CSR donations and no exempt income: section 80G allowed, section 14A disallowance deleted on statutory limits.

CSR-linked donations are not denied deduction under section 80G merely because they were incurred to meet CSR obligations; the bar under section 80G(2) applies only to the specified statutory exclusions, and where the donation otherwise satisfies section 80G conditions, the deduction remains available. Section 14A read with Rule 8D cannot be applied when no exempt income was earned or receivable during the year; the 2022 amendment was treated as prospective. The assessee therefore obtained relief on both the CSR-related deduction claim and the section 14A disallowance, while other grounds were not pressed.

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Issues: (i) Whether deduction under section 80G of the Income-tax Act, 1961 could be denied in respect of CSR expenditure not falling within the specific exclusions in section 80G(2); (ii) Whether disallowance under section 14A of the Income-tax Act, 1961 read with Rule 8D of the Income-tax Rules, 1962 was permissible when no exempt income was earned during the year.

Issue (i): Whether deduction under section 80G of the Income-tax Act, 1961 could be denied in respect of CSR expenditure not falling within the specific exclusions in section 80G(2).

Analysis: CSR expenditure is disallowed as business expenditure under section 37(1) of the Income-tax Act, 1961 by Explanation 2, but that restriction operates only while computing business income. Deduction under section 80G is claimed at the stage of computing total income under Chapter VI-A. The statutory bar in section 80G(2)(iiihk) and section 80G(2)(iiihl) applies only to specified CSR-linked donations, namely Swachh Bharat Kosh and Clean Ganga Fund. Where the donation does not fall within those exclusions and the statutory conditions for section 80G are otherwise satisfied, the benefit cannot be denied merely because the payment was made in discharge of CSR obligation.

Conclusion: The deduction under section 80G could not be denied on the ground that the payment was CSR expenditure; the issue was decided in favour of the assessee.

Issue (ii): Whether disallowance under section 14A of the Income-tax Act, 1961 read with Rule 8D of the Income-tax Rules, 1962 was permissible when no exempt income was earned during the year.

Analysis: Section 14A is attracted only where exempt income is earned or receivable for the relevant year, and the amendment inserted by the Finance Act, 2022 was held to be prospective. On the facts, no exempt income had been earned, and therefore no disallowance could survive under section 14A read with Rule 8D.

Conclusion: The disallowance under section 14A read with Rule 8D was deleted; the issue was decided in favour of the assessee.

Final Conclusion: The appeal succeeded on the two adjudicated grounds, resulting in relief to the assessee on the CSR-related section 80G claim and on the section 14A disallowance, while the remaining grounds were not pressed.

Ratio Decidendi: CSR-linked donations are not barred from deduction under section 80G of the Income-tax Act, 1961 unless they fall within a specific statutory exclusion, and section 14A cannot be invoked in the absence of exempt income for the relevant year.

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