Court Rules CSR Spend Eligible for Section 80G Deduction Despite Disallowance as Business Expense.

The Dispute: Mandatory CSR vs. Tax Deductions

The prohibition of CSR as a “Business Expenditure” (Section 37) does not strip it of its eligibility as a “Charitable Deduction” (Section 80G).

The Background

The Action: The assessee-company spent money on CSR as required by Section 135 of the Companies Act, 2013. These funds were donated to two institutions registered under Section 80G(5).
The Tax Claim: 1. The company disallowed the 100% amount under Section 37(1) (acknowledging it wasn’t a routine business cost).
2. However, it claimed a 50% deduction under Section 80G, arguing the recipients were approved charitable entities.
The Revenue’s Objection: The Assessing Officer (AO) argued that CSR is a mandatory legal obligation, not a voluntary donation. The AO claimed that allowing an 80G deduction would “backdoor” a tax benefit that the legislature intended to block.

The Judicial Verdict

The Court ruled in favor of the assessee, emphasizing that tax laws must be read literally and across different chapters.

1. Independent Nature of Sections

The Court held that Explanation 2 to Section 37(1) only prevents CSR from being treated as an expenditure “incurred for the purpose of the business.” It does not create a bar for deductions under Chapter VI-A (where Section 80G resides).

2. “Voluntary” vs. “Mandatory”

The Revenue’s argument that a “donation” must be purely voluntary was rejected. The Court noted that as long as the payment is made to a qualifying institution through banking channels, the motive (whether to satisfy a CSR mandate or out of pure charity) is irrelevant for Section 80G eligibility.

3. No Double Disallowance

The legislature specifically amended Section 37 to disallow CSR but chose not to amend Section 80G. The Court applied the principle that if the law doesn’t explicitly forbid a deduction in one section, the authorities cannot “import” a restriction from another section.

Key Takeaways for Corporates

Tax Efficiency: Companies can lower the “effective cost” of their mandatory CSR spend. By directing CSR funds toward 80G-registered trusts, a company can save tax on 50% of the donated amount.
Compliance is Key: To secure this deduction, companies must ensure the donee provides a valid Form 10BE (Donation Certificate) and that the donation is made via electronic/banking modes.
Strategic Allocation: Not all CSR activities qualify for 80G. Direct project expenditures (like building a school yourself) may not qualify, whereas donations to approved implementing agencies do.
Audit Readiness: Boards should ensure their CSR policy explicitly documents that payments to 80G-certified institutions are intended to fulfill Section 135 obligations while remaining eligible for Section 80G benefits.

IN THE ITAT AHMEDABAD BENCH ‘D’

Deputy Commissioner of Income-tax

Amneal Pharmaceuticals (P.) Ltd.^*

Siddhartha Nautiyal, Judicial Member
and Narendra Prasad Sinha, Accountant Member

IT Appeal No. 2139 (Ahd) OF 2025
[Assessment year 2022-23]

MARCH 12, 2026

Rameshwar P Meena, Sr. DR for the Appellant. Dhinal Shah, AR for the Respondent.

ORDER

Siddhartha Nautiyal – Judicial Member. – This appeal has been filed by the Department against the order passed by the Ld. Commissioner of Income Tax (Appeals), (in short “Ld. CIT(A)”), National Faceless Appeal Centre (in short “NFAC”), Delhi vide order dated 09.09.2025 passed for A.Y. 2022-23.

2. The Department has taken the following grounds of appeal:

“1 . Whether on the facts and circumstances of the case and in law, the Id. CIT(A) has erred in allowing deduction of Rs. 2,88,00,000/- u/s 80G of the Act for amounts compulsorily spent under CSR which would result in an indirect tax benefit, defeating the purpose of Explanation 2 to Section 37(1) of the Act?

2. The appellant craves leave to amend or alter any ground or add a new ground, which may be necessary.

3. It is, therefore, prayed that the order of Ld. CIT(A) may be set aside and that of the Assessing Officer be restored. “

3. The brief facts of the case are that the assessee, a company, filed its return of income for Assessment Year 2022-23 declaring total income of Rs. 1,97,28,94,500/. During the course of assessment proceedings, the Assessing Officer noticed that the assessee had made donations aggregating to Rs. 2,88,00,000/- to Irada Foundation and Niswarth Children Foundation and claimed deduction under section 80G of the Act to the extent of Rs. 1,44,00,000/- being 50% of the donation amount. The assessee had suo-motu disallowed the entire donation amount of Rs. 2,88,00,000/- while computing business income under section 37(1) of the Act treating the same as Corporate Social Responsibility (CSR) expenditure in terms of Explanation 2 to section 37(1) of the Act. However, the assessee claimed deduction under section 80G of the Act in respect of the said donations on the ground that the donee institutions were duly approved under section 80G(5) of the Act and that there is no restriction in the provisions of section 80G of the Act denying deduction merely because the donation forms part of CSR expenditure.

4. The Assessing Officer, however, rejected the explanation of the assessee and held that the contribution made by the assessee was not a voluntary donation but a mandatory expenditure incurred in compliance with section 135 of the Companies Act, 2013. According to the Assessing Officer, a payment can qualify as a “donation” under section 80G of the Act only if it is voluntary and without consideration. The Assessing Officer observed that CSR expenditure is mandatory in nature as companies are required to spend 2% of their average profits on CSR activities and therefore such payments cannot be regarded as voluntary donations. The Assessing Officer further observed that CSR expenditure represents application of income and if deduction under section 80G of the Act is allowed, it would amount to indirect allowance of CSR expenditure which has been specifically disallowed under Explanation 2 to section 37(1) of the Act. Accordingly, the Assessing Officer disallowed the deduction claimed under section 80G and made an addition of Rs. 2,88,00,000/- while completing the assessment.

5. Aggrieved by the assessment order, the assessee preferred an appeal before the CIT(Appeals). The assessee contended before the learned CIT(Appeals) that there is no prohibition under section 80G of the Act preventing deduction of donations made as part of CSR obligations, provided the donee institutions satisfy the conditions prescribed under section 80G(5) of the Act. It was further submitted that the disallowance under Explanation 2 to section 37(1) operates only with respect to deduction under the head “profits and gains of business or profession” and does not restrict deduction available under Chapter VI-A of the Act. The assessee also relied upon certain judicial precedents wherein it was held that donations made towards CSR activities are eligible for deduction under section 80G. However, the learned CIT(Appeals) concurred with the view taken by the Assessing Officer and held that CSR expenditure is mandatory in nature and therefore cannot be regarded as a voluntary donation for the purposes of section 80G. The learned CIT(Appeals) thus upheld the disallowance made by the Assessing Officer and dismissed the appeal of the assessee.

6. The assessee is in appeal before us against the order passed by CIT(Appeals) dismissing the appeal of the assessee.

7. We have carefully considered the rival submissions and perused the material available on record. The short issue involved in the present appeal is whether a donation made as part of Corporate Social Responsibility (CSR) expenditure, which is otherwise disallowed under section 37(1) of the Act, can still qualify for deduction under section 80G of the Act if the donee institution satisfies the statutory conditions prescribed under section 80G of the Act.

8. At the outset, we note that the assessee has suo-motu disallowed the CSR expenditure while computing business income under Explanation 2 to section 37(1) of the Act. Therefore, the assessee has not claimed the said expenditure as a deduction under the head “profits and gains of business or profession”. The only claim made by the assessee is a deduction under section 80G of the Act in respect of donations made to institutions which are duly approved under section 80G(5) of the Act. The controversy therefore revolves around the interplay between Explanation 2 to section 37(1) of the Act and the deduction available under section 80G of the Act.

9. The issue is no longer res integra and has been considered by various coordinate benches of the Ahmedabad Tribunal. We first refer to the decision of the Ahmedabad Tribunal in Vimal Coal (P.) Ltd. v. Dy. CIT (Ahd–Trib), wherein the Tribunal held that Explanation 2 to section 37(1) of the Act merely disallows CSR expenditure as a business deduction but does not impose any restriction on deduction under section 80G of the Act. The Ahmedabad Tribunal observed that Chapter VI-A operates independently and unless the Statute specifically provides a restriction, deduction under section 80G of the Act cannot be denied merely because the payment also qualifies as CSR expenditure. The Tribunal further held that when donations are made to institutions registered under section 80G(5) of the Act through banking channels and such donations are not covered by the exclusionary clauses of section 80G(2) of the Act, the assessee is entitled to claim deduction under section 80G of the Act.

10. Similar view has been taken by the Ahmedabad Tribunal in Gujarat State Financial Services Ltd. v. Dy. CIT (Ahd–Trib), wherein the Tribunal held that the restriction in section 80G of the Act relating to CSR donations is specifically confined to donations made to Swachh Bharat Kosh and Clean Ganga Fund as provided under section 80G(2)(a)(iiihk) and (iiihl). The Tribunal held that where the assessee made CSR contribution to another eligible fund which satisfied the conditions of section 80G of the Act, the deduction cannot be denied merely because the payment formed part of CSR expenditure.

11. Further, in Gujarat Mineral Development Corporation Ltd. v. Pr. CIT (Ahd–Trib), the Ahmedabad Tribunal held that Explanation 2 to section 37(1) of the Act operates independently and is confined only to business expenditure. It cannot be extended to override the specific deductions granted under Chapter VI-A. The Tribunal categorically held that once a donation satisfies the statutory requirements of section 80G of the Act, the deduction cannot be denied merely because the payment also discharges CSR obligations.

12. A similar principle was reiterated by the Ahmedabad Tribunal in TTEC India Customer Solutions (P.) Ltd. v. Pr. CIT (Ahd–Trib), where the Tribunal observed that CSR expenditure disallowed under section 37(1) of the Act does not automatically become ineligible for deduction under section 80G of the Act. The Tribunal held that if the donation is made to an institution approved under section 80G(5) of the Act and all statutory conditions are satisfied, the deduction cannot be denied simply because the expenditure also fulfills CSR requirements under the Companies Act.

13. Recently, the Ahmedabad Tribunal in Dy. CIT v. Adani Logistics Ltd. (Ahd–Trib) has again reiterated this legal position and held that Explanation 2 to section 37(1) of the Act only bars deduction of CSR expenditure as business expenditure and does not prohibit deduction under section 80G if the donation otherwise satisfies the statutory requirements.

14. In view of the consistent judicial view expressed by the coordinate benches of the Ahmedabad Tribunal in the above decisions, we hold that the deduction claimed by the assessee under section 80G of the Act cannot be denied merely because the donation was made in discharge of CSR obligations. Once it is not in dispute that the donee institutions were duly approved under section 80G(5) of the Act and the donations were made through banking channels, the assessee is entitled to deduction under section 80G of the Act in accordance with law.

15. Respectfully following the aforesaid decisions of the coordinate benches of the Ahmedabad Tribunal, we hold that the disallowance made by the Assessing Officer and confirmed by the CIT(Appeals) is unsustainable. Accordingly, the addition made by disallowing deduction under section 80G is directed to be deleted.

16. In the result, the appeal of the Department is dismissed.