CSR-funded donations can still qualify for Section 80G deduction despite disallowance under business expenditure rules.

CSR-funded donations may still qualify for deduction under Section 80G even though the same expenditure is not allowable as business expenditure under Section 37(1). The disallowance under Explanation 2 to Section 37(1) operates in a different field and does not control eligibility under Section 80G, which has its own statutory conditions for deduction while computing total income. The mandatory character of CSR spending does not, by itself, defeat Section 80G relief where those conditions are satisfied. On that basis, the donation was held deductible and the disallowance was deleted.

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Issues: Whether a donation made out of Corporate Social Responsibility funds, which is not allowable as business expenditure under Section 37(1), can still be claimed as deduction under Section 80G.

Analysis: The disallowance of CSR expenditure under Explanation 2 to Section 37(1) does not determine eligibility under Section 80G, because the two provisions operate in different fields. CSR spending is treated as application of income for business deduction purposes, but Section 80G independently permits deduction of qualifying donations while computing total income. The mandatory nature of CSR obligation does not by itself negate deduction under Section 80G where the statutory conditions for that deduction are otherwise satisfied.

Conclusion: The donation out of CSR funds remained eligible for deduction under Section 80G, and the disallowance was deleted.

Ratio Decidendi: Disallowance of CSR expenditure under Section 37(1) does not bar a separate deduction under Section 80G if the donation otherwise satisfies the requirements of that provision.

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