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Facts
The assessee claimed deduction under Section 80G for CSR expenses. The Pr. CIT initiated revisionary proceedings under Section 263, holding that CSR expenses, being mandatory under the Companies Act, cannot be treated as voluntary donations eligible for Section 80G deduction. The Pr. CIT set aside the assessment order.
Held
The Tribunal held that Section 37(1) and Section 80G are independent. Explanation 2 to Section 37(1) disallows CSR expenditure for computing business income, but it does not restrict its allowability under Section 80G if the conditions are met. The nature of CSR spending as mandatory does not negate its eligibility for Section 80G deduction if it otherwise qualifies as a donation.
Key Issues
Whether CSR expenditure, even if mandatory under the Companies Act, can be claimed as a deduction under Section 80G as a donation, and if the Pr. CIT was justified in invoking Section 263.
Sections Cited
263, 143(3), 144B, 37(1), 80G, 135, 37, 30, 36, 35, 28, 44DB, 80G(2)(a)(iihk), 80G(2)(a)(iiihl), 80G(1), 44BB, 11(1)(d)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI AMIT SHUKLA & SHRI ARUN KHODPIA
आदेश / ORDER PER ARUN KHODPIA, AM:
The present appeal filed by the assessee is directed against the order passed u/s. 263 of the Income Tax Act, 1961 (for short ‘the Act’) by the Pr.CIT, Mumbai-4, dated 20.03.2025 arising out of assessment order passed u/s. 143(3) r.w.s. 144B of the Act dated 03.09.2022, as per the following grounds of appeal:
“1. The Ld. Pr. CIT fell in error of law in holding the assessment as ‘erroneous’ by relying on cl.(a) of Expln. 2 to Sec.263(1) without demonstrating that the view taken by the A.O is wholly unsustainable in law.
2. The Ld. PCIT failed to bring on record any material which would substantiate his opinion that the assessment order was unsustainable in law.
3. The Ld. PCIT failed to appreciate that each and every case of lack of demonstrate inquiry would not clothe the authority with the jurisdiction u/s.263, as otherwise, any & evert assessment order which is otherwise a valid one, would be susceptible to being set aside.
4. The Ld. PCIT misdirected himself in not appreciating that when the order was in accordance with the legal position settled by the Hon’ble Tribunal the same cannot be said to be prejudicial to the Revenue.
5. The Ld.PCIT was not justified in ignoring the position laid down by the Hon’ble Tribunal by observing that the issue was not settled by the High Courts and the Supreme court.
6. The Ld. PCIT failed to note that Expln.2 to Section 37(1) which denies deduction of CSR expenses, is applicable only for computing business income and cannot be extended for deductions u/s. 80G.
7. The Ld. PCIT misdirected himself in not appreciating that where the Legislature intended to prohibit deduction u/s. 80G to those CSR expenditures which are covered u/s. 135 of the Companies Act, the Legislature has specifically provided so, by inserting clauses (iiihk) and (iiihl) in sec.80G(2), thereby implying that CSR contributions made to funds/organizations referred to in all other sub-clauses of section 80G, are permissible for deduction u/s. 80G.
8. The appellant craves leave to add to amend or alter the above grounds of appeal wholly or partly.”
The brief facts in this case are that the assessment in the case of the assessee was completed u/s. 143(3) r.w.s. 144B of the Act, dated 03.09.2022, wherein the returned income declared by the assessee has been accepted by the Ld. AO,as assessed income.
Subsequently, the case of the assessee was picked up revisionary proceedings invoking the provision of section 263 of the Act by the jurisdictional Pr. CIT, Mumbai-4, wherein the issue qua the justification assessee’s claim for deduction u/s. 80G on payment of donation to charitable institutions made from the funds allocated in accordance with the mandatory requirement of the Companies Act, 2013 towards Corporate Social Responsibility (CSR)has been raised. The Pr. CIT while deciding the aforesaid issue has observed as follows:
“2.1 On perusal of records and audit memo, it is observed that the assessee had debited an amount of Rs.2,67,000/- towards charity and Donations and Rs.26,04,010/- towards CSR expenses. It has been noted that the assessee had made the following payments: Sr. No. Name Amount (Rs.) Deduction claimed (Rs.) 1. Jyoti 1,50,000/- 75,000/-
Maheshwari Foundation 2. Prerna 15,000/- 7,500/- Shiksan Sahayak Sangh 3. Jyoti 5,62,054/- 2,81,027/- Maheshwari Foundation 4. Shivonkar 8,91,956/- 4,45,978/- Maheshari Technical Institute 5. Friends of 11,00,000/- 5,50,000/- Tribal Society Total 27,19,010/- 13,59,505/-
From the above, it is seen that the assessee had made payments to the tune of Rs.27,19,010/- to various foundation, Sangh, Institute etc. and had claimed 50% of the same being Rs.13,59,505/- as deduction u/s. 80G of the Act. The expenditure for which deduction is claimed is purely CSR expenditure on which 80G deduction is not allowable as: CSR expenditure by the assessee forms part of the mandatory requirement of the Companies Act, 2013 and consequently not eligible for deduction u/s. 80G of the IT Act. Allowing deduction under section 80G will result in subsidizing these expenses incurred by the corporate which is not the intent of the legislature. 2.2. After considering the donations and CSR expenses, it is noted that the main characteristic of donation/charity is that it is purely voluntary and without any expectation benefits/return by the donor and there is no legal obligation to make that contribution/donation. The amounts spent on CSR activities even though is contributed to the areas where 80G deduction is available but the same lacks voluntary character and partakes the nature of an obligation to be fulfilled, a necessary requirement imposed by law in accordance with Section 135 of the companies Act, 2013. To this extent, the current assessment order passed by the Assessing Officer suffers from infirmity and is erroneous in so far as it is prejudicial to the interests of the revenue. Accordingly, a notice u/s. 263 of the Act, dated 14.02.2025 has been issued online through ITBA fixing the case on 21.02.2025 to the assessee to provide an opportunity of being heard.”
In response to aforesaid query, the assessee filed a submission before the Ld. Pr. CIT, stating that the amount for CSR expenses can be utilized towards payment for charity and donation and also the assessee is entitled to claim deduction u/s. 80G of the Act if the stipulated conditions of Section 80G of the Act are satisfied. In support of his aforesaid contention, the assessee placed reliance on the following decisions:
a) Alubound Dacs India (P) Ltd. Vs. Deputy Commissioner of Income Tax, 163 taxmann.com 536 b) Advik Hi-Tech (P) Ltd. Vs. Deputy Commissioner of Income Tax, 168 taxmann.com 587 (Pune-Trib) (2024) c) Cheil India (P.) Ltd.v. Deputy Commissioner of Income-tax 169 taxmann.com 507[2024] d) L & T Finance Ltd.v. Deputy Commissioner of Income- tax167 taxmann.com 503 (Kolkata - Trib.) [2024] e) Power Mech Projects Ltd.v.Deputy Commissioner of Income- tax 156taxmann.com 575 (Hyderabad-Trib.) [2023] f) Optum Global Solutions (India) (P.) Ltd.v. Deputy Commissioner of Income-tax 154 taxmann.com 651[2023] g) Acit-3(1)(1), Mumbai vs Rustomjee Realty Pvt. Ltd., Mumbai Tribunal ITA/1585/MUM/2023 on 28 November, 2023 h) JMS Mining Pvt. Limited Vs PCIT, Kolkata TribunalITA/146/KOL/2021 Dt. 22,07.2021 i) FNF India Pvt. Limited Vs ACIT (1565/Bang/2019) dated 05.01.2021 j) Goldman Sachs Services Pvt. Ltd. vs. JCIT in IT(TP) A No.2355/Bang/2019 dated 15.06.2020 k) First American (India) Pvt. Ltd. v. ACIT (ITA No. 1762/Bang/2019) dated 29.04.2020 l) Allegis Services (India) Pvt. Ltd. v. ACIT (ITA No. 1693/Bang/2019)dated 29.04.2020.
Accordingly, the assessee submitted before the Pr. CIT that the deduction u/s. 80G on donationswhich were part of expenditure incurred on account of corporate social responsibility (CSR) has been allowed by the Ld. AO, the view so adopted by the A.O is duly backed by various decisions of the Tribunals and a plausible view, therefore, the impugned assessment order cannot be treated as erroneous and prejudicial to the interest of the revenue. To support such argument, reliance was placed by the assessee on the following judicial pronouncement: a) American Express (India) P. Ltd. Vs. Principal Commissioner of Income Tax 166 taxmann.com 91 (Delhi Trib) (2024)
It is also contended by the assessee before the Pr. CIT that 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 and; there would be no bar for assessee to claim benefit u/s. 80G falling in chapter VIA. To fortify such averment, reliance placed by the assessee on the following judicial pronouncement:
a) Societe Generate Securities India (P) Ltd. Vs. Principal Commissioner of Income Tax 157 taxmann.com 533 (Mumbai- Trib)
6. The assessee further explained the mandatory pre-requisites of Section 263 of the Act, which has to be followed before assuming revisionary jurisdiction by the Pr.CIT. It was submitted by the assessee that twin conditions i.e. (i) the order of the A.O should be erroneous, and (ii) it should be prejudicial to the interest of the revenue, both has to be satisfied for enforcing the provisions of Section 263 of the Act. Reliance was placed by the assessee in the case of CIT Vs. Green World Corporation (2009) 181 Taxman 111/314 ITR 81 (SC).
It is further clarified by the assessee that when the A.O has taken a view which is in tune with other decisions which is a possible view then merely because the Commissioner does not agree with the view of A.O the action of Commission u/s. 263 would be unjustified. Reliance was placed by the assessee on the decision in the case of Saluja Fabrics Ltd. Vs. Dy. CIT 181 Taxman 132 (Chd) (Mag) (2009).
8. In support of correct assessment by the A.O u/s. 143(3) of the Act, the assessee submitted that deduction claimed u/s. 80G of the Act for payment towards CSR expenses are allowable as per following judicial pronouncements:
a. JMS Mining Pvt.Ltd. Vs.PCIT 130 taxmann.com 118 (Kolkata-Trib) b. FNF India Pvt. Ltd. Vs. ACIT 133 taxmann.com 251 ( Bangalore-Trib) c. Goldman Sachs Services Pvt. Ltd. Vs. JCIT in IT(TP)A No.2355/Bang/2019 dated 15.06.2020. d. First American (India) Pvt. Ltd. V. ACIT (ITA No. 1762/Bang/2019, dated 29.04.2020 e. Allegis Services (India) Pvt.Ltd. V. ACIT (ITA No.1693/Bang/2019) dated 29.04.2020.
In backdrop of the aforesaid submissions, the assessee objected 9. against the adjustment proposed by the Ld. Pr. CIT by initiating the proceedings u/s. 263 of the Act vide notice dated 06.02.2025.
The aforesaid contentions and submission by the assessee do not find favour with the Ld. Pr. CIT, accordingly he observed that the funds allocated for CSR expenses cannot be utilized for granting of donations eligible for deduction u/s. 80G of the Act and that if CRS funds are utilized for charitable donations, claim of deduction u/s. 80G could not be allowed. The Ld. Pr. CIT observed that the A.O had no occasion to examine the CSR expenses vis-à-vis deduction u/s. 80G regarding donations and to this extent, it can be held that the order passed by the A.O is erroneous in so far it was prejudicial to the interest of the revenue for allowing ineligible claim of deduction u/s. 80G of the Act. Accordingly, the assessment dated 03.09.2022 is set aside to the file of A.O for verification of claim of deduction out of CSR expenses and to modify the assessment order as per findings in the impugned order passed u/s 263.
11. Aggrieved with the aforesaid order passed u/s. 263 of the Act by the Ld. Pr. CIT, the assessee preferred an appeal before this Tribunal which is under consideration herein.
12. At the outset, the Ld. Counsel for the assessee submitted that the issue in hand and the sole controversy is covered by the various decision of the Tribunal including jurisdictional Tribunal in the case of ACIT Vs. Sikka Ports & Terminals Ltd. (2025) 173 Taxmann.com 366 (Mum- Trib) and in the case of B. Arunkumar Capital & Credit Services Pvt.Ltd., dated 25.07.2025. The Ld. Counsel prayed that since the issue is squarely covered by decision of the jurisdictional Tribunal and there is no contrary decisions of the Hon’ble High Courts or of Hon’ble Apex Court, therefore, the issue being covered in favour of the assessee has to be decided in favour of the assessee. The revisionary proceedings u/s. 263 of the Act, therefore, in contravention to the decision of Jurisdictional Tribunal i.e., ITAT, Mumbaiwasdevoid of merits, without the mandate of law, deserves to be quashed.
The Ld. Sr. DR on behalf revenue on the other hand vehemently supported the order of the Ld. Pr. CIT and reiterated the findings of the Pr. CIT from its order u/s. 263 of the Act.
We have considered the rival contentions and perused the material available on record and case laws relied upon by the parties. The issue in hand regarding allowability of 80G deduction, if the eligible donation are made from the funds allocated for CSR is the short controversy which has already been deliberated upon and decided by the Tribunal (in citations referred to supra) in favour of the assessee, extending the finding that if the stipulated condition of Section 80G are satisfied, the assessee would be entitled to claim deduction u/s. 80G in respect of eligible donations which forms part of the amount sanctioned towards CSR activities. This issue is thoroughly discussed by the ITAT Mumbai ‘G” Bench in the case of ACIT Vs. Sikka Ports & Terminals Ltd. (2025) 173 Taxmann.com 366 (Mum- Trib), wherein the Tribunal has observed as follows:
“5. We heard 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.
The word "donation" has not been defined under the Act. However the Hon'ble Supreme Court in the context of Expenditure Tax Act in the case of P.V.G. Raju (supra) has described the meaning of the word "donation" in the following words 'When a person gives money to another without any material return, he donates that sum. An act by which the owner of a thing voluntarily transfers the title and possession of the same from himself to another, without any consideration, is a donation. We do not require lexicographic learning nor precedential erudition to understand the meaning of what many people do every day, viz., giving donations to some fund or other, or to some person or other.' Indeed, many rich people out of diverse motives make donations to political parties. The hope of spiritual benefit or political goodwill, the spontaneous affection that benefaction brings, the popularization of a good cause or the prestige that publicized bounty fetches -these and other myriad consequences or feelings may not mar a donation to make it a grant for a quid pro quo. Wholly motiveless donation is rare, but material return alone negates a gift or donation.' 7. Therefore to examine if CSR spending of the assessee would be a donation it is essential to examine whether the donations given by the assessee to M/s.Reliance Foundation and M/s Shyam Kothari Foundation without any material return and without any consideration and whether it was a grant for quid pro quo. It is not the case of the revenue that the assessee has made contributions to these institutions with an intention get something in return. The only contention of the revenue is that the contributions are made as part of a mandate and not voluntary. However, the Hon'ble Supreme Court in the above case has laid down the basic principle that a payment made without any material return and without any consideration and not for quid pro quo is a donation. Therefore in our considered view, the payment made whether voluntarily or as part of a mandate does not negate the intention of the contribution made. The reliance placed by the ld DR on the decision of Agilent Technologies (International) Pvt. Ltd (supra) is factually distinguishable. The DRP whose order was upheld in the said case, had placed reliance on the decision of the Hon'ble High Court in the case of DCIT vs Hindustan Darr Oliver Ltd (1994) 45 TTJ Mumbai 552 where the payment made was held as not a donation since it was found that the intention behind making the donation was to get reserved seats in the college run by the institute to whom the payments are 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.
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 responsibility referred to in section 135 of the Companies Act, 2013 (18 of 2013) shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession. "
The "Explanatory Notes to the provisions of Finance (No.2) Act, 2014" issued by the Central Board of Direct Taxes vide its Circular No.01/2015 dated 21.1.2015 explaining the aforesaid amendment, read as under: "13. Corporate Social Responsibility (CSR) 13.1 Corporate Social Responsibility (CSR) Under the Companies Act, 2013 certain companies (which have net worth of Rs.500 crore or more, or turnover of Rs.1000 crore or more, or a net profit of Rs.5 crore or more during any financial year) are required to spend certain percentage of their profit on activities relating to Corporate Social
Responsibility (CSR). Under the existing provisions of the Act expenditure incurred wholly and exclusively for the purposes of the business is only allowed as a deduction for computing taxable business income. 13.2 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. 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 existing provisions of section 37 of the Income-tax Act. Therefore, in order to provide certainty on this issue, it is proposed to clarify that for the purposes of section 37(1) 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 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) 10. 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 incurred towards CSRs is not an expenditure incurred for the purpose of business, if the spend is of the nature described in section 30 to section 36 of the Act deduction shall be allowed under those sections subject to fulfillment of conditions, specified therein. For example if the contribution is made to a scientific research association, or to a university or to a college or other institution to be used for scientific research etc., which are approved under section 35 of the Act as part of CSR spending then deduction can be allowed subject to the fulfillment of conditions prescribed under section 35 of the Act. This explanatory note though self- contradictary i.e. denying deduction under section 37 but allowing the assessee to claim deduction under section 30 to 36, also makes it clear that there is no bar regarding the admissibility of CSR expenditure under any other provision of the Act, except under section 37(1) of the Act. In other words, the intention of the legislature is not to restrict the right of the assessee to claim deduction towards the CSR spend if the payment is otherwise allowable under a specific provision of the Act. Further wherever the intention is to restrict the claim of deduction under any other provisions of the Act the same is explicitly provided for to that effect by the legislature. This view is supported by the Explanatory Memorandum Finance Bill 2015 which brought in the specific restriction for claiming deduction under section 80G of the Act towards the CSR spend towards donation to Swachh Bharat Kosh and Clean Ganga Fund. Therefore we are unable to appreciate the contention that the CSR spend being claimed as a deduction under section 80G of the Act is against the intention of the legislature which restricts the same to be claimed as a deduction under section 37 of the Act.
11. The next issue is whether the impugned payments are otherwise eligible for deduction under section 80G of the Act. We have already
established that the payments made by the assessee are donations and therefore if the other conditions for the deduction under section 80G is are fulfilled then there should not be any restriction for the assessee to claim the deduction. Before holding so we will address the contention of the revenue that the payments made towards CSR spend are monitored and controlled by the assessee and are not voluntary. In this 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 by section 135 of the Companies Act 2013. Further from the perusal of CSR Rules as 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 of the funds by the third party donees. In any case the donations made for a specific cause does not result denial of deduction which is otherwise allowable as per the provisions of section 80G of the Act. The Kolkata Bench of the Tribunal in the case of L&T Finance Ltd vs DCIT [2024] 167 taxmann.com 503 (Kolkata - Trib.), has elaborately discussed the allowability of CSR spend as a deduction under section 80G of the Act and it is relevant to take note of the following observations made regarding monitoring of CSR spend by the donor i.e.assessee – 12.2. The contribution made by a company toward the discharge of it's CSR to a registered charitable institution, in our view, is akin to corpus donations. Section 11(1)(d) of the Income Tax Act speaks of the specific or corpus, donations, although it has not been defined under Income Tax Act, 1961. Corpus donations are donations wherein, the donor makes the donations to the donee for a specific purpose or object. Prior to the amendment made by amended CSR Rules of 2021, Rule 7 of the erstwhile CSR Rules permitted corpus contributions to charitable institutions as eligible CSR expenditure. Further, the Ministry of Corporate Affairs vide Circular No.21/2014 dated 18th June 2014 had also clarified that contribution to Corpus of a Trust/ society/ section 8 companies etc. will qualify as CSR expenditure, if such a donee institution or the said corpus has been created exclusively for a purpose related to the activities provided under the CSR framework. However, under the old rules, the mechanism to monitor and ensure that such donation has been actually spent on CSR activity was missing. The donor company would get absolved of its liability of CSR by just donating to the eligible trust/society/company, without ensuring that the amount has been actually spent by the donee on such specific object or purpose (CSR activity) for which it was donated. Therefore, Rule 7 of the CSR Rules, which permitted corpus contributions as eligible CSR expenditure, has been substituted and under the amended CSR Rules of 2021, corpus contributions to any entity shall not be admissible as CSR expenditure. The object and purpose of the aforesaid amendment is to ensure that the expenditure made is actually utilised towards CSR activities.
12. One more point that needs to be considered while deciding the deduction under section 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 i.e. 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 of 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 case the revenue would not impose any restriction to evaluate the payment for claiming deduction under section 80G. If the same analogy is applied to the CSR spend in our view the assessee should be able to claim deduction under section 80G if the other conditions are fulfilled. Denying the claim for the reason that there is a specific mention under section 37 for disallowance and that the payments are made in compliance with section 135 of the Companies Act in our view is not legally tenable unless there is an explicit provision for e.g. contributions towards ‘Swacha Bharat Kosh’ and ‘Clean Ganga Fund’. This view of ours is supported by the decision of the coordinate bench of the Tribunal in the case of Blue Dart Express Limited vs PCIT (ITA No.1101/Mum/2024 dated 03.09.2024) where in the context of revision under section 263 of the Act, the bench has considered the issue of allowing deduction under section 80G towards CSR spend and held that – 10. On merits also, we find that view of ld. AO is correct in law. Claiming a deduction from computation of business income as provided from sections 28 to 44DB is different from claiming a deduction under chapter VIA of the Act which is allowed from Total Income. As per Explanation 2 to Section 37, CSR expenditure is not allowable as deduction while computing the business income under the provision of Section 28-44DB, whereas deduction u/s.80G is allowed while computing the total income under Chapter VIA. There is no precondition that claim for deduction u/s.80G on a donation should be voluntary. It is independent of computation of business income as it is allowed from Gross Total Income. The assessee had disallowed the CSR expenses while computing business income. Further, there is no dispute that the assessee has filed complete details of donation and also filed the certificate u/s.80G which was enclosed before the AO. Section 80G (1) of the Act provides that in computing total income of the assessee, they shall be deducted in accordance with the provision of Section, such sum paid by the assessee in the previous year as a donation. Deduction under Chapter VIA provides deduction from the gross total income which is computed after making necessary allowances/ disallowances in accordance with Section 28- 44BB of the Act including Explanation to Section 37(1). Thus, Section 37(1) and Section 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-à-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 "FAQs" through General circular no. 01/2016 dated January 12, 2016 (FAQ 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 to CSR expenditure per se. The Finance Act, 2014 also clarifies that expenditure on CSR does not form part of business expenditure. While 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 fund place in Schedule VII, already enjoys exemptions under different sections of the Income-tax Act, 1961."
This clarification being issued by the Ministry of Corporate Affairs, Government of India clarifies that donation covered under CSR Expenses which not are eligible for the deduction under section 80G of the Income-tax Act, 1961, but are allowed under different sections. Ergo, there is nothing that if any expenditure is disallowable u/s 37 the same cannot be allowed under other provisions of Act, if the conditions of allowability are satisfied. Thus, allowing the claim of deduction u/s.80G by the ld. AO cannot be held to be unsustainable in law or amounts to erroneous and prejudicial to the interest of the Revenue. Thus order of the Ld. PCIT is reversed on this point.
Thus, we hold that ld. PCIT is not correct in law in cancelling the assessment order by the ld. AO on this issue. Accordingly, the order of the ld. PCIT is quashed. Consequently, the appeal of the assessee is allowed.
13. In view these discussions and considering the judicial precedence in this regard, we are of the view that there is no infirmity in the order of the CIT(A) in allowing the deduction under section 80G to the assessee towards donations made to M/s.Reliance Foundation and M/s.Shyam Kothari Foundation by placing reliance on the decision of the coordinate bench in the case of M/s. Naik Seafoods Pvt Ltd Vs. Pr.CIT (ITA No.490/MUM/2021). Accordingly, the grounds raised by the revenue are dismissed.”
Further, Similar findings have been arrived at by the ITAT, Mumbai ‘B’, bench in the case of B. Arunkumar Capital & Credit Services Pvt.Ltd., the recent order dated 25.07.2025, wherein revisional proceedings initiated u/s. 263 of the Act in absence of any conclusive findings to show that there wasan intention of material returnbehind the donation or that the donation was paid quid pro quo. Accordingly, the impugned order u/s 263 washeld to be unsustainable and in terms of provisions of the Act which allows the assessee to claim deduction u/s. 80G.
In view of the facts & circumstances of the present case, judicial pronouncements referred herein above, we are of the considered view that the reason for which revisionary jurisdiction was invoked by the Pr. CIT, that whether the claim of expenses under CSR cannot be utilized for donation to claim deduction u/s. 80G was bereft of substance, since the issue has been answered by the coordinate benches of this Tribunal in various decisions referred to (supra) and accordingly, the assessee would be eligible for claim of deductions u/s 80G for eligible donations out of the CRS funds, if the stipulated condition of sections 80G are duly satisfied. Therefore, the very genesis of the revisionary proceedings by the Ld. Pr. CIT, was on wrong interpretation of the law, thus have no mandate to stand in the eyes of law, consequently, the impugned order u/s. 263 cannot be sustained in the present case, the same therefore stands quashed. In conclusion, Grounds of appeal No.6 & 7 raised by the assessee are allowed.
17. As the order passed by the Pr.CIT u/s. 263 of the Act is quashed, in terms of failure of Ld. Pr. CIT in validly assuming the jurisdiction u/s 263 of the Act, being exercised such power on wrong premise / issue which is already and squarely covered by the decision of jurisdictional ITAT (referred to supra) as discussed herein above.Therefore, remaining contentions raised by the assessee challenging validity of proceedings and impugned order u/s. 263 are rendered to be academic only.
In the result, appeal of the assessee is allowed, in terms of our aforesaid observations.
Order pronounced in the open court on 19th August, 2025.