SAVEX TECHNOLOGIES PRIVATE LIMITED,MUMBAI vs. PRINCIPAL COMMISSIONER OF INCOME TAX, MUMBAI

It is necessary to note that during the relevant year the appellant had incurred Rs.2,78,16,000/- towards Corporate Social Responsibility (CSR) donations. The appellant had suo moto disallowed the entire CSR expenditure of Rs.2,78,16,000/- under Section 37(1) of the Act while computing the taxable business income. In other words, the appellant did not claim the CSR expenditure as ‘business expenditure’ under Section 37(1) of the Act. However, the appellant claimed deduction of Rs.1,39,08,000/- being 50% of the CSR expenditure under Section 80G of the Act. The learned PCIT has found that the CSR expenditure cannot be claimed as deduction under Section 80G of the Act resulting into the impugned direction being given to the AO. Feeling aggrieved, the appellant-assessee is in appeal.

We have heard parties. Perused record.

It is submitted by the learned AR that CSR expenditure although not allowable under Section 37 of the Act, can indeed be claimed as a deduction under Section 80G of the Act. It is submitted that there is no express prohibition under Section 80G of the Savex Technologies Pvt. Ltd. Act against such deduction on the donations made to eligible institutions fulfilling the prescribed conditions. It is submitted that the provision relating to disallowance of CSR expenditure has been introduced and is confined to the allowability of deduction under Section 37(1) of the Act only and it does not govern the deduction otherwise allowable under Section 80G of the Act. On behalf of the assessee, reliance is placed on the decision of Division Bench of this Tribunal in Mahansaria Enterprises Pvt. Ltd. vs PCIT (ITA No. 2158/Mum/2025 dated 11.06.2025) in order to submit that a co-ordinate Bench of this Tribunal has found that the donations made towards CSR under the Companies Act, 2013 are eligible for deduction under Section 80G of the Act. He submitted that the AO during the scrutiny proceedings had already examined the issue and chosen not to make any addition and thus, the learned PCIT was not justified in invoking the provisions of Section 263 of the Act.

The learned DR has supported the impugned order. It is submitted that CSR expenditure, which is in the nature of a statutory obligation under Section 135 of the Companies Act, 2013, cannot qualify for deduction under Section 80G of the Act as such donations lack the voluntary nature, which is essential for a donation. It is submitted that the Explanatory note to Finance Bill, 2014 indicates that CSR expenditure is an application of income. It is submitted that if such expenditure is allowed as a deduction under Section 80G of the Act, it would result in subsidizing a part of such expenses by the Government in the form of loss of revenue. It is submitted that learned PCIT has elaborately considered the matter, including the applicable decisions, and has rightly come to the conclusion that the assessment order is erroneous and prejudicial to the interest of Revenue. It is submitted that various decisions to the contrary passed by the Tribunal are subject matter of challenge before the High Court.

We have considered the rival circumstances and the submissions made.

In this case, there is a delay of 42 days in filing the appeal. The assessee has filed an Affidavit of it’s Director and Authorised Signatory dated 04.07.2025. It is contended that initially the assessee was under the impression that it was an open remand to the AO by the learned PCIT. Subsequently, it transpired that the learned PCIT had directed the AO to disallow the deduction under Section 80G of the Act. It is pointed out that there were certain proceedings for getting tax refund which were pending, including an application for rectification, which was decided on 28.01.2025, copy of which was received on 14.04.2025 and in the process, there was delay in challenging the order of learned PCIT.

We find that the assessee has made out sufficient cause for not filing the appeal within time. The delay is accordingly condoned.

Coming to the merits, a perusal of the impugned order passed by learned PCIT indicates that the learned PCIT has, inter alia, placed reliance on the Explanatory note to Finance Bill, 2014, which relates to introduction of the Explanation to Section 37 of the Act, in coming to the conclusion that CSR donations are not eligible for deduction under Section 80G of the Act. The learned PCIT has found that CSR expenditure being an application of income, no deduction whatsoever can be allowed for appropriation of such income/profits. It has been further found that what cannot be allowed directly (for instance under Section 37(1) of the Act), cannot be allowed indirectly thereby defeating the purpose of the section. The learned PCIT also negated the contention that under Section 80G of the Act there are only two funds (viz. Swachh Bharat Kosh and Clean Ganga Fund) which are not eligible for deduction and thus donation to any other eligible institution/trusts ought to be eligible for such deduction.

Insofar as the reliance placed on the various decisions of the Tribunal on behalf of the assessee are concerned, the learned PCIT has observed that there is no Savex Technologies Pvt. Ltd. discussion in those orders to the Explanatory note to Finance Bill, 2014 and secondly, those orders are subject matter of challenge before the High Court.

We find that the issue raised is no longer res integra as it has been considered by various decisions of co-ordinate Benches of this Tribunal. In Mahansaria Enterprises Pvt. Ltd. (supra), a co-ordinate Bench of this Tribunal placing reliance on the decision of this Tribunal in ACIT vs Sikka Ports and Terminals Ltd. [2025] 173 taxmann.com 366 (Mumbai – Trib.), to which one of us (Ms. Padmavathy S, Accountant Member) was a party, had found that CSR donations are eligible for deduction under Section 80G of the Act. The Bench has extensively reproduced the observations in para 5 onwards of the decision in Sikka Ports and Terminals Ltd. (supra). We have gone through the same and we find that the effect of Explanatory note to Finance Bill, 2014 and the argument that the donations under CSR are not voluntary have all been considered and answered in favour of the assessee. Thus, factually, the learned PCIT is not justified in observing that the effect of Explanatory note has not been considered by the Tribunal. That apart, in our humble view, it would not be open for the learned PCIT to brush aside a binding decision of this Tribunal on the ground that certain aspects have not been considered. There is a clear distinction between a case which is distinguishable on facts and a situation where the decision is brushed aside on the ground that it does not consider a particular aspect. In our considered view, the fact that some of these decisions are subject matter of challenge in High Court also cannot obviate the necessity of following the same unless and until the same are set-aside or reversed. In other words, as long as the orders subsist, they are binding on the authorities. In Mahansaria Enterprises Pvt. Ltd. (supra), the Bench has set out as many as 13 decisions in para 12 which hold that CSR expenditure is allowable as a deduction under Section 80G of the Act. It is not necessary to multiply authorities. We are in respectful agreement with the elaborate reasoning and finding recorded by the co-ordinate Bench at Mumbai in the case of Sikka Ports and Terminals Ltd. (supra).