TaxTMI 
TaxTMI 
2026 (8) TMI 45
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....arned AO has erred in attributing expenses disregarding the submissions filed by the appellant that no expenditure is actually incurred to earn the exempt income. 1.3 Further, Learned CIT(A) has erred in not appreciating the fact that the Appellant has sufficient own funds which are utilised for making investments yielding such exempt income. Therefore, no disallowance was required to be made by the Learned AO. 1.4 Accordingly, the Appellant prays Your Honour to direct the Learned AO to delete the disallowance made under section 14A of the Act and oblige. 2. Ground No. 2 - Non-allowability of deduction claimed under section 80G of the Act of Rs. 66,50,000. 2.1 The learned CIT(A) has erred in disregarding the detailed submissions filed by the Appellant along with supporting evidence and proceeded to confirm the action of the Learned AO i.e. disallowed the claim for deduction under section 80G of the Act amounting to Rs. 66,50,000, being donation made to eligible institution registered under section 80G of the Act. 2.2 The Learned CIT(A) erred in holding that an amount spent towards Corporate Social Responsibility ('CSR') under sec....
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....Income Tax Act, 1961 [in short the 'Act'] which was further revised on 31.03.2021 retaining the same income. The return was subsequently revised on 31.03.2021 without any variation in the returned income. The return was selected for scrutiny assessment and, after issuance of statutory notices and consideration of the material furnished by the assessee, the assessment was completed under section 143(3) of the Act. Certain additions and disallowances were made, inter alia, including disallowance under section 14A of the Act and denial of deduction claimed under section 80G in respect of CSR expenditure. Interest under section 234C was also levied and interest under section 244A was granted while issuing refund. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A), who granted partial relief. Dissatisfied with the findings of the first appellate authority, the assessee is in further appeal before us. Ground No. 1 - Disallowance under Section 14A 3. At the outset, the learned counsel for the assessee submitted that Ground No. 1 relating to the disallowance under section 14A of the Act was not being pressed. A written communication to that effect has been placed on re....
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....ding the benefit of tax deduction u/s. 80G was to incentivize and encourage voluntary donations by individuals and organizations towards organizations/trusts/funds working for issues of social relevance and importance. CSR expense being a contribution stipulated by the Companies Act, 2013 is a necessary obligation of the company which was introduced by the legislature with the objective that companies having net worth/turnover/profit above a threshold should share the burden of the government in providing social services. Thus, a CSR expense cannot at the same time be a donation. For this purpose, the government also categorically mentioned that the amount relating to CSR should be 2% of the average net profit. If tax deduction is allowed on such CSR expenses, this would result in subsidizing these expenses by one-third amount. The same has also been specifically mentioned in the explanatory notes to the provisions of the Finance Act, 2015 vide circular 01/2015 dated 21st January 2015. The relevant extract is produced below" 13.2 If such expenses are allowed as tax deduction this would result in subsidizing of around one-third of such expenses by the government by....
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....hened by the introduction of the phrase "other than the sum spent by the assessee in pursuance of Corporate Social Responsibility that the deduction u/s. 80G of the Income-tax Act 1961 is allowed only to those voluntary contributions made by the assessee over and above its Corporate Social Responsibility. interpretation for the said statute to twist the law in his favour. The assessee has deliberately applied the mischief rule of Something which is not directly allowed by the legislature cannot be allowed indirectly by the legislature. It is well settled position of law and there is no legal authority required for the above proposition of law. However, if there had been requirement of one, the Supreme Court of India in 1979 has already adopted this legal maxim in its philosophy and had said in the case of Jagir Singh vs Ranbir Singh [AIR 1979 SC 381]. What may not be done directly cannot be allowed to be done indirectly, that would be an evasion of the statute. It is a "well-known principle of law that the provisions of an Act of Parliament shall not be evaded by shift or contrivance" (per Abbott C.J. in Fox v. Bishop of Chester (1824) 2 B & C 635 "To carry out effectually....
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....reporting of the income. [Additions: Rs. 66,50,000/-]" 4.1 On further appeal the Ld. CIT(A) also upheld the disallowance of deduction u/s. 80G observing as under:- "7.1. Adjudication on Ground 3 Before adjudication it would do well to go through the provisions of section 80G Section 80G(1) allows deduction only for sum paid by the assessee in the previous year as donations to specified funds or charitable institutions as enumerated in Section 80G(5)/(6), Section 80G(2) specifically excludes certain contributions from deduction, e.g., contributions to Swachh Bharat Kosh and Clean Ganga Fund under CSR. Beyond these, there is no express exclusion for other CSR contributions. I find that the underlying principle for allowing the deductions is that only bona fide voluntary donations qualify, not mandatory obligations under statute It is undisputed that Corporate Social Responsibility (CSR) is Mandatory under Companies Act. Section 135 of the Companies Act, 2013 imposes a statutory obligation on certain companies to spend a minimum percentage of profits on CSR. Since CSR expenditure is mandatorily mandated, it is not voluntary: Section 80G is int....
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....on 80G of the Act. The Tribunal observed that in the absence of any express prohibition under section 80G, donations made to eligible institutions cannot be denied deduction merely because such donations also qualify as CSR expenditure. The finding of the Coordinate Bench of the Tribunal in the case of ACIT vs. NDL Ventures Limited (supra) is reproduced for ready reference: "5.3. Before us Id. counsel for the assessee referred to the decision of the coordinate beach of the Tribunal in The case of ACG Pam Pharma Technologies (P.) Ltd v Pr. CIT [2025] 176 taxmann.com 98 (Mumbai - Trib.) Wherein the claim of deduction u/s. 80G for donation classified as CSR has been held to be allowable. The relevant findings of the Tribunal (supra) is reproduced as under: "7. First for all, we take up the first issue/question and after hearing the parties at length on this issue, we noticed that Ld. PCIT has held that since CSR expenditure is mandatory therefore the same cannot constitute a donation, which is voluntary and hence not eligible for deduction under ACG Pam Pharma Technologies Private Limited section 80G of the Act. whereas it is an undisputed fact that donation made by ....
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....iture for the purpose computing income under the head 'Profits and Gains from Business or Profession'. The Circular itself clarifies that CSR expenditure will be allowable under other sections under the same head of income. In view of CBDT Circular, it is clear that there is no express bar in claiming deduction in respect of CSR expenditure, other than under Section 37(1) of the Act. The Ministry of Corporate Affairs ("MCA") has issued Frequently Asked Questions ("FAQ") through General Circular No.01/2016 dated January 12, 2016 (FAQ No.6) has clarified on the issue 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. What 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 find place in Schedule VII, already enjoys exemptions under different sections....
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....could have been made such kind of restriction or any restriction like in the case of donation to Swachh Bharat Kosh& Clean Ganga Fund. So the assertion of the Assessing Officer is erroneous and therefore cannot be accepted. It can be safely inferred that when the Legislature in particular has provided for only the above referred tivo specific exceptions in section 80G, then it is the implied intent of the Legislature to permit deduction under section 80G in respect of CSR contributions made to funds/organizations referred to in all other sub-clauses of section 80G [other than (iiihk) and (iiihl)] of the Act. 9.1 It may be stated here that the co-ordinate Bench of ITAT, Mumbai in the case Alubound Dacs India Private Limited v. Dy. CIT in IT A No. 3663/M u m/2023 (A. Y. 2020-21) has duly considered similar contentious issue and decided the same in favour of the assessee. The relevant extracts are reproduced below for the sake of ready reference: ........ 9.3 Respectfully following the decisions cited above, we hold that the assessee is entitled to deduction claimed u/s. 80G of the Act towards the CSR expenditure incurred by it. We, therefore, direct the Id.....
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....other decisions, wherein it has consistently been held that once the conditions prescribed under section 80G are satisfied and the donee institution is duly approved under the said provision, deduction cannot be denied solely on the ground that the expenditure forms part of CSR obligations. The Tribunal has further held that denial of deduction under section 80G in such circumstances would result in an unintended double disallowance, which is neither contemplated by the statutory provisions nor supported by legislative intent. The relevant part of the said decision is reproduced as under:- "5. We have heard rival submission of the parties and perused the relevant material on record. In the case, the assessee debited Rs. 8,60,00,000/- on account of CSR, which was added back was while computing total income for the purpose of filing return of income. However, the assessee claimed 50% deduction i.e. Rs. 4,30,00,000/- u/s. 80G of the Act. According to the Assessing Officer CSR is statutory liability on the part of the assessee, which is to be incurred out of profit in compliance to the Companies Act, whereas section 80G of the Act deal with donation in the nature of the volunt....
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.... Pr. CIT-2(ITA NO.490/MUM/2021). In the case of Naik Sea foods P Ltd (supra), the co-ordinate bench has followed the decision rendered by Bangalore bench of Tribunal in the case of M/s FNF India P Ltd (ITA No. 1565/Bang/2019 dated 05-01-2021), which in turn followed the decision rendered in the case of Allegis Services (India) Pvt. Ltd. v. ACIT (ITA No. 1693/Bang/2019) and held that the assessee is eligible for deduction u/s. 80G of the Act in respect of certain payments included in CSR Expenses. The relevant discussions made by the Tribunal are extracted below:- "15. Considered the rival submissions and material placed on record, we observe from the record that Ld. Pr.CIT while examining the records of the assessment observed that the Assessing Officer has not Verified the expenses claimed by the assessee and allowed by the Assessing Officer ITA NO. 490/MUM/2021 (A.Y: 2016-17) M/s. Naik Seafoods Pvt. Ltd., without making the proper verification and purchases which is 95% of the sale declared by the assessee and again Assessing Officer allowed the same without making proper verification. After considering the submissions of both the parties we observe from the record that ....
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....y 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 of section 37. However, the CSR 36 of the Act shall be allowed deduction under those sections subject 36penditure which is of the nature described in section 30 to section to ultillment of conditions, if any, specified therein. 13. From the above it is clear that under Income tax Act, certain provisions explicitly state that deductions for expenditure would be allowed while computing income under the head, Income from Business and Profession to those, who pursue corporate social responsibility projects under following sections. • Section 30 provides deduction insurance premium repairs, municipal tax and • Section 31, provides deduction on repairs and insurance of plant, machinery and furniture Section 32 provides for depreciation on tangible assets like building, machinery, plant, furniture and also on intangible assets like knowhow, patents, trademarks, licenses. Section 33 allows development rebate on machinery, plants and ships. • Section 34 states conditio....
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....ession" 3. For claiming benefit under section 80G, deductions are considered at the stage of computing Total taxable income. Even if any payments under section 80G forms part of CSR payments/keeping in mind ineligible deduction expressly provided u/s.80G), the same would already stand excluded while computing, Income under the head, "Income form Business and Profession". The effect of such disallowance would lead to increase in Business income. Thereafter benefit accruing to assessee under Chapter VIA for computing "Total Taxable Income cannot be denied to assessee, subject to fulfillment of necessary conditions therein. 4. We therefore do not agree with arguments advanced by Ld. Sr. DR 5. In present facts of case, Ld.AR submitted that all payments forming part of CSR does not form part of profit and loss account for computing Income under the head, "Income from Business and Profession it has been submitted that some payments forming part of GSR were claimed as deduction under section 80G of the Act, for computing "Total taxable income", which has been disallowed by authorities below. In our view, assessee cannot be denied the benefit of claim under Chapt....
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....r with the aforesaid view. Explanation 2 to section 37(1) creates a limited embargo against allowance of CSR expenditure as business expenditure while computing income under the head "Profits and Gains of Business or Profession". However, there exists no corresponding restriction under section 80G, save and except the specific exclusions expressly enacted by Parliament. It is a settled canon of statutory interpretation that where the Legislature intends to deny a deduction, it does so in explicit terms. The absence of any such prohibition under section 80G is indicative of a conscious legislative choice. In the present case, there is no dispute that the recipient institutions were duly approved under section 80G and that the donations were made through recognised banking channels. Once these foundational conditions stand satisfied, the deduction cannot be denied merely because the expenditure also fulfils the assessee's CSR obligation under the Companies Act, 2013. 4.6 Respectfully following the binding precedents of the Coordinate Benches, we hold that the assessee is entitled to deduction under section 80G in respect of the impugned donations. Accordingly, the disallowance ....