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Facts
The assessee claimed a 50% deduction under Section 80G of the Income-tax Act for a donation made to Axis Bank Foundation, which was classified as Corporate Social Responsibility (CSR) expenditure. This claim was made after the assessee had *suo moto* disallowed the full CSR amount under business income (Section 37(1)). The Principal Commissioner of Income-tax (PCIT) invoked Section 263 to set aside the original assessment order, contending that the Section 80G deduction for CSR expenditure was erroneous and prejudicial to the interest of the revenue.
Held
The Tribunal, relying on a precedent from a coordinate bench, held that while CSR expenditure is not allowable under Section 37(1) as business expenditure, it can still be eligible for deduction under Section 80G if the conditions for Section 80G are met and the donation is not specifically excluded. Since the donation was not to a fund explicitly disallowed under Section 80G, the Assessing Officer's action of allowing the deduction was not erroneous or prejudicial to revenue. Thus, the PCIT's revisionary order was quashed.
Key Issues
Whether the Principal Commissioner of Income-tax validly invoked Section 263 to disallow a Section 80G deduction for CSR expenditure which was *suo moto* disallowed under Section 37(1), on the ground that such expenditure is not eligible for Section 80G deduction.
Sections Cited
263, 80G, 143(3), 144B, 37(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “A” BENCH MUMBAI
Before: SHRI AMIT SHUKLA & SHRI GIRISH AGRAWAL
O R D E R
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:
This appeal filed by the assessee is against the order of Ld. PCIT(A), Mumbai-3, vide order no. ITBA/REV/F/REV5/2024- 25/1074480451(1), dated 13.03.2025 passed u/s. 263 of the Income- tax Act, 1961 (hereinafter referred to as the “Act”), dated 01.02.2021 for Assessment Year 2020-21.
2. Grounds taken by the assessee are reproduced as under: “1. The Ld. Principal Commissioner of Income-tax-3, Mumbai erred in invoking the jurisdiction under Section 263 of the Income-tax Act, 1961 ('the Act') and passing the order dated 13th March 2025 setting aside the assessment order passed u/s. 143(3) of the Act, without appreciating that the assessment order dated 19th September 2022 passed under Section 143(3) r.w.s. 144B of the Act is not erroneous in so far as it is prejudicial to the interest of the Revenue and thus the order passed u/s. 263 of the Act is without jurisdiction.
The Ld. Principal Commissioner of Income-tax-3, Mumbai erred in directing the Assessing Officer to disallow the claim of deduction of Rs. 26,90,430/- under Section 80G of the Act on the ground that the donation classified as 'Corporate Social Responsibility' expenditure is not eligible for deduction under Section 80G of the Act.
The Appellant craves leave to add to, alter, amend or delete the grounds of appeal.”
3. Issue involved in the present appeal relates to revisionary proceeding initiated u/s. 263 and passing a revisionary order thereon, on account of ld. PCIT directing the ld. Assessing Officer to disallow the claim of deduction of Rs. 26,90,430/- u/s.80G on the ground that donation classified as Corporate Social Responsibility (CSR) expenditure is not eligible for deduction u/s. 80G.
3.1. Assessee filed its return of income on 01.02.2021 reporting total income at Rs.23,54,04,050/-. Assessee is in the business of trusteeship activity namely debenture trusteeship/security trusteeship/escrow agency/custodian agency, etc. While computing the total income for the purpose of filing its income tax return, assessee made a suo moto disallowance of CSR contribution of Rs.53,80,860/- to arrive at income under the head business income of Rs. 23,52,70,704/-. Thereafter from the gross total income, assessee made a claim u/s. 80G in respect of the donation made to Axis Bank Foundation which pertained to the amount of CSR expenditure which had been suo moto added back while computing the business income. Thus, it claimed deduction u/s. 80G eligible at 50% of the donation made and the total income was arrived at Rs. 23,54,04,053/.
Originally, assessment was completed by determining total income at Rs. 23,65,74,050/- subsequent to which ld. PCIT on examination of records observed that assessee had debited the amount of Rs.53,80,860/- on account of CSR expenditure and added the same to the total income in its computation of income as the same is not allowable u/s. 37(1). However, assessee had claimed 50% of this amount as deduction u/s. 80G of the Act, which according to him is not in order as Assessing Officer had allowed the claim of deduction under section 80G.
4.1. According to the ld. PCIT, ld. Assessing Officer had neglected the fact that assessee had claimed deduction u/s. 80G on the expenses made on CSR activity. He thus concluded that the impugned assessment order is erroneous insofar as it is prejudicial to the interest of revenue and thus passed a revisionary order. Assessee is in appeal before the Tribunal on the revisionary order passed by ld. PCIT in respect of claim of deduction u/s. 80G pertaining to CSR contribution made to Axis Bank Foundation which has already been suo moto added back by way of disallowance while computing the business income by the Assessee.
Ld. Counsel for the assessee referred to the decision of Coordinate Bench of ITAT, Mumbai in the case of Inter Gold India Pvt. Ltd. in dated 05.08.2024, wherein similar issue was dealt on identical fact pattern and the Coordinate Bench after detailed elaboration on the provisions of the Act as contained in section 80G, section 37(1), as well as considering the FAQ issued by Ministry of Corporate Affairs (MCA) held in favour of the assessee by holding that claim of deduction u/s. 80G by the ld. Assessing Officer cannot be held to be unsustainable in law or amounts to erroneous and prejudicial to the interest of revenue. Coordinate Bench thus, reversed the revisionary order of ld. PCIT on this issue. Relevant observations and findings of the Coordinate Bench are extracted below from Para 12 for ready reference. “12. 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 pre-condition 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 1d. 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.”
We have heard both the parties and perused the material on record. We have also gone through the order of the Coordinate Bench, as referred above. We note that the fact patterns are identical and the issue dealt is squarely covered by the said decision. Respectfully following the said decision and in the given set of facts, we hold in favour of the assessee by quashing the revisionary order passed by ld. PCIT. Ground raised by the assessee is thus allowed.
In the result, appeal of the assessee is allowed.
Order is pronounced in the open court on 31 July, 2025