2024 (12) TMI 182 - AT - Income Tax

CSR expenditure qualifies for section 80G deduction despite being statutory obligation under Companies Law

M/s. Northern Operating Services Pvt. Ltd. Versus DCIT, Circle – 5 (1) (1), Bengaluru.

The ITAT Bangalore allowed the assessee's appeal and directed the AO to grant deduction u/s 80G for CSR expenditure. The revenue authority had denied the ... Deduction u/s 80G - CSR expenditure - solitary reason for denying the benefit of deduction u/s 80G was that it was not a voluntary contribution but CSR expenses are statutory obligation under the Companies Law - HELD THAT:- On perusal of the same which is placed on record, we find that the total donations made. The party wise details and the approval granted to each of the donees are also placed on record and same is evident from the certificate issued from the donees. The details of the donations given by the assessee to the various entities, their PAN, date of donation and the approval granted to the donees is annexed to this order as Annexure A. We find donation receipts were verified by the tax auditor and its eligibility has been certified in Form 3CD. Without any allegation of lower authorities on other conditions of section 80G not being satisfied, it can safely be concluded that lower authorities accepted that the other conditions have been fulfilled by the assessee. Therefore, on perusal of the material on record, we direct the AO to grant deduction claimed u/s 80G. Appeal filed by the assessee is allowed. Issues Involved:1. Disallowance of deduction under section 80G of the Income Tax Act for CSR expenditure.2. Incorrect levy of interest under section 234B of the Income Tax Act.3. Initiation of penalty proceedings under section 274 read with section 270A of the Income Tax Act.Issue-wise Detailed Analysis:1. Disallowance of Deduction under Section 80G:The primary issue in this appeal was whether the authorities were justified in disallowing the claim of deduction under section 80G of the Income Tax Act, amounting to INR 1,12,23,296, on the grounds that the expenditure was part of Corporate Social Responsibility (CSR) and not a voluntary donation. The assessee, a company providing BPO services, had claimed this deduction for the Assessment Year 2020-21. The Assessing Officer (AO) disallowed this claim, asserting that CSR expenses are statutory obligations under the Companies Act and lack the voluntary nature required for section 80G deductions. The Dispute Resolution Panel (DRP) upheld this disallowance.The Tribunal examined the distinction between deductions under section 37 and section 80G of the Act. It noted that while CSR expenses are not deductible under section 37 due to their statutory nature, section 80G deductions pertain to donations and are independent of business expenditure. The Tribunal highlighted that the CSR expenses in question were not directed towards the 'Swachh Bharat Kosh' or 'Clean Ganga Fund,' which are explicitly excluded from section 80G deductions. The Tribunal referred to precedents where similar CSR expenditures were deemed eligible for section 80G deductions, provided the conditions under section 80G were met. Concluding that the assessee satisfied all conditions for section 80G deductions, the Tribunal directed the AO to allow the deduction of INR 1,12,23,296.2. Incorrect Levy of Interest under Section 234B:The assessee contested the computation of interest under section 234B of the Act, amounting to INR 28,246. However, the judgment primarily focused on the section 80G deduction issue, and there was no detailed discussion or resolution provided for this interest computation issue in the judgment text.3. Initiation of Penalty Proceedings:The assessee also challenged the initiation of penalty proceedings under section 274 read with section 270A of the Act. The penalty was proposed due to the alleged underreporting of income, linked to the disallowance under section 80G. Since the Tribunal found that the deduction under section 80G was wrongly disallowed, the basis for the penalty was undermined. However, the judgment did not explicitly address the penalty proceedings, focusing instead on the main issue of deduction eligibility.Conclusion:The Tribunal allowed the appeal, directing the AO to grant the deduction under section 80G for the CSR expenditure, thus resolving the primary issue in favor of the assessee. The judgment underscored the distinction between statutory CSR obligations and voluntary donations eligible for tax deductions, affirming the assessee's right to claim deductions under section 80G when conditions are satisfied. The resolution of other issues, such as interest computation and penalty proceedings, was not explicitly detailed in the judgment.