TaxTMI 
TaxTMI 
2024 (12) TMI 1600
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....0,34,785/- under the normal provisions of the Act and Rs. 12,89,59,36,700/- under section 115JB of the Act. The case was selected for scrutiny and the statutory notices were duly served on the assessee. The assessee for the year under consideration has claimed deduction under section 80G to the tune of Rs. 16,92,50,000/- towards donations made to Reliance Foundation for Rs. 27,01,00,000/- and to M/s Shyam Kothari Foundation for Rs. 6,84,00,000/-. The Assessing Officer (AO) disallowed the claim made by the assessee for the reason that the CSR Spending of the assessee is to comply with the provisions of section 135 of the Companies Act, 2013 which mandates the CSR Spending and therefore the same cannot be treated as a voluntary donation eligible for deduction under section 80G of the Act. On further appeal, the CIT (A) allowed the deduction claimed by the assessee by holding that - 6.2 Decision:- I have perused the assessment order, grounds of appeal, submission filed by the appellant and arguments made during the course of VC. I find from the assessment order that the appellant had made donations of Rs. 33,85,00,000/- to various parties to fulfil th....
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....nt in section 37 of the Finance Act, 2014 wherein the CSR Spending was not allowed to be claimed as a deduction. Therefore, the ld. DR argued that by claiming deduction under section 80G, the assessee is indirectly getting the deduction of minimum 50% of the amount which is not the intention of the legislature. The ld. DR drew our attention to the FAQ issued by Ministry of Corporate Affairs vide Circular dated 25.08.2021 wherein in Question No. 3.11, it is specifically mention that no specific exemption have been extended to CSR Expenditure. The ld. DR drew our attention to Rules pertaining to the CSR Spending as per the section 135 of the Companies Act, 2013 where it has been mentioned that the CSR Board would monitor the CSR Spending of the company in pursuance to the CSR Policy of the company. It is therefore, argued by the ld. DR that the spending towards CSR is controlled by the Board and therefore it loses the character of donation which is normally given without any conditions attached. The ld. DR also submitted that the money spent by the Corporate towards CSR Spending is made mandatory to enable the Government utilized the funds to the social welfare and that by claim....
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.... very much voluntary in nature with respect to the specific donations and therefore, it is eligible for deduction under section 80G of the Act. The ld. AR submitted that section 80G does not put any condition for the donation to be voluntary in nature for the purpose of claiming deduction. The ld. AR drew the attention of the Court to the decision of the Hon'ble Supreme Court in the case of Commissioner of Expenditure, Tax vs. PVG Raju (1975) 101 ITR 465 (SC) where the Hon'ble Apex Court has defined the term 'voluntary' and has held that it is not a pre-requirement for a contribution to be treated as a donation. With regard to the reliance placed by the ld. DR on the decision of the Delhi Tribunal in the case of Agilent Technologies (International) Pvt. Ltd. (supra), the ld. AR submitted that the applicability of provisions of section 80G has not been discussed in detail in the said decision. 5. We heard the parties and perused the material on records. The assessee during the year disallowed a sum of Rs. 33,85,00,000 under section 37 of the Act towards the CSR Spend in compliance with section 135 of the Act. Since the institutions to which the said amounts a....
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....e revenue that the assessee has made contributions to these institutions with an intention get something in return. The only contention of the revenue is that the contributions are made as part of a mandate and not voluntary. However, the Hon'ble Supreme Court in the above case has laid down the basic principle that a payment made without any material return and without any consideration and not for quid pro quo is a donation. Therefore in our considered view, the payment made whether voluntarily or as part of a mandate does not negate the intention of the contribution made. The reliance placed by the ld DR on the decision of Agilent Technologies (International) Pvt. Ltd (supra) is factually distinguishable. The DRP whose order was upheld in the said case, had placed reliance on the decision of the Hon'ble High Court in the case of DCIT vs Hindustan Darr Oliver Ltd (1994) 45 TTJ Mumbai 552 where the payment made was held as not a donation since it was found that the intention behind making the donation was to get reserved seats in the college run by the institute to whom the payments are made as part of CSR spending. As already mentioned, the revenue is not contending that ....
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.... a company, amount spent on CSR cannot be allowed as deduction for computing the taxable income of the company. Moreover, the objective of CSR is to share burden of the Government in providing social services by companies having net worth/turnover/profit above a threshold. If such expenses are allowed as tax deduction, this would result in subsidizing of around one-third of such expenses by the Government by way of tax expenditure. 13.3 The provisions of section 37(1) of the Income-tax Act provide that deduction for any expenditure, which is not mentioned specifically in section 30 to section 36 of the Income-tax Act, shall be allowed if the same is incurred wholly and exclusively for the purposes of carrying on business or profession. As the CSR expenditure (being an application of income) is not incurred for the purposes of carrying on business, such expenditures cannot be allowed under the existing provisions of section 37 of the Income-tax Act. Therefore, in order to provide certainty on this issue, it is proposed to clarify that for the purposes of section 37(1) any expenditure incurred by an assessee on the activities relating to corporate social responsibility refer....
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....s explicitly provided for to that effect by the legislature. This view is supported by the Explanatory Memorandum Finance Bill 2015 which brought in the specific restriction for claiming deduction under section 80G of the Act towards the CSR spend towards donation to Swachh Bharat Kosh and Clean Ganga Fund. Therefore we are unable to appreciate the contention that the CSR spend being claimed as a deduction under section 80G of the Act is against the intention of the legislature which restricts the same to be claimed as a deduction under section 37 of the Act. 11. The next issue is whether the impugned payments are otherwise eligible for deduction under section 80G of the Act. We have already established that the payments made by the assessee are donations and therefore if the other conditions for the deduction under section 80G is are fulfilled then there should not be any restriction for the assessee to claim the deduction. Before holding so we will address the contention of the revenue that the payments made towards CSR spend are monitored and controlled by the assessee and are not voluntary. In this regard it is relevant to note that though there is a statutory obligation of ....
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....larified that contribution to Corpus of a Trust/ society/ section 8 companies etc. will qualify as CSR expenditure, if such a donee institution or the said corpus has been created exclusively for a purpose related to the activities provided under the CSR framework. However, under the old rules, the mechanism to monitor and ensure that such donation has been actually spent on CSR activity was missing. The donor company would get absolved of its liability of CSR by just donating to the eligible trust/society/company, without ensuring that the amount has been actually spent by the donee on such specific object or purpose (CSR activity) for which it was donated. Therefore, Rule 7 of the CSR Rules, which permitted corpus contributions as eligible CSR expenditure, has been substituted and under the amended CSR Rules of 2021, corpus contributions to any entity shall not be admissible as CSR expenditure. The object and purpose of the aforesaid amendment is to ensure that the expenditure made is actually utilised towards CSR activities. 12. One more point that needs to be considered while deciding the deduction under section 80G for CSR spend is that the restriction on the allowability o....
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.... Section 37, CSR expenditure is not allowable as deduction while computing the business income under the provision of Section 28-44DB, whereas deduction u/s. 80G is allowed while computing the total income under Chapter VIA. There is no precondition that claim for deduction u/s. 80G on a donation should be voluntary. It is independent of computation of business income as it is allowed from Gross Total Income. The assessee had disallowed the CSR expenses while computing business income. Further, there is no dispute that the assessee has filed complete details of donation and also filed the certificate u/s. 80G which was enclosed before the AO. Section 80G (1) of the Act provides that in computing total income of the assessee, they shall be deducted in accordance with the provision of Section, such sum paid by the assessee in the previous year as a donation. Deduction under Chapter VIA provides deduction from the gross total income which is computed after making necessary allowances / disallowances in accordance with Section 28-44BB of the Act including Explanation to Section 37(1). Thus, Section 37(1) and Section 80G of the Act are independent and the principles governing what is no....
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....in law in cancelling the assessment order by the ld. AO on this issue. Accordingly, the order of the ld. PCIT is quashed. Consequently, the appeal of the assessee is allowed. 13. In view these discussions and considering the judicial precedence in this regard, we are of the view that there is no infirmity in the order of the CIT (A) in allowing the deduction under section 80G to the assessee towards donations made to M/s. Reliance Foundation and M/s. Shyam Kothari Foundation by placing reliance on the decision of the coordinate bench in the case of M/s. Naik Seafoods Pvt Ltd Vs. Pr.CIT (ITA No. 490/MUM/2021). Accordingly the grounds raised by the revenue are dismissed. 14. The AO during the course of assessment noticed that the assessee has made large investments during the year under consideration and accordingly called on the assessee to show cause why disallowance under section 14A r.w.r 8D cannot be made. The assessee submitted that during the year under consideration the assessee has not earned any exempt income and therefore the provisions of section 14A cannot be invoked. The assessee placed reliance on various judicial precedence in this regard. The AO however di....