ORDER
Om Prakash Kant, Accountant Member. – This appeal by the assessee is directed against the order dated 01.11.2025 passed by the Ld. Commissioner of Income Tax (Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’], for Assessment Year [in short ‘the AY’] 2020-21, raising the following grounds:-
“1. Ground No. 1-Disallowance under section 14A of the Income-tax Act, 1961 read with Rule BD of the Income-tax Rules, 1962
1.1 On the facts and in circumstances of the case and in law, the Learned CIT(A) has erred in making disallowance under the provisions of section 14A of the Act. r. w. Rule 80 of the Income-tax Rules, 1962 (‘the Rules’).
1.2 The Learned AO has erred in attributing expenses disregarding the submissions filed by the appellant that no expenditure is actually incurred to earn the exempt income.
1.3 Further, Learned CIT(A) has erred in not appreciating the fact that the Appellant has sufficient own funds which are utilised for making investments yielding such exempt income. Therefore, no disallowance was required to be made by the Learned AO.
1.4 Accordingly, the Appellant prays Your Honour to direct the Learned AO to delete the disallowance made under section 14A of the Act and oblige.
2. Ground No. 2 – Non-allowability of deduction claimed under section 80G of the Act of Rs. 66,50,000.
2.1 The learned CIT(A) has erred in disregarding the detailed submissions filed by the Appellant along with supporting evidence and proceeded to confirm the action of the Learned AO i.e. disallowed the claim for deduction under section 80G of the Act amounting to Rs. 66,50,000, being donation made to eligible institution registered under section 80G of the Act.
2.2 The Learned CIT(A) erred in holding that an amount spent towards Corporate Social Responsibility (‘CSR’) under section 135 of the Companies Act, 2013 is not eligible for deduction under section 80G of the Act, even if such institution is specifically approved under section 80G.
2.3 The Learned CIT(A) misinterpreted the legislative intension and erred in not allowing the deduction of CSR expenses under section 80G of the Act considering the same is not allowable as business expenditure
2.4 As can be noticed from the provisions of clause (iiihk) and (ilihi) of section 80G(2), specific funds covered under the CSR category is excluded from granting a deduction under section 80G of the Act. The Learned CIT(A) and AD failed to consider that there are specific exclusions from section 80G and proceeded to generalise the legislative intent thereby erred in not granting relief to the Appellant.
2.5 In view of the above, the Appellant humbly prays before Your Honour to consider the plea to direct the Learned AD to allow the deduction under section 80G amounting to Rs. 66,50,000.
3. Ground No. 3- Levy of interest under section 234C-Rs. 68,435
3.1 Consequent to the above, on the facts and circumstances of the case and in law, the Learned CIT(A) has erred in upholding the levy of interest Rs. 68,435 under section 234C of the Act by Learned AO.
3.2 The Learned CIT(A) erred in not considering the submission filed by the Appellant and proceeded to reject the ground on the basis that the Appellant has not filed any submission in this regard.
3.3 The appellant company prays that on verification of the above claim, the demand shall stand deleted and accordingly interest would not be payable under Section 234C of the Act.
4. Ground No. 4 – Short grant of interest under section 244A
4.1 On the facts and in the circumstances of the case and in law, the learned AO has erred in not adjudicating the said ground of granting short interest under section 244A of the Act.
4.2 The Appellant prays that the Learned AO be directed to grant interest under section 244A of the Act till the date of receipt of refund by the Appellant.”
2. Briefly stated facts of the case are that the assessee-company is engaged in the business of borrowing and lending of money. It filed its return of income for the year under consideration on 15.02.2021 declaring a total income of Rs. 109,98,46,910/- under the normal provisions the Income Tax Act, 1961 [in short the ‘Act’] which was further revised on 31.03.2021 retaining the same income. The return was subsequently revised on 31.03.2021 without any variation in the returned income. The return was selected for scrutiny assessment and, after issuance of statutory notices and consideration of the material furnished by the assessee, the assessment was completed under section 143(3) of the Act. Certain additions and disallowances were made, inter alia, including disallowance under section 14A of the Act and denial of deduction claimed under section 80G in respect of CSR expenditure. Interest under section 234C was also levied and interest under section 244A was granted while issuing refund. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A), who granted partial relief. Dissatisfied with the findings of the first appellate authority, the assessee is in further appeal before us.
Ground No. 1 – Disallowance under Section 14A
3. At the outset, the learned counsel for the assessee submitted that Ground No. 1 relating to the disallowance under section 14A of the Act was not being pressed. A written communication to that effect has been placed on record. In view of the unequivocal statement made on behalf of the assessee, Ground No. 1 is dismissed as not pressed.
Ground No. 2 – Deduction under Section 80G in respect of CSR Expenditure
4. Ground No. 2 concerns the disallowance of deduction under section 80G amounting to Rs. 66,50,000/-, being fifty per cent of the CSR expenditure of Rs. 1,33,00,001/- incurred by the assessee and donated to institutions approved under section 80G of the Act. The Assessing Officer disallowed the claim on the premise that expenditure incurred pursuant to the statutory obligation imposed under section 135 of the Companies Act, 2013 is mandatory in nature and, therefore, cannot be equated with a voluntary donation eligible for deduction under section 80G. Accordingly, he disallowed the deduction observing as under:-
“Thus, it is clear from the above that every company having a net worth of rupees five hundred Crores or more or turnover of profit of five Crore or more during any financial year is MANDATED to spend, in every financial year, at least two percent of the average net profits of the company rupees one thousand Crores or more or a net made during the three immediately preceding financial years. This expenditure is categorically disallowed u/s 37 of the Income Tax Act, 1961.
Further, as per the Notification of Ministry of Corporate Affairs dated 27th February 2014 the scope and nature of CSR expenditure has been elaborated in detail Section 7 of the said notification defines CSR expenditure as follows
“7. CSR Expenditure. CSR expenditure shall include all expenditure including contribution to corpus for projects or programs relating to CSR activities approved by the Board on the recommendation of its CSR Committee, but does not include any expenditure on an item not in conformity or not in line with activities which fall within the purview of Schedule VII of the Act”
It is pertinent to note here that the said expenditure even if of the nature of a contribution to the corpus for projects of programs relating to CSR activities is still a MANDATORY CONTRIBUTION’ required to be made by the company in pursuance of the Companies Act, 2013. A donation by its dictionary meaning and also as per the meaning implied by the provisions of the Income Tax Act, 1961 is a “VOLUNTARY CONTRIBUTION”. Thus, the legislative intent for providing the benefit of tax deduction u/s 80G was to incentivize and encourage voluntary donations by individuals and organizations towards organizations/trusts/funds working for issues of social relevance and importance.
CSR expense being a contribution stipulated by the Companies Act, 2013 is a necessary obligation of the company which was introduced by the legislature with the objective that companies having net worth/turnover/profit above a threshold should share the burden of the government in providing social services. Thus, a CSR expense cannot at the same time be a donation. For this purpose, the government also categorically mentioned that the amount relating to CSR should be 2% of the average net profit. If tax deduction is allowed on such CSR expenses, this would result in subsidizing these expenses by one-third amount. The same has also been specifically mentioned in the explanatory notes to the provisions of the Finance Act, 2015 vide circular 01/2015 dated 21st January 2015. The relevant extract is produced below”
13.2 If such expenses are allowed as tax deduction this would result in subsidizing of around one-third of such expenses by the government by way of tax expenditure……….
If the assessee takes donations for the purpose of Section 80G of the Income-tax Act.1961 then the 50% deduction of these CSR expenses by calling them assessee is further subsidizing these expenses over and above the one-third amount. In addition to the above.
13.3 any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act. 2013 shall not be deemed to have been incurred for the purpose of business and hence shall not be allowed as deduction under said section 37 However the CSR expenditure which is of the nature described in Section 30 to Section 36 of those sections subject to fulfillment of conditions, if any, specified therein.”
As can be seen from the above highlighted portion of the Explanatory Notes to the provisions of the Finance Act. 2015 that only that CSR expenditure is allowed as a deduction (disallowed u/s 37 of the Income-tax Act, 1961) which is of the nature described in Section 30 to Section 36 of the Income-tax Act, 1961. Thus, when the law explicitly states the nature of the expenses allowed for deduction to be that of Section 30 to Section 36, the assessee cannot suo-moto expand the scope of such a law to imply Section 80G.
It is thus clear that the expenditure on CSR activities is non-deductible for tax purposes unless falling within provisions of Sections 30 to 36 of the Income Tax Act, 1961. Further the contention of the assessee that sub section (iihk) and sub-section (iiihl) of Section 80G exclusively specify the phrase that.
“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)”
whereas the other sub sections u/s 80G do not, implies the fact that this condition does not hold for the other sub sections of Section 80G is not only incorrect but also a very superficial reading of the law.
These sub sections were introduced in the Income-tax Act, 1961 by the Finance Act. 2015. This is the same finance act which categorically also specified that only that expenditure on CSR activities is deductible for tax purposes which falls within the provisions of Sections 30 to 36 of the Income Tax Act, 1961. Thus, the legislative intent is only further strengthened by the introduction of the phrase “other than the sum spent by the assessee in pursuance of Corporate Social Responsibility that the deduction u/s 80G of the Income-tax Act 1961 is allowed only to those voluntary contributions made by the assessee over and above its Corporate Social Responsibility. Interpretation for the said statute to twist the law in his favour. The assessee has deliberately applied the mischief rule of
Something which is not directly allowed by the legislature cannot be allowed indirectly by the legislature. It is well settled position of law and there is no legal authority required for the above proposition of law. However, if there had been requirement of one, the Supreme Court of India in 1979 has already adopted this legal maxim in its philosophy and had said in the case of Jagir Singh v. Ranbir Singh [AIR 1979 SC 381].
What may not be done directly cannot be allowed to be done indirectly, that would be an evasion of the statute. It is a “well-known principle of law that the provisions of an Act of Parliament shall not be evaded by shift or contrivance” (per Abbott C.J. in Fox v. Bishop of Chester (1824) 2 B & C 635 “To carry out effectually the object of a Statute, it must be construed as to defeat all attempts to do, or avoid doing, in an indirect or circuitous manner that which it has prohibited or enjoined”
Additionally various ITAT judgments relied upon by the Assessee have also not acknowledge the change of position as adopted by Ministry of Corporate Affairs from 2016 to 2021. The MCA has issued a fresh General Circular 14/2021 dated 25th August 2021 [E-file no.CSR-05/01/2021-CSR-MCA].
3.14. What tax benefits can be availed under CSR?
No specific tax exemptions have been extended to CSR expenditure. The Finance Act, 2014 also clarifies that expenditure on CSR does not form part of business expenditure.
Kind attention is once again drawn to the Explanatory Notes to the provisions of the Finance (No. 2) Act, 2014 where it is specified at Point 13.2 that – “CSR expenditure, being an application of income, is not incurred wholly and exclusively for the purpose of carrying on business. As the application of Income is not allowed as deduction for the purpose of computing taxable income of a company, amount spent on CSR cannot be allowed as deduction for computing the taxable income of the Company.” Thus, the explanatory note is clear in spelling out that no deduction is to be allowed out of CSR expenses in any form and therefore, the claim of 80G deduction is not allowable.
The case laws which have been submitted by the Assessee have not discussed the Explanatory Note Point 13.2 to the provisions of Finance Act wherein, it is mentioned that application of Income is not allowed as deduction wherein the intention of the legislature is specified that on Mandatory CSR spending is an application of Income which is not allowable as deduction and therefore, 80G deduction is also not available to the assessee.
This shows that the legislature’s intention is to make certain companies spend CSR expenditure out of the tax paid profits for the betterment of the society and therefore assessee company’s claim to allow CSR expenses u/s 80G, defeats the very purpose of CSR expenses which must be incurred out of tax paid profits. Therefore, the assessee company’s claim of 80G of Rs. 66,50,000/-is not allowed and added to the total income of the assessee company. Further, Penalty proceedings u/s 270A of the Act is initiated separately for under-reporting of the income.
[Additions: Rs.66,50,000/-]”
4.1 On further appeal the Ld. CIT(A) also upheld the disallowance of deduction u/s 80G observing as under:-
“7.1. Adjudication on Ground 3
Before adjudication it would do well to go through the provisions of section 80G Section 80G(1) allows deduction only for sum paid by the assessee in the previous year as donations to specified funds or charitable institutions as enumerated in Section 80G(5)/(6), Section 80G(2) specifically excludes certain contributions from deduction, e.g., contributions to Swachh Bharat Kosh and Clean Ganga Fund under CSR. Beyond these, there is no express exclusion for other CSR contributions.
I find that the underlying principle for allowing the deductions is that only bona fide voluntary donations qualify, not mandatory obligations under statute
It is undisputed that Corporate Social Responsibility (CSR) is Mandatory under Companies Act. Section 135 of the Companies Act, 2013 imposes a statutory obligation on certain companies to spend a minimum percentage of profits on CSR. Since CSR expenditure is mandatorily mandated, it is not voluntary: Section 80G is intended for voluntary donations. The Supreme Court and several High Courts have consistently held that a statutory obligation cannot be treated as a “donation” for tax deduction purposes. Treating mandatory CSR contributions as deductible under Section 80G would effectively circumvent the statutory intent behind CSR legislation and Section 80G. Explanation 2 to Section 37(1) specifically disallows deductions for CSR expenses while computing business income. While the appellant argues that Chapter VIA (Section 80G) operates after gross total income, this does not permit the creation of a deduction where the contribution is statutory and obligatory. I find much force in the AO’s argument that allowing CSR contributions as eligible deduction would amount to subsidising of the CSR obligation by the government which would defeat the the purpose of CSR contributions.
The appellant’s reliance on the clarifications in Finance Bill 2015 and FAQ from Ministry of Corporate Affairs is misplaced. When read together they only clarify that CSR expenditure is not allowable as business expenditure; they do not intend to allow mandatory CSR to qualify as a Section 80G donation and they do not alter the statutory requirement that Section 80G is for voluntary donations only. CSR contributions, being mandated under Section 135 of Companies Act, cannot be treated as eligible donations under Section 80G.
Therefore, the AO’s disallowance of Rs. 66,50,000 claimed as deduction under Section 80G is legally correct and consistent with both statutory provisions and the legislative intent.”
4.2 We have carefully considered the rival submissions and examined the material available on record. The controversy involved is no longer res integra and stands concluded by a series of decisions rendered by Coordinate Benches of the Tribunal.
4.3 The learned counsel for the assessee placed reliance on the decision of the Coordinate Bench in
ACIT v.
NDL Ventures Limited (
Mumbai –
Trib.)], wherein, after an elaborate examination of the statutory framework and earlier precedents, it was held that the restriction contained in Explanation 2 to section 37(1) merely disentitles an assessee from claiming CSR expenditure as a business deduction. The said restriction does not extend to deductions otherwise admissible under Chapter VI-A, including section 80G of the Act. The Tribunal observed that in the absence of any express prohibition under section 80G, donations made to eligible institutions cannot be denied deduction merely because such donations also qualify as CSR expenditure. The finding of the Coordinate Bench of the Tribunal in the case of
NDL Ventures Limited (
supra) is reproduced for ready reference:
“5.3. Before us Id. counsel for the assessee referred to the decision of the coordinate bench of the Tribunal in The case of ACG Pam Pharma Technologies (P.) Ltd v Pr. CIT (Mumbai – Trib.) Wherein the claim of deduction u/s 80G for donation classified as CSR has been held to be allowable. The relevant findings of the Tribunal (supra) is reproduced as under:
“7. First for all, we take up the first issue/question and after hearing the parties at length on this issue, we noticed that Ld. PCIT has held that since CSR expenditure is mandatory therefore the same cannot constitute a donation, which is voluntary and hence not eligible for deduction under ACG Pam Pharma Technologies Private Limited section 80G of the Act. whereas it is an undisputed fact that donation made by the assessee are to entities registered under section 80G and that the assessee is otherwise eligible to claim deduction under section 80G of the Act.
8. We noticed that though section 135 of the Companies Act, 2013 mandates the quantum of CSR expenses, it does not mandate to whom and how the amount to be spent and the Appellant at its discretion can choose the mode of spending towards CSR. The donations made by the Appellant to ACS Cares Foundation are made voluntarily as there is no reciprocal commitment from the donees. In any purpose of claiming deduction. CBDT, vide Circular No. 1/2015 dated 21st January 2015 which contains to be voluntary the Explanatory Notes provisions of the Finance (No. 2) Act, 2014, has stated that expenditure incurred which is eligible for CSR and allowable under other sections, shall be allowed as a deduction while computing income. The relevant extract of CBDT Circular is reproduced as under:
“13.3 The provisions of section 37(1) of the Income-tax Act provide that deduction for any expenditure, which is not mentioned specifically in section 30 to section 36 of the Income-tax Act, shall be allowed if the same is incurred wholly and exclusively for the purposes of carrying on business or profession. As the CSR expenditure (being an application of income) is not incurred for the purposes of carrying on business, such expenditures cannot be allowed under the provisions of section 37 of the Income-tax Act. Therefore, in order to provide certainty on this issue, said section 37 has been amended to clarify that for the purposes of sub-section (1) of section 37 any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to have been incurred for the purpose of business and hence shall not be allowed as deduction under said section 37. However, the CSR expenditure which is of the nature described in section 30 to section 36 of the Income-tax Act shall be allowed as deduction under those sections subject to fulfillment of conditions, if any, specified therein.”
9. The CBDT Circular clearly states that the restriction on claiming deduction of CSR expense is only with respect to Section 37(1) of the Act ACG Pam Pharma Technologies Private Limited wherein it will not be deemed to be a business expenditure for the purpose computing income under the head ‘Profits and Gains from Business or Profession’. The Circular itself clarifies that CSR expenditure will be allowable under other sections under the same head of income. In view of CBDT Circular, it is clear that there is no express bar in claiming deduction in respect of CSR expenditure, other than under Section 37(1) of the Act. The Ministry of Corporate Affairs (“MCA”) has issued Frequently Asked Questions (“FAQ”) through General Circular No.01/2016 dated January 12, 2016 (FAQ No.6) has clarified on the issue follows:-
“Question No.6: What tax benefits can be availed under CSR?
Answer: No specific tax exemptions have been extended to CSR expenditure per se. The Finance Act, 2014 also clarifies that expenditure on CSR does not form part of business expenditure. What no specific tax exemptions have been extended to expenditure incurred on CSR, spending on several activities like Prime Minister’s Relief Fund, Scientific research, rural development projects, skill development projects, agriculture extension projects etc, which find place in Schedule VII, already enjoys exemptions under different sections of the Income-tax Act, 1961.”
10. This clarification being issued by the Ministry of Corporate Affairs, Government of India also confirms that donation covered under CSR Expenses are eligible for the deduction under section ROG of the Income tax Act, 1961. Moreover, reliance is placed on the decision of the Coordinate Bench of the ITAT, Mumbai Bench in the case of ACIT. Sharda Cropchem Limited (ITA No. 6163/Mum/2024) wherein it was held that donations which are classified as CSR expenditure are eligible for deduction under Section 80G of the Act. The relevant extract of the order is reproduced as under:
“9. We have carefully perused relevant provisions of the Act and legal position emerging from the cited decision (supra). The CSR expenses which are required to be mandatorily incurred by the assessee-company as per section 135 of the Companies Act are not entitled to deduction under section 37(1) for assessment year 2015-16 by virtue of the fetter placed by Explanation 2 to section 37(1), which was inserted by the Finance (No. 2) Act, 2014. A plain reading of Explanation 2 to section 37(1) shows that any expenditure incurred towards CSR activities as referred to in section 135 of the Companies Act, 2013 shall not be allowed as business expenditure and shall be deemed to have not been incurred for purpose of business. The embargo created by Explanation 2 inserted in section 37 by Finance (No. 2) Act, 2014 was to deny deduction for (3SR expenses ACG Pam Pharma Technologies Private Limited incurred by companies, as and by way of regular business expenditure while computing ‘income under the head business. So, it can be clearly seen that this Explanation 2 to section ion 37(1) which denies deduction for CSR expenses by way of business expenditure is applicable only to the extent of computing “business income’ under Chapter IV-D. The said Explanation cannot be extended or imported to CSR contributions which are otherwise eligible for deduction under any other provision or Chapter, so as to say donations made by charitable trust registered under section 80G. Parliament has expressed its intention clearly by bringing in restriction in respect of expenditure classified by an assessee company while claiming deduction under section 80G i.e. CSR expenditure related to Swachh Bharat Kosh and Clean Ganga Fund. And if the Parliament desired, it could have been made such kind of restriction or any restriction like in the case of donation to Swachh Bharat Kosh & Clean Ganga Fund. So the assertion of the Assessing Officer is erroneous and therefore cannot be accepted. It can be safely inferred that when the Legislature in particular has provided for only the above referred tivo specific exceptions in section 80G, then it is the implied intent of the Legislature to permit deduction under section 80G in respect of CSR contributions made to funds/organizations referred to in all other sub-clauses of section 80G [other than (iiihk) and (iiihl)] of the Act.
9.1 It may be stated here that the co-ordinate Bench of ITAT, Mumbai in the case Alubound Dacs India Private Limited v. Dy. CIT in IT A No. 3663/M u m/2023 (A.Y. 2020-21)has duly considered similar contentious issue and decided the same in favour of the assessee. The relevant extracts are reproduced below for the sake of ready reference:
……………………
9.3 Respectfully following the decisions cited above, we hold that the assessee is entitled to deduction claimed u/s. 80G of the Act towards the CSR expenditure incurred by it. We, therefore, direct the Id. A.O. to allow the claim of the assessee subject to the condition that the assessee has satisfied the other requirements warranted u/s.80G of the Act. We do not find any infirmity in the Appellate order. Hence, ground no. 3 raised by the Revenue is dismissed.
11. Thus, after evaluating the facts of the present case and also decision of the Co-ordinate Bench and the Settled proposition of law, we are also of the view that the assessee is entitled for deduction claimed under section 80G of the Act towards CSR expenditure incurred by it.”
5.4. We have examined the rival submissions and the material placed on record “The issue is no longer res integra. The statutory embargo introduced by Explanation 2 to section 37(1) denies deduction of CSR expenditure only as a business expenditure. However, there is no corresponding prohibition under Chapter VI including section 80G, save and except specific exclusions provided by the Legislature. It is trite law that where the Legislature intends to deny a benefit, it does so expressly. In the absence of any explicit bar under section 80G, a donation otherwise satisfying the prescribed conditions cannot be denied deduction 37(1) and eligibility under section 80G must be maintained, as both provisions operate in distinct fields. The consistent view of various coordinate benches of the Tribunal, including decisions relied upon by the learned CIT(A), supports the proposition that CSR expenditure, though not allowable as business expenditure, may still qualify for deduction under section 80G, subject to fulfillment of statutory conditions. Denial of such deduction would result in unintended double disallowance, which is not the object of the law. In the present case, it is not disputed that the donee institutions are duly approved under section 80G and the payments have been made through proper banking channels. Once these foundational conditions are satisfied, the claim cannot be rejected solely on the ground that the expenditure also falls within the ambit of CSR.
5.5 In view of the above, we find no reason to interfere with the well-reasoned order of the learned CIT(A). Grounds Nos. 5 and 6 of the Revenue’s appeal are accordingly dismissed.”
4.4 Similar view has been reiterated by the Coordinate Bench in ACIT v. Jamnagar Utilities and Power Private Limited [ITAppeal No.2117(MUM) of 2024, dated 24-7-2024] and several other decisions, wherein it has consistently been held that once the conditions prescribed under section 80G are satisfied and the donee institution is duly approved under the said provision, deduction cannot be denied solely on the ground that the expenditure forms part of CSR obligations. The Tribunal has further held that denial of deduction under section 80G in such circumstances would result in an unintended double disallowance, which is neither contemplated by the statutory provisions nor supported by legislative intent. The relevant part of the said decision is reproduced as under:-
“5. We have heard rival submission of the parties and perused the relevant material on record. In the case, the assessee debited Rs.8,60,00,000/- on account of CSR, which was added back was while computing total income for the purpose of filing return of income. However, the assessee claimed 50% deduction i.e. Rs.4,30,00,000/- u/s 80G of the Act. According to the Assessing Officer CSR is statutory liability on the part of the assessee, which is to be incurred out of profit in compliance to the Companies Act, whereas section 80G of the Act deal with donation in the nature of the voluntary out of once own violation. The CSR not being voluntary rather it was legal mandate on the part of the assessee, the Assessing Officer held the CSR expenditure out of purview of the section 80G of the Act and accordingly he disallowed the claim of deduction of the assessee of Rs.4,30,00,000/-. On further appeal, the Ld. CIT(A) allowed the claim of the assessee observing as under:
“I have carefully considered the assessment order and submission made by the appellant. The appellant has relied upon the following judicial decisions including the decisions of jurisdictional ITAT Mumbai where it has been held that payments towards donations made on account of corporate social responsibility, disallowed under section 37(1), are allowable as deductions under section 80G of the Act: Section 37(1),
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DCIT v. Reliance Industries Ltd. (2023) I.T.A. No. 2587 & 2588/Mum/2022 (Mumbai ITATI M/s. Naik Seafoods Pvt. Ltd. v. Pr. CIT- 2 (ITA No 490/MUM/2021) |
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(Mumbai ITAT) FNF India (P.) Ltd. v. ACIT (2021) ) (Bangalore ITAT) |
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Sling Media (P.) Ltd. v. DCIT (2022) (194 ITD 1) (Banglore ITAT) Infinera India (P) Ltd. v. JCIT (2022) (194 ITD 463) (Bangalore ITAT) |
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DCIT v. M/s. The Peerless General Finance & Investment & Co. Ltd (ITA No. 1469 & 1470/Kol/2019) (Kolkata ITAT) |
Further, it is also observed from the contents of above decision of Hon’ble ITAT that the explanatory memorandum to Finance Act No. 2, 2014, introducing Explanation 2 to Section 37 (1) which prohibited the allowability of CSR expenditure as business expenditure. The memorandum clearly states that CSR expenditure described in sections 30 to 36 of the Income-tax Act, 1961 shall be allowed. Legislators never intended to deny deductions for CSR expenditure outright; it is only not allowable under section 37(1). As the amendment in section 37(1) does not apply to sections 30 to 36 of the Act, the same would not apply to section 80G of the Act. Thus, appellant shall be allowed to claim a deduction under section 80G of the Income Tax Act, 1961 to the extent of eligibility.
It is further viewed that jurisdictional Hon’ble Mumbai ITAT in the case of M/s. Reliance Industries V. DCIT [2023] (IT? NO.2587 2588/MUM/2022) has followed the decision rendered by Mumbai ITAT in the case of Naik Sea foods P Ltd v. Pr. CIT-2 (ITA NO.490/MUM/2021). In the case of Naik Sea foods P Ltd (supra), the co-ordinate bench has followed the decision rendered by Bangalore bench of Tribunal in the case of M/s FNF India P Ltd (ITA No. 1565/Bang/2019 dated 05-01-2021), which in turn followed the decision rendered in the case of Allegis Services (India) Pvt. Ltd. v. ACIT (ITA No. 1693/Bang/2019) and held that the assessee is eligible for deduction u/s 80G of the Act in respect of certain payments included in CSR Expenses. The relevant discussions made by the Tribunal are extracted below:-
“15. Considered the rival submissions and material placed on record, we observe from the record that Ld. Pr.CIT while examining the records of the assessment observed that the Assessing Officer has not Verified the expenses claimed by the assessee and allowed by the Assessing Officer ITA NO. 490/MUM/2021 (A.Y: 2016-17) M/s. Naik Seafoods Pvt. Ltd., without making the proper verification and purchases which is 95% of the sale declared by the assessee and again Assessing Officer allowed the same without making proper verification. After considering the submissions of both the parties we observe from the record that with regard to section 80G deduction we observed that the Coordinate Bench of ITAT Bangalore Bench decided the issue of deduction u/s. 80G relating to donations which is part of Corporate Social Responsibility in the case of M/s.FNF India Pvt. Ltd., v. ACIT (ITA. No. 1565/Bang/2019 dated 05.01.2021). The relevant findings of the Bangalore Bench are reproduced below:-
“9. After hearing both the parties, we find that similar issue came up for consideration before this Tribunal in ITA No. 1693/Bang/2019 in the case of Allegis Services (India) Put. Ltd. v. ACIT. The Tribunal by its order dated 29.4.2020 held as under.-
“10. Section 135 of Companies Act, 2013 requires companies with CSR obligations, with effect from 01/04/2014.
Finance (No.2) Act, 2014 inserted new Explanation 2 to sub-section (1) of section 37, so as to clarify that for purposes of sub-section (1) of section 37, any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession.
11. This amendment will take effect from 1/04/2015 and will, accordingly, apply to assessment year 2015-16 and subsequent years.
12. Thus, CSR expenditure is to be disallowed by new Explanation 2 to section 37(1), while computing Income under the Head Income form Business and Profession. Further, clarification regarding impact of Explanation 2 to section 37(1) of the Income Tax Act in Explanatory Memorandum to The Finance (No.2) Bill, 2014 is as under:
*The existing provisions of section 37(1) of the Act provide that deduction for any expenditure, which is not mentioned specifically in section 30 to section 36 of the Act, shall be allowed if the same is incurred wholly and exclusively for the purposes of carrying on business or profession. As the CSR expenditure (being an application of income) is not incurred for the purposes of carrying on business, such expenditure cannot be allowed under the existing provisions of section 37 of the Income-tax Act. Therefore, in order to provide certainty on this issue, it is proposed to clarify that for the purposes of section 37(1) any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to have been incurred for the purpose of business and, hence, shall not be allowed as deduction under section 37. However, the CSR 36 of the Act shall be allowed deduction under those sections subject ependiture which is of the nature described in section 30 to section to ultillment of conditions, if any, specified therein.
13. From the above it is clear that under Income tax Act, certain provisions explicitly state that deductions for expenditure would be allowed while computing income under the head, Income from Business and Profession to those, who pursue corporate social responsibility projects under following sections.
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Section 30 provides deduction insurance premium repairs, municipal tax and |
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Section 31, provides deduction on repairs and insurance of plant, machinery and furniture Section 32 provides for depreciation on tangible assets like building, machinery, plant, furniture and also on intangible assets like knowhow, patents, trademarks, licenses. Section 33 allows development rebate on machinery, plants and ships. |
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Section 34 states conditions for depreciation and development rebate. |
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Section 35 grants deduction on expenditure for scientific research and knowledge extension in natural and applied sciences under agriculture, animal husbandry and fisheries. Payment to approved universities/research institutions or company also qualifies for deduction. In-house R&D is eligible for deduction, under this section. |
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Section 35CCD provides deduction for skill development projects, which constitute the flagship mission of the present Government. |
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Section 36 provides deduction regarding insurance premium on stock, health of employees, loans or commission for employees, interest on borrowed capital, employer contribution to provident fund, gratuity and payment of security transaction tax. |
Income Tax Act, under section 80G, forming part of Chapter VIA, provides for deductions for computing taxable income as under:
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Section 80G(2) provides for sums expended by an assessee as donations against which deduction is available. |
1. Certain donations, give 100% deduction, without any qualifying limit like Prime Minister’s National Relief Fund, National Defence Fund, National Illness Assistance Fund etc., specified under section 80G(I) (i)
2. Donations with 50% deduction are also available under Section 80G for all those sums that do not fall under section 80G(1)i).
Under Section 80G(2) (lihk) and (lihl) there are specific exclusion of certain payments, that are part of CR responsibility, not eligible for deduction 4/880G.
1. In our view, expenditure incurred under section 30 to 36 are claimed while computing income under the head, Income form Business and Profession”, where as monies spent under section 80G are claimed while computing “Total Taxable income” in the hands of assessee. The point of claim under these provisions are different.
2. Further, intention of legislature is very clear and unambiguous, since expenditure incurred under section 30 to 36 are excluded from Explanation 2 to section 37(1) of the Act, they are specifically excluded in clarification issued. There is no restriction on an expenditure being claimed under above sections to be exempt, as long as it satisfies necessary conditions under section 30 to 36 of the Act, for computing income under the head, “Income from Business and Profession”
3. For claiming benefit under section 80G, deductions are considered at the stage of computing Total taxable income. Even if any payments under section 80G forms part of CSR payments/keeping in mind ineligible deduction expressly provided u/s.80G, the same would already stand excluded while computing, Income under the head, “Income form Business and Profession”. The effect of such disallowance would lead to increase in Business income. Thereafter benefit accruing to assessee under Chapter VIA for computing “Total Taxable Income cannot be denied to assessee, subject to fulfillment of necessary conditions therein.
4. We therefore do not agree with arguments advanced by Ld. Sr. DR
5. In present facts of case, Ld.AR submitted that all payments forming part of CSR does not form part of profit and loss account for computing Income under the head, “Income from Business and Profession it has been submitted that some payments forming part of GSR were claimed as deduction under section 80G of the Act, for computing “Total taxable income”, which has been disallowed by authorities below. In our view, assessee cannot be denied the benefit of claim under Chapter VI A, which is considered for computing Total Taxable Income”. If assessee is denied this benefit, merely because such payment forms part of CSR, would lead to double disallowance, which is not the intention of Legislature.
1. On the basis of above discussion, in our view, authorities below have erred in denying claim of assessee under section 80G of the Act. 77e also note that authorities below have not verified nature of payments qualifying exemption under section and quantum of eligiblity as per section 800(1) of the Act.
1. Under such circumstances, we are remitting the issue back to Ld. AO for verifying conditions necessary to claim deduction under section 80G of the Act. Assessee is directed to file all requisite details in order to substantiate its claim before Ld.AO is then directed to grant deduction to the extent of eligibility. Accordingly grounds raised by assessee stands allowed for statistical purposes.
In view of the decision of jurisdictional Hon’ble Mumbai ITAT in the case of Reliance 2588/MUM/2022) and Naik Industries Ltd. No.490/MUM/2021, it is held that AO has Naik Seafoods Pvt. Ltd. V. PY CIT-2 (2021) ITA appellant under section officer has not verified nature of payments qualifying exemption u/s.80G of chon 80G of the Act. It is also observed that assessing has erred in denying claim of the Act and quantum of eligibility AO is directed to verify conditions necessary to claim deductión u/s.800 of the Act and grant deduction to the extent of eligibility. Accordingly, thin ty as per section 80G(1) of the Act. Therefore, ground stands allowed for statistical purposes.”
5.1 We find that the Ld. CIT(A) has followed the decision of the Co-ordinate Bench on the issue in dispute. Further, we find that the assessee has fulfilled all the conditions for deduction u/s 80G of the Act in respect of deduction claimed. We also note there is no specific bar in section 80G of the Act for claiming deduction in respect of CSR expenditure if an assessee otherwise fulfill all the requirement of section 80G of the Act. In view of the above, respectfully following the finding of the Co-ordinate Bench of ITAT on the issue in dispute referred by the Ld. CIT(A), we uphold the finding of the Ld. CIT(A) on the issue in dispute. The ground of appeal of the Revenue is accordingly dismissed.”
4.5 We respectfully concur with the aforesaid view. Explanation 2 to section 37(1) creates a limited embargo against allowance of CSR expenditure as business expenditure while computing income under the head “Profits and Gains of Business or Profession”. However, there exists no corresponding restriction under section 80G, save and except the specific exclusions expressly enacted by Parliament. It is a settled canon of statutory interpretation that where the Legislature intends to deny a deduction, it does so in explicit terms. The absence of any such prohibition under section 80G is indicative of a conscious legislative choice. In the present case, there is no dispute that the recipient institutions were duly approved under section 80G and that the donations were made through recognised banking channels. Once these foundational conditions stand satisfied, the deduction cannot be denied merely because the expenditure also fulfils the assessee’s CSR obligation under the Companies Act, 2013.
4.6 Respectfully following the binding precedents of the Co-ordinate Benches, we hold that the assessee is entitled to deduction under section 80G in respect of the impugned donations. Accordingly, the disallowance of Rs. 66,50,000/- sustained by the authorities below is directed to be deleted. Ground No. 2 is allowed.
Ground No. 3 – Levy of Interest under Section 234C
5. By way of Ground No. 3, the assessee has challenged the levy of interest under section 234C amounting to Rs. 68,435/-. The grievance of the assessee is that the submissions and supporting material furnished in this regard were not properly examined by the lower authorities.
5.1 We are of the considered view that the levy of interest under section 234C is consequential and dependent upon verification of the factual computation of advance tax liability. Since the assessee asserts that the levy has not been correctly worked out, the issue requires factual verification at the level of the Assessing Officer. Accordingly, the orders of the authorities below on this issue are set aside and the matter is restored to the file of the Assessing Officer for fresh examination and recomputation, if warranted, in accordance with law after affording adequate opportunity of hearing to the assessee. Ground No. 3 is allowed for statistical purposes.
Ground No. 4 – Short Grant of Interest under Section 244A
6. Ground No. 4 relates to the assessee’s grievance regarding short grant of interest under section 244A of the Act. The learned counsel submitted that interest has been granted only up to the date of the assessment order and not up to the actual date of issuance of refund, thereby resulting in short grant of statutory interest. We find that the issue raised by the assessee is essentially factual in nature and requires verification of the dates relevant for computation of interest under section 244A. Although such grievance could ordinarily be addressed by way of a rectification application before the Assessing Officer, we consider it appropriate, in the interests of justice, to restore the matter to the file of the Assessing Officer. The Assessing Officer shall verify the computation of interest under section 244A and, if it is found that the assessee is entitled to any further interest in accordance with law, the same shall be granted after due verification. Ground No. 4 is accordingly allowed for statistical purposes.
7. In the result, the appeal of the assessee is partly allowed for statistical purposes.
