TaxTMI 
TaxTMI 
2025 (6) TMI 2046
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....ction under section 80G in respect of expenditure incurred towards CSR, without appreciating 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/-, a....
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....the facts of the case and submissions made by the assessee. The contention of the assessee that the expenditure on Corporate Social Responsibility (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:- ....
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.... The payments made by the assessee towards CSR, therefore, cannot be construed as 80G. While contributions to the Swachh Bharat Kosh and Clean Ganga Fund are recognized as 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....
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....the preceding three years on CSR activity. 5.5. As regards the judicial pronouncements cited by the assessee, it is stated that appeals filed by the Department before the Hon'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....
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....amount of Rs. 2,62,06,000/- u/s. 80G of the Act. 7. It was further submitted that the case of the assessee was selected for complete scrutiny and one of the reasons for selection of the case relates to examination of deduction from total income under Chapter-VIA of the Act 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 sub....
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....v) Referred Circular No. 1 of 2016 issued by the Ministry of Corporate Affairs (MCA) dated 12.01.2016 to the effect that the claim of donation under Chapter VI A of the Act is not barred. (v) Analysed the legislative background behind insertion Explanation 2 to section 37 (1) of the Act, which clarified 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 basi....
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....d. vs. PCIT [(I.T.A. No 554/Mum/2024)] ix. Sequel Logistics Private Ltd. vs. PCIT [(Ι.Τ.Α. No 1114/Ahd/2024)] x. American Express (India) P. Ltd. v. PCIT [(2024) 208 ITD 564 (Delhi - Trib.)] xi. ACIT vs. Sikka Ports and Terminals Ltd [2025] 173 taxmann.com 366 (Mumbai - Trib.)] xii. American Express (India) P. Ltd. vs. PCIT [2024] 166 taxmann.com 91 (Delhi-Trib.) xiii. 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....
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....rd 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 are given are registered under section 80G of the Act, the assessee claimed 50% i.e. 16,92,50,000 of the same as deduction. The argument of the revenue is that the payment are made to 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. How....
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.... made as part of CSR spending. As already mentioned, the revenue is not contending that the assessee in the present case has made payments to get something material in return. 8. Now coming to the intention of legislature while amending the provisions of section 37 whereby the CSR spend are not allowed to be claimed as a deduction under the said section. Finance (No.2) Act, 2014 brought in the amendment to section 37 by inserting Explanation 2 to 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 responsibi....
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....ee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to have been incurred for the purpose of business and hence shall not be allowed as deduction under section 37. However, the CSR expenditure which is of the nature described in section 30 to section 36 of the Income-tax Act shall be allowed deduction under those sections subject to fulfilment of conditions, if any, specified therein. 13.4 Applicability:-This 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 in....
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....s regard it is relevant to note that though there is a statutory obligation of CSR expenditure under section 135 of Companies Act 2013, there are many prescribed modes and activities under Schedule VII of the Companies Act for spending the CSR expenditure, (the list is not exhaustive but inclusive). Further neither section 135 of the Companies Act nor Schedule VII to the Companies Act nor the CSR Rules, mandates donations to the institutes/funds prescribed under section 80G of the Act. Therefore, in our considered view there 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....
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....ion 80G for CSR spend is that the restriction on the allowability of the said spend as provided in Explanation 2 to section 37 is for computing the business income under the provision of Section 28-44DB whereas the deduction under section 80G is claimed under Chapter VIA ie. after computing the Gross Total Income. The provisions of section 80G does not impose any condition that the contribution should be voluntary and therefore when the CSR spend is evaluated independently under the provisions of the Act, in our considered view there 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 ....
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....80G of the Act are independent and the principles governing what is not allowable u/s. 37(1) have been provided in the section itself. Even in section 80G also, what is not allowable has also been provided under the Act. For instance, Section 80G specifically mentions two clauses, viz., section 800(2)(a)(iihk) and (iiihl), i.e., contributions towards 'Swacha Bharat Kosh' and 'Clean Ganga Fund', where donation in the nature of CSR Expenditure is not allowable as deduction under section 80G of the Act. Therefore, the disallowances 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 ....