 80G of the Act. The learnedAuthorized Representative submitted that the donations or expenditure has been incurred wholly and exclusively for the purpose of business and eligible for deduction under Section 37 of the Act and alternatively under Section 80G of theAct. We found the DRP has dealt at page 81 of the order and observed that, the claims are in the nature of CSR Policy expenditure and hence does not qualify for deduction under Section 80G of the Act. The learned Authorized Representative demonstrated in Paper Book Vol.II at pages 882 & 883 the list of deductions claimed under Section 80G of the Act with a statement of donees along with PANand address and donation receipts. Further the donation receipts are self- explanatory and are eligible for deduction under Section 80G of the Act. We find that the CSR expenses are required to be incurred by companies as per Section 135 of the Companies Act and the deduction u/s. 37(1) of the Act, is not available fromAssessment Year 2015-16 as per the Explanation 2 to Section 37(1) of the Act inserted by the Finance Act No.2. 2014.Whereas, the assessee company has made a claim for deduction of CSR expenses u/s. 80G of the Income Tax Act,1961.But the assessing officer has rejected the assesses claim without verifying the nature of contributions and observed that it is not a donation, and was not spent voluntarily for the eligibility of claim u/s.80G of the Act but due to legal obligation prescribedu/s. 135 r.w. Schedule VII of Companies Act, 2013.We find that the A.O has allowed deduction u/s.80G of the Act in respect of contribution made to PM Relief Fund which is not disputed. We are of the opinion that the A.O. has not made his observations clear that no CSR expenses are eligible for deduction u/s. 80G of theAct. We consider it appropriate to refer to the Clauses (iiihk) & (iiihl) of sub- section 2 of Section 80G of the Act which are read as under :

“(iiihk) the Swachh Bharat Kosh, set up by the Central Government, other than the sum spent by the assessee in pursuance of Corporate Social Responsibility under sub-section (5) of Section 135 of the Companies Act, 2013 (18 of 2013); or

(iiihl) the Clean Ganga Fund, set up by the Central Government, where such assessee is a resident and such sum is other than the sum spent by the assessee in pursuance of Corporate Social Responsibility under subsection (5) of Section 135 of the Companies Act, 2013) (18 of 2013).”

Where these two exceptions are provided in Section 80G of the Act, it can be inferred that the other contributions made u/s. 135(5) of the Companies Act are also eligible for deduction u/s. 80G of Income Tax Act subject to assessee satisfying the requisite conditions prescribed for deduction u/s.80G of the Act. In the present case the A.O. has not dealt on these aspects, prima facie, considered the contributions as not voluntary but a legal obligation and has accepted the genuineness of the contributions. We are of the opinion, that the matter has to be considered for examination and verification of facts subject to the assessee satisfying the requirements of claim u/s.80G of the Act. Accordingly, we restore the entire disputed issues to the file of A.O. for fresh examination and verification as discussed above and the assessee should be provided adequate opportunity ofhearing and shall co-operate in submitting the information and we allow the ground of appeal of the assessee for statistical purposes.”

4.6. Accordingly, we set aside the order of ld. CIT (A) and direct the AO to allow the deduction under section 80G of the Act of Rs. 1,50,000,000/- to the assessee. Consequently, Ground No. 4 is allowed.

5. The issue raised in Ground No. 5 is against the order of ld. CIT (A) upholding the order of ld. AO wherein the AO has not allowed the exclusion of amount transferred to income tax special reserve in computing the book profit under section 115JB of the Act of Rs. 29,98,69,029/-.

5.1. During the assessment proceeding, the ld. AO noted that the assessee has transferred an amount of Rs. 29,98,69,029 to income tax special reserve in accordance with provision of section 36(1)(viii) of the Act. According to the assessee, the said amount was transferred to the income tax special reserve out of statutory compulsion and, therefore, was to be excluded in computing the book profit under section 115JB of the Act. According to the assessee, the said amount is neither provisions made for meeting uncertain liabilities nor amount credited to any reserve and hence, not covered by clause (b) or clause (c) to section 1 to section 115JB(2) of the Act. Accordingly, the AO issued show-cause notice to the assessee to justify the said amount in computing the book profit under section 115JB of the Act, which was replied by the assessee on 9-03-2021.However, reply of the assessee did not find favor and the AO added the amount transferred to income tax special reserve on the ground that it is a reserve under clause (b) of explanation 1 to section 115JB of the Act.

5.2. In the appellate proceedings, the ld. CIT (A) confirmed the order of the ld. AO.

5.3. After hearing the rival contentions and perusing the materials available on record, we find that the provisions of section 36(1)(viii) of the Act provided for creation of special reserve and deduction of the same. Section 36(1)(viii) of the Act provides for taxability of the amount withdrawn from the special reserve under section 36(1)(viii) of the Act under the head, profit and gains from the business and profession. Therefore, the amount transferred to special reserve as per section 36(1)(viii) of the Act is taxable in the year in which the amount is withdrawn from such reserve. Therefore, in our opinion, the said amount transferred to reserve under section 36(1)(viii) shall not be included in the book profit under section 115JB of the Act. If we allow the grant of reserve to be added to the book profit, it will create several practical difficulties. Therefore, we are inclined to set aside the order of ld. CIT (A) and direct the AO to allow the said provisions while computing the book profit under section 36(1)(viii) of the Act.

6. The issue raised in Ground No. 6 is against the order of ld. CIT (A) upholding the order of ld. AO in adding back in employee’s contribution to ESI deposited within due date of filing rate of return.

6.1. During the year there was a delay of one day in depositing the ESI contribution. The detail thereto is as under: –

Month of Deduction	Amount deducted (*)	Due date of payment	Actual date of payment	No. of days of delay
September 2017	1,17,518	15-10-2017	16.10.2017	NIL
September 2017	23,050	(Being Sunday/	17.10.2017	1
September 2017	16,941	Holiday)	17.10.2017	1

6.2. The assessee has made payment of the above amount on 16-102017 when the due date was 15-10-2017 which happens to be a public holiday i.e. Sunday and therefore, there is a delay in depositing the ESI for the month of September 2017.The AO disallowed the same and added the income to the assessee which was confirmed by ld. CIT (A). We find that the issue is squarely covered by the decision of the Coordinated Bench in assessee’s own case in SREI Equipment Finance Ltd. v. ACIT, NEAC, Delhi [IT Appeal No. 1198 (Kol.) of 2023, dated 19-2-2024] for A.Y. 2018-19, wherein a similar issue has been decided in favour of the assessee by the co-ordinate Bench while deciding the appeal filed by the assessee against the order of ld. CIT (A) wherein the order passed u/s 143(1) of the Act was upheld which is extracted as under: –

“3. After hearing the rival contentions and perusing the material on record, we find that the addition made by the AO was in respect of disallowance of employees contribution to ESI on the ground of late payment. However we note from the records before us that the last day of depositing ESI’s contribution happened to be Sunday and therefore the payment was made immediately in the next following date i.e. Monday. The detail is extracted below:

Month of deduction	.Amount deducted (Rs.)	Due Date of payment	Actual date of payment	No. of days of delay
Sept’2017	1,17,518/-	15.10.2017 (SundayHoliday)	16.10.2017	0
Sept’2017	23.050,		17.10.2017	1
Sept’2017	16,941		17.10.2017	1

It is clear from the table that Rs. 1,17,518/- which was due on 15.10.2017 was paid on 16.10.20217 and therefore there is no delay in making the payment. In respect of other two payments of Rs. 23,050/- and Rs. 16,941/-, there is delay of one day as payment were made on 17.10.2017. The case of the assessee is squarely covered by the decision of Co-ordinate Bench of Delhi in the case of GD Foods and Manufacturing (India) Pvt. Ltd. v. ADIT 323 (Delhi-Trib.) (10.07.2023) in which the Co-ordinate Bench held as under:

“11. Thus, in our opinion, considering the fact that the due date of de positing the contribution of ESIC & EPF falls on Sunday and gazette holiday, the said delay of one day deserves to be condoned as per Section 10 of General Causes Act. Further it is also observed that the assessee has no intention not to deposit the contribution of ESI & EPF well within the time, depositing the contribution very next day of Holiday proves the bona-fide of the assessee Therefore in our opinion, the authorities have committed error in disallowing the deposit made with one day delay where the due date under respective acts falls either on Sunday or on gazette holiday.

12. In view of the above discussion, we allow Ground no. 3of the assessee and delete the disallowance of delay deposit of one day on account of public holiday/Sunday on ESIC of Rs. 3,89,086/- and EPF of Rs. 15,47,915/-.”

Accordingly, we set aside the order of Ld. CIT(A) and direct the AO to allow the claim of Rs. 1,17,518/- which was paid on 16.10.2017. The appeal is partly allowed.

Accordingly, we set aside the order of ld CIT(A) and direct the ld. AO to allow the deduction in respect of ESI paid by the assessee. The ground no. 6 is allowed.

7. In the result, the appeal of the assessee is partly allowed.