CSR expenditure donations qualify for Section 80G deduction despite Section 37(1) disallowance, provisions operate independently

The ITAT Delhi ruled in favor of the assessee on two key issues. First, the tribunal held that CSR expenditure donations qualify for deduction under Section 80G despite being disallowed under Section 37(1), as both provisions operate independently. The mandatory nature of CSR does not disqualify the deduction since CSR expenditures are philanthropic without reciprocal commitments, similar to regular donations. Second, the tribunal allowed TDS credit in the same year income was offered to tax, following precedent from Inter Globe Enterprises Ltd. The assessee's appeal was allowed on both grounds.

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Issues Involved:
1. Denial of personal hearing by CIT(A).
2. Disallowance of deduction claimed u/s 80G of the Act.
3. Non-allowance of credit of TDS.
4. Levy of interest u/s 234A/B/C of the Act.

Summary:

1. Denial of Personal Hearing by CIT(A):
The appellant contended that the CIT(A) erred in passing the order without granting a personal hearing, violating principles of natural justice and provisions of section 250 of the Income Tax Act, 1961, and the faceless appeal scheme. The Tribunal noted that nothing was submitted regarding this ground during the hearing.

2. Disallowance of Deduction Claimed u/s 80G of the Act:
- The appellant claimed a deduction u/s 80G for donations made till 30th July 2020. The CIT(A) disallowed the deduction for donations made after 31.03.2020, not considering the extended deadline under the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020.
- The CIT(A) also disallowed deductions for donations forming part of CSR expenditure, holding them as non-voluntary and thus not eligible u/s 80G. The Tribunal disagreed, citing multiple judgments, including those from the Bangalore and Delhi Benches, which held that CSR expenditures, if meeting the conditions of section 80G, are eligible for deduction to avoid double disallowance.
- The Tribunal directed the AO to allow the deduction u/s 80G after verifying that the payments qualify as donations under that section.

3. Non-Allowance of Credit of TDS:
- The appellant followed an accrual system of accounting and claimed TDS credit for income offered to tax in the year under consideration, despite the TDS being reflected in the Form 26AS for the subsequent year.
- The Tribunal noted that the AO and CIT(A) did not provide an opportunity to reconcile the TDS and corresponding income. It held that as per section 199 of the Act read with Rule 37BA, TDS credit should be allowed in the year the income is offered to tax.
- The Tribunal referenced a similar case involving the appellant's group company, where the Co-ordinate Bench allowed TDS credit in the year the income was reported. Thus, the Tribunal directed to allow the TDS credit of Rs. 3,87,50,028 in the year under consideration.

4. Levy of Interest u/s 234A/B/C of the Act:
The Tribunal did not specifically address this issue in the judgment, focusing instead on the primary grounds of appeal.

Conclusion:
The appeal of the assessee was allowed, with directions to the AO to allow deductions u/s 80G after verification and to grant TDS credit in the year the income was offered to tax. The order was pronounced in open court on 28.05.2024.

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