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Facts
The assessee, an NBFC, claimed a deduction under Section 80G for donations made as part of its CSR expenditure. The Assessing Officer (AO) allowed this deduction. The Principal Commissioner of Income Tax (PCIT) invoked Section 263, holding that the AO had overlooked this aspect and that CSR expenditure is not a business expenditure.
Held
The Tribunal held that the PCIT's order was unsustainable. The deduction under Section 80G is independent of Section 37, and the fact that CSR expenditure is disallowed under Section 37 does not automatically disallow it under Section 80G, provided other conditions are met. The donations were considered voluntary and eligible for deduction.
Key Issues
Whether donations made as part of CSR expenditure are eligible for deduction under Section 80G, even if CSR expenditure is not allowed as a business expenditure under Section 37.
Sections Cited
263, 143(3), 144B, 80G, 37(1), 135, 35
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Income Tax Appellate Tribunal, ‘C’ BENCH
Before: SHRI AMIT SHUKLA & SMT RENU JAUHRI
आदेश / O R D E R PER AMIT SHUKLA (J.M): This appeal is preferred by the assessee against the order dated 13th March 2025, passed by the learned Principal Commissioner of Income Tax, Mumbai–3 (hereinafter referred to as “the PCIT”), exercising revisionary jurisdiction under Section 263 of the Income Tax Act, 1961 (hereinafter “the Act”), for the assessment year 2020–21.
The assessee has raised the following grounds of appeal:
That on the facts and circumstances of the case and in law, the order dated 13-03-2025 passed by the learned Principal Commissioner of Income-tax (PCIT) under section 263 of Act setting aside the assessment order under section 143(3) r.w.s. 1448 of the Act dated 26-09-2022 is erroneous and bad in law.
2. That, on the facts and circumstances of the case, the learned PCIT erred in directing the Assessing Officer ('AO') to disallow the deduction under section 80G of the Act in respect of donation claimed out of Corporate Social Responsibility ('CSR') expenditure.
That on the facts and circumstances of the case and in law, no justification is available with the PCIT to make independent reverification with regards to the claim of CSR expenses as deduction under section 80G of the Act and verify the said deduction claimed as these were duly and sufficiently verified by the AO at the time of original assessment proceeding vide order dated 26-09-2022.
3. The assessee, a non-banking financial company (NBFC), filed its return of income on 16th February 2021, declaring a total income of Rs.93,40,71,030. The assessment was completed under Section 143(3) read with Section 144B on 26th September 2022, accepting the returned income without modification.
In computing its total income, the assessee claimed a deduction of Rs.32,83,060 under Section 80G of the Act. Concurrently, it debited CSR expenditure of Rs.65,66,120 in its books of account, which was voluntarily disallowed in the computation of income, in accordance with Section 37(1) of the Act. The Assessing Officer, during the assessment
However, invoking revisionary powers under Section 263, the learned PCIT held that the Assessing Officer had overlooked the fact that the donations eligible for deduction under Section 80G were made as part of the assessee’s CSR expenditure. The PCIT noted that these donations were extended to seven institutions (as listed in the order) and opined that the Assessing Officer had failed to conduct a thorough examination of this issue. Accordingly, a show- cause notice was issued to the assessee.
The assessee submitted a comprehensive response, detailed from pages 3 to 16 of the PCIT’s order. Despite this, the learned PCIT set aside the assessment order, making the following observations:-
1. 7.4 The Submission of the assessee has been considered very carefully The assessee has mainly contended that the memorandum to the finance bill 2014 clarifies that CSR expenditure shall not be allowed as a business expenditure. However, it does not make any reference regarding inadmissibility or restriction for claiming deduction under section 80G for any donation made which qualifies as CSR expenditure 7.5 In none of the asseessee's submission before the assessing officer also, the assessee made any reference to this issue and argued that the donations being part of CSR expenditure are still eligible for deduction u/s 80G. So, it cannot be inferred that the assessing officer has applied his mind on this aspect. In any case, the assessing officer's failure to consider this issue despite it being in contravention Innoven Capital India Pvt. Ltd., of the provisions of the Act in view of the Explanation 2 to section 37(1) read with Explanatory notes to the Finance Bill 2014, caused erroneous allowance of deduction u/s 80G and made the order prejudicial to the interests of revenue. 7.6 It is important to note that CSR expenditure has to be mandatorily incurred by certain specified companies as per provisions of Section 135 of the Companies Act. It is a statutory obligation cast upon certain companies to share certain portion of profits to the activities towards social responsibilities. In other words, it is part of profit appropriation to the society at large which, in the new scenario of CSR regime, is one of the strategic stake holders of the company. It is for this reason that this expenditure was clarified to be an expenditure not incurred fully and wholly for the purpose of business through Explanation (2) u/s 37 (1) of the Act. 7.11 From the above, it is clear that the assessee has made CSR expenses to the extent of Rs.65,66,120/- and disallowed the same in the computation if income u/s 37(1) of the Act. Further, the assessee has claimed an amount of Rs.32,83,060/- in the guise of donation and claimed deduction on it. Though, it is a disallowable expenditure, the assessee company claimed the same as a deduction u/s 80G and the FAO in the order under section 143(3) r.w.s. 1448 of the Act dated 26.09.2022 has allowed it. Therefore, the order of the FAO passed u/s. 143(3) rws 144B of the Act dated 26.09.2022, is erroneous in so far as it is prejudicial to the interest of the revenue 8. In light of the above discussions, the arguments of the assessee are not tenable and the order u/s 143(3) r.w.s. 1448 of the Act dated 26.09.2022 is set aside u/s 263 of the Act and AO is directed to disallow the deduction u/s 80G of the Act in respect of donation claimed out of CSR expenditure after due verification and giving opportunity of being heard to the assessee.
The PCIT further relied on the provisions of Section 37 of the Act, Section 135 of the Companies Act, 2013, and the Innoven Capital India Pvt. Ltd., Explanatory Notes to the Finance Bill, 2014. Although the assessee cited several Tribunal decisions in its favor, the PCIT noted that appeals against those decisions were pending before the Hon’ble High Court. Consequently, he directed the Assessing Officer to disallow the deduction claimed under Section 80G with respect to the impugned donations.
Before us, it was submitted that the issue in question is squarely addressed by a series of decisions of this Tribunal, wherein similar revisionary orders under Section 263, concerning the allowability of deductions under Section 80G for donations forming part of CSR expenditure, have been set aside in favor of the assessee.
9. Upon careful examination of the impugned order, it is evident that the assessee furnished all requisite particulars, including the names, PANs, addresses, amounts donated to each institution, modes of payment, eligibility under Section 80G, and donation receipts. Even if the Assessing Officer’s inquiry was not exhaustive, the issue was undeniably considered, and the deduction under Section 80G was allowed. Once a claim is scrutinized and accepted, the assessment order cannot be deemed erroneous merely on the premise of inadequate inquiry.
More significantly, the issue at hand has been comprehensively adjudicated by this Tribunal in Blue Dart Express Limited (ITA No. 1101/Mum/2024), wherein it was held:
We have heard both the parties and also perused the relevant material referred to before us. First of all from the perusal of the re-assessment order which is the subject matter of revision u/s.263 by the ld. PCIT, we find that this was one of the ground for reopening and ld. AO has raised specific query as noted above on exactly same issue. The assessee has given its detailed reply and after examining those replies, the ld. AO has allowed the deduction u/s.80G holding that assessee has already disallowed CSR expenses u/s.37(1), and there is no bar for claiming deduction u/s.80G unless the same is not in accordance with the provision of the Section 80G and there is no issue of mutual exclusiveness of the claim found in this regard. Ld. PCIT has not brought on record any law or judicial precedence that such an observation and finding of the ld. AO is incorrect in law. Once the ld. AO has taken a possible view and there is no contrary law, then to take a different view in a revisionary jurisdiction u/s.263, cannot be held that the order of the ld. AO is erroneous and prejudicial to the interest of the Revenue. There is no case of invoking Explanation 2 to Section 263 which ld. PCIT has done, because ld. AO has made his enquiry and verification on the same issue. Ld. PCIT cannot cancel the assessment order to re-examine the same issue without finding any defect in such order that how the claim made u/s.80G is unsustainable in law.
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 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 Innoven Capital India Pvt. Ltd., 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."
11. 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 Innoven Capital India Pvt. Ltd., 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.
Similarly, in ACIT vs. Sikka Ports and Terminals Ltd. (ITA No. 3755/Mum/2023, dated 30th December 2024), this Tribunal, after an exhaustive analysis of the legal and legislative framework, the CSR regime under the Companies Act, the interplay between Sections 37 and 80G of the Act, and the distinction between business expenditure and eligible deductions under Chapter VI-A, arrived at a conclusion that is directly applicable to the present case.
“The assessee during the year disallowed a sum of Rs.33.85 crores under section 37 towards the CSR Spend in compliance with section 135 of the Companies Act. Since the institutions to which the said amounts are given are registered under section 80G, the assessee claimed 50 per cent i.e. Rs.16.93 crores 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 Innoven Capital India Pvt. Ltd., 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 Supreme Court in the context of Expenditure Tax Act in the case of Commissioner of Expenditure Tax v. P.V.G. Raju[1975] 101 ITR 465 (SC) has described the meaning of the word "donation”. ■ 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 Reliance Foundation and 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 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, the payment made whether voluntarily or as part of a mandate does not negate the intention of the contribution made. ■ 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 with effect from 1-4-2015 ■ 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, clarifies 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 Innoven Capital India Pvt. Ltd., subsidizing of around one-third of such expenses by the Government by way of tax expenditure. However, it is pertinent to note 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 sections 30 to 36 deduction shall be allowed under those sections subject to fulfilment 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 as part of CSR spending then deduction can be allowed subject to the fulfilment of conditions prescribed under section 35. This explanatory note though self-contradictory i.e. denying deduction under section 37 but allowing the assessee to claim deduction under sections 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). 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 to Finance Bill 2015 which brought in the specific restriction for claiming deduction under section 80G towards the CSR spend towards donation to Swachh Bharat Kosh and Clean Ganga Fund. Therefore, the contention that the CSR spend being claimed as a deduction under section 80G is against the intention of the legislature which restricts the same to be claimed as a deduction under section 37 cannot be appreciated. ■ The next issue is whether the impugned payments are otherwise eligible for deduction under section 80G. It has already been established that the payments made by the assessee are donations and therefore if the other conditions for the deduction under section 80G are fulfilled then there should not be any restriction for the assessee to claim the deduction. Before holding so the contention of the revenue that the payments made towards CSR spend are monitored and controlled by the assessee and are not voluntary is Innoven Capital India Pvt. Ltd., addressed. 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. Therefore, there is merit in the submission of the assessee 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 Reliance Foundation and Shyam Kothari Foundation which are eligible to accept donations under section 80G 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, it is noticed 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 in denial of deduction which is otherwise allowable as per the provisions of section 80G. ■ 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, it is viewed that 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 is 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. For example, when a company Innoven Capital India Pvt. Ltd., 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 per cent 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 it is viewed that 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 is not legally tenable unless there is an explicit provision for e.g. contributions towards „Swacha Bharat Kosh‟ and „Clean Ganga Fund‟. ■ In view these discussions and considering the judicial precedence in this regard, it is viewed that there is no infirmity in the order of the Commissioner (Appeals) in allowing the deduction under section 80G to the assessee towards donations made to Reliance Foundation and Shyam Kothari Foundation. Accordingly the grounds raised by the revenue are dismissed.
12. In light of the above, we hold that the order of the learned PCIT under Section 263 is unsustainable both in law and on facts. The Assessing Officer adopted a plausible view based on the records before him, and there exists no legal impediment to claiming a deduction under Section 80G for donations that incidentally form part of CSR expenditure, provided all statutory conditions are fulfilled.
Consequently, the revisionary order passed by the learned PCIT under Section 263 is quashed, and the deduction claimed by the assessee under Section 80G is upheld.
In the result, appeal of the assessee is allowed.
Order pronounced on 31st July, 2025.