TaxTMI 
TaxTMI 
TaxTMI 
2025 (6) TMI 2046
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the fact that revision proceeding under section 263 of the Act stands dropped by several decision of Tribunals, including decision of Mumbai Tribunal. 3. The PCIT erred in not appreciating the fact that the issue of allowability of deduction under section 80G was examined by the AO during the course of assessment proceedings and accordingly, the appellant's case does not fall under Explanation 2 to section 263. 4. The PCIT failed to appreciate that one possible view taken by the AO could not be substituted by another alternative possible view of the PCIT in revision proceedings. 5. The PCIT erred in not appreciating the fact that issue relating to allowability of deduction under section 80G in respect of expenditure incurred towards CSR stands decided in favour of the taxpayer by several decisions of Tribunals, including Mumbai Tribunal and therefore, revision proceedings was mere change of opinion. 6. The PCIT erred in disallowing deduction under section 80G on entire expenditure incurred towards CSR of Rs. 3,52,06,000 as against Rs. 1,04,93,845/-, amount of CSR which the appellant was required to spent during the year under consideration. 7. The PCIT erred in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (CSR) can be claimed as deduction under section 80Gof the Act for any donation made cannot be accepted for the following reasons: 5.1. Section 37(1) of the Act allows for deduction of business expenses provided they are incurred "wholly and exclusively" for the purposes of business. Explanation to Section 37(1), introduced through the Finance (No.2) Act, 2014, specifically disallows CSR expenses, noting that these expenses are not considered business-related and thus cannot be deducted. This provision underscores the legislative intent to impose CSR obligations without tax relief. CSR expenditures were never intended to provide fiscal advantages to companies but to ensure they fulfill their statutory obligations under Section 135 of the Companies Act, 2013. The legislative intent of introduction of Explanation 2 to Section 37(1) of the Act, introduced through the Finance (No. 2) Act, 2014, is elaborated in the Explanatory Notes to the Finance Bill 2014 (CBDT Circular No.1/2015 dated 21.01.2015) which is reproduced below:- "CSR expenditure, being an application of income, is not incurred wholly and exclusively for the purposes of carrying on business. As the application of in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s eligible for deductions under Section 80G, this eligibility is confined to voluntary contributions. However, when these contributions are made as part of the statutory CSR obligations under Section 135 r.w. Schedule VII of the Companies Act, 2013, they cease to qualify as voluntary donations. The exclusion for deduction u/s 80G of the Act for Prime Minister's National Relief Fund, Swachh Bharat Kosh, Clean Ganga Fund or other specified funds does not necessarily mean that all other donations made out of CSR expenditures are entitled for claim u/s. 80G of the Act. These exceptions are provided for claiming deduction under Section 80G of the Act, hence it cannot be inferred that the amount spent under section 135(5) of the Companies Act, 2013, the assessee is also eligible for deduction u/s. 80G of the Act even though the assessee may be satisfying the requisite conditions prescribed for deduction u/s 80G of the Act. 5.3. The provisions of Sections 37(1) (including Explanation 2) and Section 80G of the Act must be read harmoniously. Allowing CSR expenditures to be deductible under Section 80G of the Act would render Explanation 2 to Section 37(1) of the Act nugatory and woul....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ble Bombay High Court on this issue are pending for adjudication in the following cases:- S r Name of the Assessee PAN ITAT Order No. High Court Lodging No. 1 Blue Cross Laboratories Pvt. Ltd. AAACB1549G 1806/Mum/2023 ITXAL/30782/2024 2 Worley Services Industries Pvt. Ltd. AAACH0456J 554/Mum/2024 ITXAL/4392/2025 Since the issue is sub-judice before the jurisdictional Bombay High Court, the contention of the assessee cannot be accepted. 6. The submissions of the assessee that the issue of allowability of deduction u/s. 80G of the Act for CSR payments had been examined by the AO during the course of assessment proceedings and that any change in that view during the proceedings u/s 263 of the Act would amount to 'change of opinion', have been considered carefully but are not found to be acceptable for the following reasons: .......... ........... 6.1.4. In view of the above, it is clear that the decision of the AO in the present case is erroneous on merits and that he has accepted the submissions made by the assessee without a demur. Hence action uls 263 of the Act is warranted in this case. 7. From the above, it is clear that the assessee has ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and business expenses. It was submitted that during the course of assessment proceedings, the details/information/documentation were called for by the AO from time to time which includes specific queries concerning the donations made u/s. 80G of the Act as well as CSR expenses. In this regard, the assessee filed necessary submissions and duly complied all these notices issued by the AO and our reference was drawn to the letter dt. 14-07-2021, wherein the assessee has submitted the details of all donations along with supporting documents, notices u/s. 142(1) of the Act dt. 20-10-2021, wherein specific query was made by the AO on the issue of claim of deduction u/s. 80G of the Act, letter dt. 03-11-2021 wherein the assessee submitted the requisite details, notice dt. 1512-2021, wherein the specific queries were raised with respect to CSR expenses of Rs. 3.52 crores, letter dt. 21-12-2021 wherein the assessee submitted the break-up of the expenses along with supporting documents and it was also brought to the notice of the AO that these expenses were added back while computing the income and deduction under Chapter-VIA of the Act has been claimed. Thereafter notice dt. 21-03-2022 wher....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d that even a claim of deduction u/s 30 to 36 is not barred. (vi) Analysed the legislative history of section 80G of the Act, which showed that whenever a claim of deduction via a vis a specific donation, which was a part of CSR obligation, was desired to be barred, such donation is specifically enumerated. (vii) Analysed the legal position on the aspect of exercise of power u/s 263 of the Act, where the A.O. has simply adopted one possible legal view after due inquiry. (viii) Drew attention, alternatively, that even otherwise, the CSR obligation for the year was only to the extent of Rs. 1.04 crores, against which the Appellant had donated Rs. 3.52 crores." 10. It was submitted that without appreciating the submissions so filed by the assessee, the Ld.PCIT passed the impugned order and it can be observed from the said order that none of the basic facts and the legal position was denied/disputed or controverted by the Ld.PCIT. It was submitted that the preliminary jurisdictional objection as raised by the assessee that the assessment order was not erroneous in as much as the AO had applied his mind while allowing the claim by adopting one of the possible views was not eve....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iii. Interglobe Technology Quotient (P.) Ltd. vs. ACIT [2024] 163 taxmann.com 542 (Delhi-Trib.) 13. Per contra, the Ld. DR relied on the findings of the Ld.PCIT. The ld PCIT has referred to the explanation 2 to Section 37(1) of the Act, the explanatory notes to the Finance Bill 2014 and Section 135 of the Companies Act to hold that CSR expenditure is not to be allowed as deduction in any form and the same goes against the basic intent of the provisions and what cannot be allowed in view of the specific provisions cannot be allowed indirectly under specifically provided in the Act. He has further held that the payments made by the assessee towards CSR payments are mandated by law and therefore, cannot be construed as voluntary donations eligible for deduction u/s 80G of the Act. Regarding the decisions of the Coordinate Benches relied upon by the assessee during the course of revisionary proceedings, it was submitted that appeals have been filed by the department against the said decisions and the matter is sub-judice before the Hon'ble Bombay High Court and therefore, reliance placed by the assessee on the said decisions was not found acceptable and the ld PCIT accordingly hold th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... comply with the mandate under the Companies Act, and therefore it cannot be treated as donations which are "voluntary" payments. The further argument of the revenue is that when the statute has denied the direct claim of the CSR spend under section 37, the assessee claiming the deduction indirectly under section 80G is against the intention of the legislature and cannot be allowed. The assessee's contention is that there is no restriction under section 80G to the effect that the contribution should be voluntary and that the CSR spend is an application of income which is eligible for deduction from the gross total income of the assessee as per the provisions of section 80G. 6. The word "donation" has not been defined under the Act. However the Hon'ble Supreme Court in the context of Expenditure Tax Act in the case of P.V.G. Raju (supra) has described the meaning of the word "donation" in the following words - When a person gives money to another without any material return, he donates that am. An act by which the owner of a thing voluntarily transfers the title and understand the meaning of what many people do every day, viz., giving donations to some fund or other, or t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the said section w.e.f.01.04.2015. It is relevant to look at the provisions of section 37 of the said Act which read as under "37. (1)Any expenditure (not being expenditure of the nature described in sections 30 to 36 [***] and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession". Explanation 2. For the removal of doubts, it is hereby declared that for the purposes of sub-section (1), any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 (18 of 2013) shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession." 9. The "Explanatory Notes to the provisions of Finance (No.2) Act, 2014" issued by the Central Board of Direct Taxes vide its Circular No.01/2015 dated 21.1.2015 explaining the aforesaid amendment, read as under: "13. Corporate Social Responsibility (CSR) 13.1 Corporate Socia....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... amendment will take effect from 1st April, 2015 and will, accordingly, apply in relation to the assessment year 2015-16 and subsequent years." (emphasis supplied) The intention behind insertion of the explanation as explained above is that 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 and that 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. However, it is pertinent to note that in para 13.3 above, it has been mentioned that though, the expenditure incurred towards CSRs is not an expenditure incurred for the purpose of business, if the spend is of the nature described in section 30 to section 36 of the Act deduction shall be allowed under those sections subject to fulfillment of conditions, specified therein. For example if the contribution is made to a scientific research association, or to a university or to a college or other institution to be used for scientific research etc... which are approved under section 35 of the Act as part of CSR spending then dedu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....here is merit in the submission of the ld AR that though the quantum of CSR spend is mandatory there is no mandate on how amount is to be spent or to whom the contribution is to be made. Accordingly the act of the assessee to choose to M/s.Reliance Foundation and M/s Shyam Kothari Foundation which are eligible to accept donations under section 80G of the Act is voluntary and is not mandated under section 135 of the Companies Act 2013. Further from the perusal of CSR applicable in assessee's case, we notice that the monitoring of the CSR spend is to ensure that the same is as per the CSR policy of the company and it does not provide for monitoring the utilization of the funds by the third party donees. In any case the donations made for a specific cause does not result denial of deduction which is otherwise allowable as per the provisions of section 80G of the Act. The Kolkata Bench of the Tribunal in the case of L&T Finance Ltd v. DCIT [2024] 167 taxmann.com 503 (Kolkata Trib.), has elaborately discussed the allowability of CSR spend as a deduction under section 80G of the Act and it is relevant to take note of the following observations made regarding monitoring of CSR spend b....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is no restriction for the assessee to claim deduction under section 80G provided the CSR spend meets the conditions specified therein. In other words, the provisions of section 37 computation provision whereas section 80G is a beneficial provision which allows deduction towards payments made by the assessee for charitable purposes and therefore these two sections are independent each other. Let us assume a situation when a company which is not required to comply with the provisions of section 135 of the Companies Act 2013 makes a donation or a company makes donations in excess of 2% even then the payment may get disallowed under section 37 but in that case the revenue would not impose any restriction to evaluate the payment for claiming deduction under section 80G. If the same analogy is applied to the CSR spend in our view the assessee should be able to claim deduction under section 80G if the other conditions are fulfilled. Denying the claim for the reason that there is a specific mention under section 37 for disallowance and that the payments are made in compliance with section 135 of the Companies Act in our view is not legally tenable unless there is an explicit provision for....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ances for deduction under section 80G vis-a-vis CSR can be restricted to contributions made to these Funds mentioned in Section 800(2)(a)(iiihk) and (iiihl) only. It is an undisputed fact that the assessee has not claimed any deduction against the aforesaid clauses of 80G (2) (a) of the Act and as such entire donation claimed by the assessee is allowable u/s. 80G. The Ministry of Corporate Affairs ("MCA") has issued "FAQ through General circular no. 01/2016 dated January 12, 2016 (FAO No. 6) and has clarified on the issue as follows: "Question No. 6: What tax benefits can be availed under CSR? Answer: No specific tax exemptions have been extended to CSR expenditure per se. The Finance Act, 2014 also clarifies that expenditure on CSR does not form part of business expenditure. While no specific tax exemptions have been extended to expenditure incurred on CSR, spending on several activities like Prime Minister's Relief Fund, scientific research, rural development projects, skill development projects, agriculture extension projects etc, which fund place in Schedule VII, already enjoys exemptions under different sections of the Income-tax Act, 1961." 11. This clarification being....