2025 (8) TMI 542 - AT - Income Tax

Section 115BAA Companies Can Claim Section 80G Deductions for CSR Expenses for AY 2020-21

The ITAT Ahmedabad held that for AY 2020-21, a company opting for taxation under section 115BAA at a concessional rate was not barred from claiming ... Revision u/s 263 - PCIT directed the AO to frame a fresh assessment after disallowing the deduction claimed u/s 80G for the CSR expenditure - Assessee opted for taxation u/s 115BAA Whether once the assessee has opted for being taxed u/s 115BAA of the Act (concessional rate of taxation @22%), then whether the assessee could also claim benefit of deduction u/s 80G of the Act for the Impugned year under consideration? - HELD THAT:- Deduction u/s 80G being claimed despite the assessee opting for taxation u/s 115BAA, we note that the relevant provision of section 115BAA as introduced by the Taxation Laws (Amendment) Act, 2019, was applicable for AY 2020–21 and did not bar deductions under Chapter VI-A in its entirety. The restriction, as originally enacted, applied only to deductions under Chapter VI-A “under the heading C-Deductions in respect of certain incomes” and not to Chapter VI-A as a whole. Section 80G falls under Part B-“Deductions in respect of certain payments”- and thus did not fall within the scope of prohibited deductions as per the then prevailing version of section 115BAA for the relevant year. It was only by way of an amendment introduced through the Finance Act, 2020 with effect from AY 2021–22 that all deductions under Chapter VI-A, except sections 80JJAA and 80M of the Act, were barred for a Company opting for the concessional rate under section 115BAA of the Act. The present assessment year being AY 2020–21, the restriction on deduction u/s 80G was not applicable Whether the CSR activities can be claimed as a deduction u/s 80G of the Act and the nature of donations relating to CSR expenditure did not fall into any of the exceptions provided u/s 80G? - Several judicial authorities have categorically held that statutory CSR contributions, if otherwise fulfilling the conditions prescribed under section 80G of the Act do not lose their nature as donations merely because they are mandated under section 135 of the Companies Act. As in AIA Engineering Ltd. [2024 (10) TMI 1694 - ITAT AHMEDABAD], Interglobe Technology Quotient Ltd [2024 (6) TMI 8 - ITAT DELHI], Alubond Dacs India P Ltd. [2024 (7) TMI 636 - ITAT MUMBAI] and Societe General Securities India P Ltd [2023 (11) TMI 1257 - ITAT MUMBAI] and JMS Mining (P.) Ltd. [2021 (7) TMI 907 - ITAT KOLKATA] have consistently held that CSR expenses, though statutory in nature, do not ipso facto disentitle the assessee from availing deduction under section 80G of the Act, provided all other statutory requirements under that section are met. These decisions have clarified that Explanation 2 to section 37(1), which bars CSR expenses as deductible business expenditure, does not extend to disallowance under section 80G of the Act, and that such donations still retain their voluntary and philanthropic character in the eyes of section 80G of the Act. We observe that the AO, during the original assessment proceedings, had examined the return and submissions made by the assessee and accepted the claim. There is no material on record to suggest that the AO acted arbitrarily or without application of mind. The assessment order was passed after due notice and reply under sections 143(2) and 142(1) of the Act, and the assessee had furnished all necessary details and disclosures. Merely because the PCIT holds a different legal view on the interpretation of section 80G of the Act in the context of CSR contributions, it does not render the assessment order erroneous. AO's view allowing the deduction u/s 80G of the Act cannot be said to be patently erroneous given the legal position applicable to the relevant assessment year and the plausible view taken by various coordinate benches of the Tribunal. Assessee appeal allowed. ISSUES: Whether the order passed under section 263 of the Income Tax Act is valid when the Assessing Officer has not been provided an opportunity of being heard on the issue for which the assessment is set aside.Whether the Principal Commissioner of Income Tax (PCIT) has jurisdiction under the Faceless Assessment Scheme to revise an assessment completed under section 143(3) read with section 144B of the Act.Whether disallowance of deduction under section 80G of the Act on donations made as part of Corporate Social Responsibility (CSR) expenditure is justified.Whether CSR expenditure, being a statutory obligation under section 135 of the Companies Act, 2013, qualifies as a 'donation' under section 80G of the Income Tax Act.Whether the restriction on claiming deductions under Chapter VI-A applies to section 80G deductions for an assessee opting for taxation under section 115BAA for the relevant assessment year.Whether the assessment order passed under section 143(3) read with section 144B of the Act is erroneous and prejudicial to the interest of revenue when the Assessing Officer accepted the claim of deduction under section 80G after due inquiry. RULINGS / HOLDINGS: The order passed under section 263 without providing an opportunity of being heard on the issue is erroneous and without jurisdiction.The PCIT does not have jurisdiction under the Faceless Assessment Scheme to revise an assessment completed under section 143(3) read with section 144B of the Act by the Faceless Assessing Officer unless the PCIT has jurisdiction under the Faceless regime.Disallowance of deduction under section 80G on donations made as part of CSR expenditure is not justified where the donations fulfill all prescribed conditions under section 80G of the Act.CSR expenditure, despite being a statutory obligation under section 135 of the Companies Act, 2013, does not ipso facto disentitle the assessee from claiming deduction under section 80G of the Act if all other statutory requirements are met.For AY 2020-21, the restriction on claiming deductions under Chapter VI-A for an assessee opting for taxation under section 115BAA did not apply to section 80G deductions, as the relevant amendment was effective only from AY 2021-22.The assessment order passed under section 143(3) read with section 144B of the Act is neither erroneous nor prejudicial to the interest of revenue when the Assessing Officer has examined the return and submissions and passed the order after due notice and reply. RATIONALE: The Court applied the statutory provisions of sections 263, 143(3), 144B, 115BAA, and 80G of the Income Tax Act, along with the Companies Act, 2013 (section 135), and relevant amendments effective from AY 2021-22.The Court relied on judicial precedents from various Benches of the Income Tax Appellate Tribunal which held that statutory CSR contributions do not lose their character as donations under section 80G if all conditions are met, and that Explanation 2 to section 37(1) barring CSR expenditure as a business deduction does not affect section 80G deductions.The Court noted that the Assessing Officer had applied mind and conducted due inquiry under sections 143(2) and 142(1) before allowing the deduction, and mere difference of opinion by the PCIT does not render the assessment order erroneous.The Court emphasized that the restriction on deductions under Chapter VI-A for companies opting for concessional tax rates under section 115BAA was not applicable for the relevant assessment year, as the amendment barring such deductions was effective only from AY 2021-22 onwards.The Court held that the assumption of jurisdiction under section 263 requires the assessment order to be 'erroneous and prejudicial to the interest of the revenue' and that the AO's order allowing the deduction was a plausible view supported by judicial precedents, hence not warranting revision.