COSMO FIRST LIMITED,NEW DELHI vs. THE DEPUTY COMMISSIONER OF INCOME TAX, C.R BUILDING, NEW DELHI

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “H”: NEW DELHI BEFORE SHRI M. BALAGANESH, ACCOUNTANT MEMBER AND SHRI VIMAL KUMAR, JUDICIAL MEMBER IT(TP) A 49/Del/2025 (Assessment Year: 2022-23) Cosmo First Ltd, Vs. DCIT, 1st Floor, Uppal Plaza, Circle-4(2), New Delhi M-6, Jasola District Centre, New Delhi (Appellant) (Respondent) PAN: AAACC1152C

Assessee by : Dr. Rakesh Gupta, Adv Shri Amit Arora, CA Shri Somil Agarwal, Adv Shri Saksham Agarwal, Adv Revenue by: Shri S. K. Yadav, CIT DR Date of Hearing 07/04/2026 Date of pronouncement /06/2026

O R D E R PER M. BALAGANESH, A. M.: 1. The Assessee Cosmo First Ltd (hereinafter referred to as ‘assessee) by filing the present appeal sought to set aside the impugned assessment order dated 27.11.2025 passed by the Assessing Officer (AO) u/s 143(3) r.w.s. 144C(13) r.w.s. 144B of the Income Tax Act, 1961 (for short ‘the Act’) inconsonance with the order passed by the Dispute Resolution Panel (DRP)-1, New Delhi dated 30.10.2025 u/s 144C(5) and direction of ld TPO order dated 29.11.2025. 2. Ground No. 1 raised by the assessee is general in nature and does not require any specific adjudication.

“4. Ground No. 2-6: These grounds relate to disallowance of deduction u/s 80G amounting to Rs. 1,19,00,000/- on the ground that the donation was made to meet statutory requirement of CSR and was thus not voluntary which is the prerequisite for any sum to be called ‘donation’. At PB 1120-1122 contain application and approval u/s 80G of Cosmo Foundation. Appellant made donations to two institutions, - (i) M/s Cosmo Foundation- Rs. 2,37,53,585/- (ii) Charutar Aarogya Mandal- Rs. 1,00,000/-. Thus, aggregating to Rs. 2.38 crore. The said amount being CSR expenditure was disallowed by the assessee in the computation of income but since these donations qualified for deduction u/s 80G, & hence 50% of Rs. 2,38 crore i.e. Rs. 1.19 crore was claimed u/s 80G. At PB 851-853 is the copy of computation of income showing the add back of Rs.2.38 crores and claim of deduction u/s 80G of Rs. 1.19 crore. At PB 742-759 are receipts of donation to Cosmo Foundation and Charutar Aarogya Mandal. 4.1 Now this issue that deduction is admissible u/s 80G even though initially it was part of CSR, is directly covered by catena of judicial decisions in JMS Mining (P) Ltd. vs PCIT (2021), 130 taxmann.com 118 (Kolkata-trib.); Allegis Services (India) Pvt. Ltd. vs ACIT, in ITA No. 1693/Bang/2019, for AY 2016- 17, on 29.04.2020.; M/s Goldman Sachs Services Private Ltd. vs JCIT, in ITA No. 2355/Bang/2019, for AY 2015-16, on 15.06.2020; M/s FNF India Private Ltd. vs. ACIT, in ITA No. 1565/Bang/2019, for AY 2016-17, on 05.01.2021. (CLC 119- 125); Interglobe Technology Quotient (P.) Ltd. vs. ACIT, in ITA No.95/DEL/2024; Teradata India Pvt. Ltd vs. DCIT, in ITA No. 1248 & 2337 (Delhi ITAT) 2024.; Honda Motorcycle and Scooter vs. ACIT, in lTA No. 1523/Del/ 2022. Ericsson India Global Services Private Ltd vs. DCIT, in ITA No.1150/DEL/2024.; Optum Global Solutions vs. DCIT, in ITA No. 145 & 482 (Hyderabad ITAT) 2022.; First American India Pvt. Ltd. vs. ACIT, in ITA No. 1792/DEL/2019. Thus by following the following findings of coordinate bench decision Interglobe Technology Quotient (P.) Ltd. vs. ACIT, (supra), on which one of us, the judicial member was also in quorum, we sustain these grounds; “7.1 Further, we like to observe that as a matter of fact as per Section 135 of the Companies Act, 2013 ('CA 2013), the qualifying Companies as mentioned therein ITA no. 95/Del/2024 are required to spend certain percentage of profits of last three years on activities pertaining to Corporate Social Responsibility (CSR). The expenditure on CSR, could be by way of expenditure on projects directly undertaken by said companies, such as setting up and running schools, social business projects, etc. Such expenditure would include expenditure otherwise falling for consideration under section 37(1) of the Act. On the other hand, companies, instead of undertaking or participating directly in a project, may choose to give donations to institutions that are engaged in undertaking such projects, which is also a recognized way of compliance of CSR obligation. 7.2 The assessing officer and CIT(A) have relied upon General Circular 14/2021 dated 25.08.2021 issued by MCA and "Explanatory Notes to the provisions of the Finance (No.2) Act, 2014" to hold that donations made as part of CSR expenditure are not allowable as deduction. The foundation of their reasoning being that the donation is voluntary in nature, while CSR expenditures are under statutory obligations.

7.3 As we take notice of the fact that Parliament legislated that CSR expenses would not be eligible for deduction as business expenditure under section 37 of the Act by inserting Explanation 2 to section 37(1) vide the Finance (No.2) Act, 2014 (applicable from the assessment year 2015-16), which provided that any ITA no. 95/Del/2024 expenditure incurred by an assessee on the activities relating to CSR referred to in section 135 of the CA 2013, shall not be deemed to be an expenditure incurred by an assessee for the purpose of business or profession and shall not be allowed as deduction under section 37(1) of the IT Act. The intent of Parliament in bringing the aforesaid provision is given in the Explanatory Memorandum to the Finance (No.2) Bill, 2014 and is reproduced as under ; "CSR expenditure, being an application of income, is not incurred wholly and exclusively for the purposes of carrying on business, As the application of income is not allowed as deduction for the purposes of computing taxable income of a company, amount spent on CSR cannot be allowed as deduction for .computing the taxable income of the company, Moreover, 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. 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." (emphasis supplied) 7.4 The aforesaid explanatory memorandum categorically expresses the legislative intent and the rationale of disallowance of CSR expenditure referred to in section 135 of the Companies Act, that such expenditure is application of income and not incurred for the purposes of business. We are of considered view that this in itself justifies the grant of deduction u/s 80G. As CSR expenditure is application of income of the assessee under the Income Tax Act, that means it continues to form part of the Total income of the assessee. Section 80G(1) of the Act provides that in computing the total income of an assessee, there shall be ITA no. 95/Del/2024 deducted, in accordance with the provisions of this section, such sum paid by the assessee in the previous year as a donation. Further, section 80G(2) lists down the sums on which deduction shall be allowed to the assessee. Section 80G falls in Chapter VIA, which comes into play only after the gross total income has been computed by applying the computation provisions under various heads of income, including the Explanation 2 to section 37(1) of the Act. Thus, there is no correlation between suo-moto disallowance in section 37(1) and claim of deduction under section 80G of the Act. 7.5 As with regard to the reasoning that CSR expenditure are not voluntary but mandatory in nature due to penal consequences, we are of considered view that voluntary nature of donation is by nature of fact that it is not on the basis of any reciprocal promise of donee. The CSR expenditures are also without any reciprocal commitment from beneficiary being philanthropic in nature. The Act permits deduction of donations as per Section 80G of the Act, even though, assessee is not gaining any benefit out of any reciprocity from donee. Similar is the case of CSR expenditure. Thus the reasoning of learned Tax Authority, the CSR expenditure is mandatory, does not justify disallowance of these expenditures u/s 80G, if other conditions of section 80G are fulfilled. There is no allegation of Revenue that other conditions of Section 80G are not fulfilled. We, thus sustain the ground.”

AO vide this tribunal order to give effect to the revised transfer pricing adjustment and re-compute the total income of the assessee accordingly. Accordingly, Ground No. 9 raised by the assessee is allowed for statistical purposes. 13. The levy of interest u/s 234B of the Act is consequential in nature. With regard to interest u/s 234C of the Act, the law is very well settled that the same shall be charged only on the returned income and not on the assessed income. Ground No. 10 is disposed of in the above mentioned terms. 14. Ground No. 11 raised by the assessee is only challenging the initiation of proceedings u/s 270A of the act, which would be premature for adjudication at this stage and hence dismissed. 15. Ground Nos. 12 to 24 raised by the assessee are only challenging the transfer pricing adjustment made on account of imputation of interest on outstanding receivables from Associated Enterprises. 16. We have heard the rival submissions and perused the material available on record. In respect of amounts receivable from the Associated Enterprises (AEs) arising during the regular course of business of the assessee, the assessee realized the same beyond the agreed credit period, hence the ld TPO observed that the same amounts to capital financing by the assessee to its AEs on which imputation of interest need to be done. Accordingly, the ld TPO made a transfer pricing adjustment on account of interest on outstanding receivables in the sum of Rs. 1,09,51,239. The assessee preferred objections before the ld DRP in this regard. The ld DRP upheld the action of the ld TPO. Accordingly, the ld TPO while giving effect to the directions of the ld DRP adopted the same old transfer pricing adjustment figure of Rs. 1,09,51,239/- which is included in the total transfer pricing adjustment of Rs. 1,85,35,641,

which is subject matter of adjudication of Ground No. 9 above. This issue is no longer res integra in view of the decision in assessee’s own case for AY 2020-21 in ITA No. 4176/Del/24 dated 23.04.2025. The relevant operative portion of the order is reproduced here under:-

“8. Ground No. 10-20: These grounds related to Transfer Pricing of Rs. 20,62,216/- on account of notional interest relating to alleged delay in recovery of outstanding receivable pertaining to sales made to its associate enterprises. In the draft assessment order (Page no. 482-489), Ld. AO proposed an addition of Rs.98,28,820/- in respect of notional interest on receivables in respect of sales made to AEs. Ld. TPO has mentioned that as per Clause (i) (c) of Explanation to Section 92, ‘International Transaction’ includes capital financing, including any type of long term or short-term borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payments or receivable or any other debt arising during the course of business. In view of this clause, he was of the view that the assessee was obliged to benchmark interest on outstanding receivables. However, the assessee had not provided any benchmarking for this purpose. Therefore, he proceeded to benchmark the same. In this connection, he listed 321 invoices where receipts were delayed beyond a period of 30 days from the date of invoice. He allowed grace period of 30 days and charged interest at the rate of 6.371% per annum for the delayed period on the basis of LIBOR+400bps. Such interest was computed at Rs.98,28,820/- and it was suggested that the income of the assessee may be revised upwards by an identical amount. 8.1 The case of assessee is that assessee had requested for working capital adjustment in the case of comparable. This was denied on the ground that the assessee has not demonstrated that there is a difference in the levels of Working Capital employment by it vis-a-vis, the comparable. This adjustment is not a matter of right and it must be based upon some data. Adopting this recommendation of the TPO, the Ld. AO made adjustment of Rs.98,28,820/- to the income of the assessee by stating that adjustment suggested by the TPO is binding on him u/s Section 92CA(3). This addition was challenged before Hon’ble DRP. It was contended that in view of the decision of Hon’ble Delhi High Court in the case of Kusum Healthcare Private Limited, ITA 765/2016 if impact of credit period was factored in Working Capital Adjustment while determining the Arm’s Length Price, then no further adjustment was required for interest on receivables. However, the submissions were not accepted. It was mentioned that in the case of CIT vs. Cotton Naturals India Pvt. Ltd. (2015) 55 taxmann.com it has been held that interest rates vary and are thus dependent on the foreign currency in which the repayment is to be made. The same principal should apply in respect of delayed receipts arising out of sales. It was held that appropriate CUP keeping in view currency risk borne by the assessee and other factors, LIBOR+400bps is applied for calculating interest on delayed realizations. The Ld. AO had allowed a grace period of 30 days, which however was increased to 60 days by Hon’ble DRP. In view of this, interest on delayed

payments beyond 60 days was computed at Rs.20,62,216/- by the Ld. AO in the final order. 8.2 In this context we appreciate the submission of ld. AR that assessee is giving like over 90 days credit to Indian customers. The decision in Kusum Helath care (supra) has been followed in Bechtel India Pvt. Ltd., ITA No. 7234//DEL/2017, dated 18.12.2020, subsequent to CIT vs. Cotton Naturals India Pvt. Ltd. (supra). Thus we are inclined to sustain these grounds to the extent that assessee is entitled to working capital adjustments. The issue is restored to the files of AO for giving working capital adjustment to impugned international transaction.”