TaxTMI 
TaxTMI 
2026 (4) TMI 1609
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....disallowance made u/s 144 in view of Explanation to Section 141, inserted by Finance Act, 2022, which clarifies that the provisions of this section shall apply and shall be deemed to have always applied in a case where the income, not forming part of the total income under this Act, has not accrued or arises or has not been received during the previous year relevant to an assessment year and the expenditure has been incurred during the said previous year? 4) Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was right in allowing assessee's appeal by relying on the judicial decision in the case of Hon'ble Supreme Court in the case of State Bank of Patiala (2018) and Hon'ble Delhi High Court in the case of CIT Vs. Joint Investment Put. Ltd. (2015) 372 ITR 69 (Delhi), which predate the amendment made in way of insertion of Explanation to Section 14A by Finance Act, 2022? 5) Whether the statutory nature of CSR expenditure under Section 135 of the Companies Act, 2013 can be treated as a voluntary donation eligible for deduction under Section 80G of the Income Tax Act, 1961? 6) Whether allowing deductions under Sec....
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....d the same was disallowed u/s 14A The AO in the assessment order has mentioned that the appellant has excluded from the working of disallowance u/s 14A r.w.r.8D, the shares had not yielded any dividend in the category of investment and inventories. Consequently, the AO invoked the section 14 of the Act and computed the amount of disallowance at Rs 10,88,15,186/- as per Rule 8D. Since the appellant suomoto disallowed Rs. 5,01,67,393/- the AO disallowed an amount of Rs 5,86,47,793/- u/s.14A and added back to the income of the appellant. 6.1.2 The written submissions filed by appellant, the observations and the findings of the Assessing Officer on this issue are carefully considered. I have considered the various decisions of Hon'ble High Courts and Income Tax appellate tribunals referred by the Id. Counsel that disallowance u/s 14A cannot exceed the amount of exempt income earned during the year. Hon'ble Supreme Court in the case of State Bank of Patiala (2018) 99 taxman.com 286 (SC) and Hon'ble Delhi High Court in the case of CIT Vs. Joint Investment Put. Ltd. (2015) 372 ITR 69 (Delhi) held that disallowance is to be restricted to the extent of exempt income ear....
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.... observed: "14. On the issue whether the respondent-assessee could have earned dividend income and even if no dividend income was earned, yet Section 14A can be invoked and disallowance of expenditure can be made, there are three decisions of the different High Courts directly on the issue and against the appellant-Revenue. No contrary decision of a High Court has been shown to us. The Punjab and Haryana High Court in Commissioner of Income Tax, Faridabad v. Mis. Lakhani Marketing Incl, ITA No. 970/2008, decided on 02.04.2014, made reference to two earlier decisions of the same Court in CIT v. Hero Cycles Limited, 120101 323 ITR 518 and CIT v. Winsome Textile Industries Limited, (20091 319 ITR 204 to hold that Section 14A cannot be invoked when no exempt income was earned. The second decision is of the Gujarat High Court in Commissioner of Income Tax-I v. Cortech Energy (P) Ltd. [2014] 223 Taxmann 130 (Guj.). The third decision is of the Allahabad High Court in Income Tax Appeal No. 88 of 2014, Commissioner of Income Tax (li) Kanpur, v. Mis. Shivam Motors (P.) Ltd. decided on 05.05.2014. In the said decision It has been held: "As regards the second question, Secti....
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....4A itself under any circumstances. The Courts have time and again reiterated this correct, reasonable and clear position of law. But, merely to somehow make more disallowance and impose tax on the hypothetical income of the Assessee, in contrast to the concept of "real income" to be taxed as per section 5 of the Income-tax Act, the authorities under the Income-tax Act keep on adopting such absurd procedures. The disallowance to this extent, if it was to have its way, will constitute a hypothetical income taxable in the hands of the Assessee, which could never be the intention of section 14A of the Act, providing for a proportionate disallowance of expenditure incurred to earn the exempted income. 15. The expenditure incurred to earn any income has to be always below the extent of income itself and bear a reasonable proportion thereto, as the commercial prudence does not permit any one to spend more and earn less. The investment in shares of which dividend is earned and dividend being exempted income, the expenditure incurred for earning such dividend in the form of interest on the borrowed funds, which are employed to buy such shares can obviously be not more than the divi....
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....that in computation of disallowance u/s 14A only investment yielding exempt income should be considered and such disallowance can not be made in book profit. 6.1.6 Considering the facts and circumstances of the case and relying on the decision of various courts as discussed above, it is held that the AO is not justified in disallowing the sum of Rs. 10,88,15,186/- under section 14A.r.w.r.8D of the Act. I am inclined to agree that the disallowance under section 14A cannot exceed exempt income. The AO is directed to restrict the disallowance to the tune of Rs. 5,01,67,393/- i.e to the extent disallowance made by the appellant during the year. These grounds of appeal are allowed. 4. Before us ld. counsel for the assessee also relied on the Hon'ble Jurisdiction High Court in the case of Tata Industries Ltd.(supra) wherein the Hon'ble High Court following the various decision cited in paragraph 4 restricted the disallowances to the extent of exempted income. 4.1 We have considered the rival submissions and perused the material on record. The position of law is now well settled that disallowance under section 14A cannot exceed the exempt income earned during the re....
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....bsp; Rs. 200,00,000/- Rs. 1,00,00,000/- 13.1 As can be seen from the above table, out of the total donation of Rs. 2,00,00,000/- made to Hinduja Foundation, an amount of Rs. 1,00,00,000/- has been disallowed as being expenses towards Corporate Social Responsibility in the computation of income from Business Income which is in order. However, the assessee has claimed 50% deduction of Rs. 1,00,00,000/- under section 80G of an amount of Rs. 50,00,000/- which is incorrect and has to be disallowed. The assessee has claimed 50% deduction of Rs. 1,00,00,000/- under section 80G of an the amount of Rs. 50,00,000/- being donation made to Hinduja Foundation for the objects of the Trust which is correct. Therefore, the excess amount claimed as deduction under chapter VIA is Rs. 50,00,000/- which is disallowed. The claimed of deduction under chapter VI-A is restricted to Rs. 50,00,000/- after disallowance of the claim of deduction u/s 80G in respect of expenditure incurred towards Corporate Social Responsibility in the guise of donation to Hinduja Foundation. Deduction under VI-A Disallowed: Rs. 50,00,000/- Penalty proceedings initiat....
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....SR. 6.2.3 The issue in dispute is no longer res-integra. The allowability of CSR under the provision of section 80G is decided in the case of Motilal Oswal Securities Ltd in ITA No. 1795/ Mum/ 2023 dated 18.08.2023 by Hon'ble ITAT, 'D' Bench Mumbai as under: "9. The issue arising in ground no. (iv), raised in Revenue's appeal, is pertaining to the deletion of disallowance of deduction claimed under section 80G of the Act on Corporate Social Responsibility ("CSR") expenses. 10. The brief facts of the case pertaining to this issue, as emanating from the record, are: During the year under consideration, the assessee incurred CSR expenses of Rs. 2,25,71,775, and claimed donation under section 80G of the Act amounting to Rs. 2,21,41,893. The assessee was asked to show cause as to why the claim of deduction under section 80G of the Act of Rs. 1,10,70,947, against the CSR expenses should not be disallowed. The AO vide order passed under section 143(3) of the Act did not agree with the submissions of the assessee and held that the expenditure incurred by the assessee under the provisions of the Companies Act, 2013, cannot be claimed as a donation ....
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.... nature of payments qualifying exemption under section 80G of the Act and quantum of eligibility as per section 80G(1) of the Act. 20. Under such circumstances, we are remitting the issue back to Ld.AO for verifying conditions necessary to claim deduction under section 80G of the Act Assessee is directed to file all requisite details in order to substantiate its claim before Ld.AO. Ld.AO is then directed to grant deduction to the extent of eligibility." 6.2.5 Further, Hon'ble ITAT, Kolkata in the case of JMS Mining Put. Ltd. in [2021] 130 taxmann.com 118 (Kolkata - Trib.) held as under. "Since Parliament intended certain restrictions to CSR expenditure in respect of two donations included by an assessee as CSR expenditure Le. [Swachh Bharat Kosh and Clean Ganga Fund) has impliedly not made any prohibition/ restriction in respect of claim of CSR expenses in other cases if it is otherwise eligible under section 80G. In this context, it is found that the assessee has made donation by RTGS through bank which is received by Shree Charity Trust which was approved under section 80G(5) (vi). The assessee has also made payment to Pt. Jashraj Music Academy Trus....
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....inance (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. The relevant extract of CBDT Circular is reproduced as under: "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 provisions of section 37 of the Income-tax Act. Therefore, in order to provide certainty on this issue, said section 37 has been amended to clarify that for the purposes of sub-section (1) of section 37 any expenditure incurred by an assessee 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 unde....
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.... position emerging from the cited decision (supra). The CSR expenses which are required to be mandatorily incurred by the assessee-company as per section 135 of the Companies Act are not entitled to deduction under section 37(1) for assessment year 2015-16 by virtue of the fetter placed by Explanation 2 to section 37(1), which was inserted by the Finance (No. 2) Act, 2014. A plain reading of Explanation 2 to section 37(1) shows that any expenditure incurred towards CSR activities as referred to in section 135 of the Companies Act, 2013 shall not be allowed as ' business expenditure' and shall be deemed to have not been incurred for purpose of business. The embargo created by Explanation 2 inserted in section 37 by Finance (No. 2) Act, 2014 was to deny deduction for (3SR expenses ACG Pam Pharma Technologies Private Limited incurred by companies, as and by way of regular business expenditure while computing 'income under the head business'. So, it can be clearly seen that this Explanation 2 to section 37(1) which denies deduction for CSR expenses by way of business expenditure is applicable only to the extent of computing 'business income' under Chapter IV-D. ....