CSR donations to registered trusts qualify for section 80G deduction despite section 37(1) disallowance

ITAT Jaipur allowed the assessee's appeal regarding deduction under section 80G for CSR expenditure. The tribunal held that donations made to registered trusts under CSR obligations qualify for section 80G deduction despite being disallowed under section 37(1). The court distinguished between disallowance while computing income and deductions under Chapter VIA, noting that section 80G deductions are computed after total income calculation. The tribunal emphasized that except for specific exclusions under section 80G(2)(iiihk) and (iiihl), all other payments to eligible recipients qualify for donation deduction, rejecting the lower authority's denial of the claim.

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Issues Involved:
1. Legality of the NaFAC order.
2. Denial of deduction under Section 80G.
3. Judicial discipline and binding precedents.
4. Restrictions on claiming deduction under Section 80G.
5. Nature of payments under Section 80G.
6. CSR obligations and their linkage with Section 80G.
7. Relief from interest under Sections 234B & 234C.

Detailed Analysis:

1. Legality of the NaFAC Order:
The appellant argued that the order passed by the National Faceless Appeal Centre (NaFAC) was "bad in law" and should be set aside. The Tribunal reviewed the facts and submissions, confirming that the appellant's return of income was processed under Section 143(1) and later selected for complete scrutiny. The Assessing Officer (AO) disallowed the claim of deduction under Section 80G, and the NaFAC upheld this decision. The Tribunal found no procedural irregularities in the NaFAC's order, thus dismissing the appellant's claim on this ground.

2. Denial of Deduction under Section 80G:
The primary issue was whether the appellant, a closely held company, could claim a deduction under Section 80G for donations made as part of its Corporate Social Responsibility (CSR) obligations. The AO disallowed the deduction on the grounds that CSR expenses are mandatory and not voluntary, which is a requisite for donations under Section 80G. The Tribunal upheld this view, stating that CSR expenditures are not "voluntary" but "mandatory" and thus do not qualify as donations eligible for deduction under Section 80G.

3. Judicial Discipline and Binding Precedents:
The appellant contended that the NaFAC's order was contrary to binding precedents and did not distinguish or assign reasons for deviating from them. The Tribunal reviewed relevant case laws cited by the appellant, including judgments from various ITAT benches and the Supreme Court. However, it found that these precedents did not apply to the specific facts of the case, particularly the mandatory nature of CSR expenditures under the Companies Act, 2013.

4. Restrictions on Claiming Deduction under Section 80G:
The appellant argued that no restrictions were imposed under the Income Tax Act for claiming deductions under Section 80G when payments were made to eligible entities. The Tribunal clarified that while Section 80G allows for deductions on donations, the nature of CSR expenditures as mandatory obligations disqualifies them from being considered as voluntary donations.

5. Nature of Payments under Section 80G:
The Tribunal emphasized that for a payment to qualify as a donation under Section 80G, it must be voluntary. The mandatory nature of CSR expenditures under the Companies Act, 2013, means they cannot be considered voluntary donations, thus disqualifying them from deductions under Section 80G. The Tribunal cited the Andhra Pradesh High Court and the Supreme Court to support its interpretation of "donation."

6. CSR Obligations and Their Linkage with Section 80G:
The appellant argued that CSR obligations under the Companies Act have no linkage with Section 80G except as provided in specific clauses. The Tribunal acknowledged this but reiterated that the mandatory nature of CSR expenditures disqualifies them from being considered voluntary donations eligible for deduction under Section 80G. The Tribunal also noted that specific exclusions for CSR-related contributions to Swachh Bharat Kosh and Clean Ganga Fund further support this interpretation.

7. Relief from Interest under Sections 234B & 234C:
The appellant sought relief from interest under Sections 234B and 234C. The Tribunal did not find it necessary to adjudicate this issue separately, as the primary grounds for appeal were dismissed.

Conclusion:
The Tribunal upheld the AO's decision to disallow the deduction under Section 80G for CSR expenditures, confirming that such expenditures are mandatory and do not qualify as voluntary donations. The appeal was dismissed in its entirety.

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