2025 (10) TMI 1148 - AT - Income Tax

Donations classified as CSR to 80G-registered entities allowed as deduction under s.80G; restriction limited to s.37(1)

ITAT MUMBAI - AT allowed the appeal, holding that donations classified as CSR to entities registered under section 80G are eligible for deduction under ... Revision u/s 263 - Donation as “Corporate Social Responsibility” (CSR) expenses u/s 135 of the Companies Act, 2013 in his books of account - PCIT has held that since CSR expenditure is mandatory therefore the same cannot constitute a donation, which is voluntary and hence not eligible for deduction u/s 80G HELD THAT:- As undisputed fact that donation made by the assessee are to entities registered u/s 80G and that the assessee is otherwise eligible to claim deduction u/s 80G of the Act. Though section 135 of the Companies Act, 2013 mandates the quantum of CSR expenses, it does not mandate to whom and how the amount to be spent and the Appellant at its discretion can choose the mode of spending towards CSR. The donations made by the Appellant to ACS Cares Foundation are made voluntarily as there is no reciprocal commitment from the donees. In any case, section 80G of the Act does not put any condition for the donation to be voluntary in nature for the purpose of claiming deduction. CBDT, vide Circular No. 1/2015 dated 21st January 2015 which contains the Explanatory Notes provisions of the Finance (No. 2) Act, 2014, has stated that expenditure incurred which is eligible for CSR and allowable under other sections, shall be allowed as a deduction while computing income. CBDT Circular clearly states that the restriction on claiming deduction of CSR expense is only with respect to Section 37(1) of the Act wherein it will not be deemed to be a business expenditure for the purpose computing income under the head 'Profits and Gains from Business or Profession'. The Circular itself clarifies that CSR expenditure will be allowable under other sections under the same head of income. In view of CBDT Circular, it is clear that there is no express bar in claiming deduction in respect of CSR expenditure, other than u/s 37(1) of the Act. Clarification being issued by the Ministry of Corporate Affairs, Government of India also confirms that donation covered under CSR Expenses are eligible for the deduction u/s 80G of the Income-tax Act, 1961. Moreover, reliance is placed on the decision of Sharda Cropchem Limited. [2025 (1) TMI 1579 - ITAT MUMBAI] wherein it was held that donations which are classified as CSR expenditure are eligible for deduction u/s 80G of the Act. Whether Ld. PCIT could have invoked section 263 for denial of deduction claimed under section 80G of the Act in respect of donation classified as CSR? - In this regard reliance is being placed upon the decision of Inter Gold (India) Pvt. Ltd. [2024 (8) TMI 1585 - ITAT MUMBAI] wherein it was held that the provisions of Section 263 of the Act cannot be invoked for denial of deduction claimed under Section 80G in respect of donations classified as CSR. PCIT has wrongly invoked provisions of section 263 of the Act for denial of deduction claimed by the assessee under section 263 of the Act in respect of donation classified as CSR. Appeal filed by the assessee is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether donations classified as Corporate Social Responsibility (CSR) expenditure under section 135 of the Companies Act, 2013 are eligible for deduction under section 80G of the Income-tax Act, 1961. 2. Whether the Principal Commissioner of Income-tax (Revisionary jurisdiction) could validly invoke section 263 of the Income-tax Act to revise an assessment under section 143(3) r.w.s.144B by holding that allowance under section 80G in respect of CSR-classified donations was erroneous and prejudicial to the revenue. ISSUE-WISE DETAILED ANALYSIS - ISSUE 1: Eligibility of CSR-classified donations for deduction under section 80G Legal framework: Explanation 2 to section 37(1) (Finance (No.2) Act, 2014) excludes CSR expenditure from being treated as business expenditure under section 37; section 80G allows specified donations as deductions from total income subject to its conditions and explicit exceptions (notably the clauses excluding Swachh Bharat Kosh and Clean Ganga Fund in section 80G(2)(a)(iiihk)/(iiihl)). CBDT Circular No.1/2015 and MCA FAQ (General Circular No.01/2016, FAQ No.6) provide administrative/interpretative guidance distinguishing the non-allowability under section 37 from availability under other provisions. Precedent treatment: The Tribunal followed coordinate-bench decisions (e.g., ACIT v. Sharda Cropchem Ltd.; Alubound Dacs India Pvt. Ltd.; Inter Gold (India) Pvt. Ltd.) which held that CSR expenditure, though not allowable under section 37 as business expenditure, may be allowable under section 80G if statutory conditions of section 80G are met; these decisions were relied upon and followed in the present adjudication. Interpretation and reasoning: The Court examined statutory texts and administrative clarifications and reasoned that the bar created by Explanation 2 to section 37(1) is confined to Chapter IV-D (business income computation) and does not operate as a general prohibition on claiming deductions under other chapters (e.g., Chapter VIA). Section 80G operates to allow specified donations as deductions from gross total income; it contains its own exclusions, and Parliament expressly limited some exclusions to specific funds. The CBDT Circular clarifies that CSR expenditure, while not business expenditure, is not barred from allowance under other provisions if those provisions' conditions are satisfied. The MCA FAQ similarly notes no general tax exemption for CSR but recognizes that activities listed in Schedule VII may already enjoy exemptions under other sections. The assessee had disallowed CSR as business expenditure in computation yet claimed and supported section 80G deduction with requisite documentation; the Assessing Officer examined and allowed the claim in assessment proceedings after specific enquiry under section 142(1). Ratio vs. Obiter: Ratio - The exclusion in Explanation 2 to section 37(1) does not preclude claiming deduction under section 80G for donations that otherwise qualify under section 80G; CSR classification per se does not negate eligibility under section 80G. Obiter - Observations distinguishing policy or purposive implications of CSR mandates are ancillary to the statutory construction but support the ratio. Conclusion: Donations classified as CSR are eligible for deduction under section 80G if the statutory conditions of section 80G are fulfilled; CSR mandatoriness under Companies Act does not, by itself, render such donations ineligible for section 80G deduction (subject to specific exclusions expressly provided in section 80G). ISSUE-WISE DETAILED ANALYSIS - ISSUE 2: Validity of invoking section 263 to overturn allowance under section 80G Legal framework: Section 263 empowers revision where the Commissioner considers the assessment to be erroneous and prejudicial to the revenue; the power is to be exercised where there is a defect in the assessment order or legal unsustainability of the AO's view. The AO had conducted enquiries under section 142(1), examined documentary evidence and allowed the section 80G claim in the assessment order under section 143(3) r.w.s.144B. Precedent treatment: The Tribunal relied on coordinate decisions (Inter Gold; other cited Tribunal orders) holding that differing views on legal issues - where the AO has examined evidence and taken a view which is sustainable in law and fact - do not render an assessment order 'erroneous and prejudicial' for purposes of section 263. Those decisions distinguish between a mere contrary opinion and demonstrable legal unsustainability or material omission/defect in the assessment. Interpretation and reasoning: The Court observed that the AO had specifically called for and considered documentary evidence with respect to section 80G eligibility and that the assessee had concurrently disallowed CSR in business income computation (per Explanation 2) while still claiming section 80G from gross total income. The Tribunal emphasized the independence of section 37(1) and section 80G: one governs business expenditure allowance; the other governs deduction from total income; their principles and exclusions are statutorily provided. Absent a showing that the AO's allowance was unsustainable in law (for example, non-fulfillment of section 80G conditions) or that the assessment order was materially defective (failure to consider a relevant issue, omission of required enquiry), invoking section 263 was improper. Taking a contrary legal view does not itself make an assessment order erroneous and prejudicial to revenue. Ratio vs. Obiter: Ratio - Section 263 cannot be exercised merely because the Commissioner prefers a different legal view where the AO has made a reasoned, supportable determination after enquiry; an allowed section 80G claim is not rendered erroneous and prejudicial merely because it involves CSR-classified donations when legal authority supports allowability. Obiter - Comments on policy distinctions between chapters/mandates are explanatory and not essential to the holding on revisionary jurisdiction. Conclusion: Invocation of section 263 to deny section 80G deduction in respect of CSR-classified donations was not justified where the AO had examined and allowed the claim based on applicable law and evidence; therefore the revisionary order under section 263 was quashed and the assessment order restored. Cross-references and operative result The Tribunal's conclusions on both issues are interdependent: the legal determination that CSR-classified donations can qualify under section 80G (Issue 1) negates the premise for a finding that the AO's allowance was legally unsustainable; consequently, the prerequisites for valid exercise of section 263 are not made out (Issue 2). The Tribunal followed coordinate-bench precedent and administrative clarifications in reaching these conclusions and restored the assessment order allowing the section 80G deduction.