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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SMT. BEENA PILLAI & SHRI GIRISH AGRAWAL
Per: Smt. Beena Pillai, J.M.: The present appeal filed by the assessee arises out of order dated 24/01/2025 passed by NFAC, Delhi for assessment year 2020-21 on following grounds of appeal :
“ On the facts and in the circumstances of the case and in law, the Ld. CIT(A) -NFAC has:
A.Y. 2020-21 Glitch Media Private Limited General: 1. erred in not providing the Appellant with an opportunity for a hearing via video conferencing, despite the Appellant's request for the same in the event the Ld. CIT(A)-NFAC disagreed with the Appellant's contentions, thereby violating the principles of natural justice, and thus, the order passed under section 250 of the Act by the Ld. CIT(A)-NFAC is bad in law. 2. erred in computing the total demand of Rs. 55,39,034 in the order passed under section 250 of the Act as against the demand of Rs. 30,94,230 determined by the Assessing Officer in the computation sheet annexed to the assessment order dated 19 September 2022, passed under Section 143(3) of the Act. Disallowance of deduction under section 80G of the Act of Rs.9,32,092 3. erred in denying the Appellant's claim of deduction of Rs. 9,32,092 made under section 80G of the Act with respect to an amount of Rs. 18,64,183 paid to WPP India CSR foundation, which is eligible for a deduction (upto 50% of the amount) under section 80G of the Act. 4. failed to appreciate the fact that no restriction is imposed on claiming deduction under section 80G of the Act, provided the payment is made to eligible institutions/charitable organisations registered under section 80G of the Act even if the same is made towards Corporate orate Social Responsibility ('CSR') expenditure. Erroneous additions/disallowance considered as per the intimation dated 18 December 2021 issued under section 143(1) of the Act Applicability of doctrine of merger 5. failed to appreciate that the theory of doctrine of merger was applicable in the present case and consequently, the intimation dated 18 December 2021 issued under section 143(1) of the Act has merged with the assessment order dated 19 September 2022 passed under section 143(3) of the Act. Without prejudice, erroneous double disallowance of Rs. 1,69,68,083 under section 40(a)(ia) and section 40(a)(i) of the Act 6. Without prejudice to the above, erred in not deleting the additional disallowance of Rs. 1,69,68,083 without appreciating the fact that the same has been inadvertently disallowed twice i.e. once under A.Y. 2020-21 Glitch Media Private Limited section 40(a)(i) of the Act and again under section 40(a)(ia) of the Act while computing the assessed income of the Appellant and thereby leading to violating the principles of natural justice.
7. Without prejudice to the above, failed to appreciate that merely because the Appellant inadvertently disallowed Rs. 1,69,68,083 under Section 40(a)(i) of the Act in its return of income and consequently, the said amount is disallowed twice under both section 40(a)(ia) and section 40(a)(i) of the Act in the intimation issued under section 143(1) of the Act, Ld. CIT(A)-NFAC, being a judicial authority, is required to ensure that only legitimate taxes are collected and, therefore, should delete the additional disallowance of Rs. 1,69,68,083. Without prejudice, disallowance of section 36(1)(va) of the Act of Rs. 9,24,959 on account of alleged late deposit of contribution made to Provident Fund 8. Without prejudice to the above, erred in confirming the disallowance of Rs. 9,24,959 under section 36(1) (va) of the Act towards contribution to Provident Fund made beyond the due date as per the respective Act, but deposited before the due date of filing the return as per the Act as per section 139(1) of the Act.
Without prejudice to the above, erred in not allowing the deduction of Rs. 9,24,959 for the employees' contribution to the Provident Fund under Section 37(1) of the Act, if the same is not allowable under Section 36(1)(va) of the Act. Erroneous levy of interest under section 234A, 234B and 234C of the Act 10. erred in levying interest under section 234A of Rs. 68,793 of the Act. 11. erred in levying interest under section 234B of Rs. 6,87,930 of the Act. 12. erred in levying interest under section 234C of the Act of Rs. 44,401 on the assessed income without appreciating that section 234C of the Act is applicable only on returned income and not on the assessed income. Initiation of penalty proceedings under Section 270A of the Act A.Y. 2020-21 Glitch Media Private Limited 13. erred in initiating penalty proceedings under section 270A of the Act. Each of the above ground is independent and without prejudice to one another. The Appellant craves, to consider each of the above grounds of appeal without prejudice to each other and craves leave to add, alter, vary, omit, amend, delete or modify all or any of the above grounds of appeal.” Brief facts of the case are as under:
2. The assessee is a company and filed its return of income on 15/02/2021, declaring total income at Rs.13,74,76,240/-. The case was selected for scrutiny to verify a large amount of deduction claimed by the assessee under schedule BP and lower amount disallowed in 40(a)(ia) of the Act, as compared to the audit report. The Ld.AO issued notice u/s. 143(2) and 142(1) of the Act calling upon assessee to furnish details in respect of deduction claimed u/s.80G and short fall in the disallowance made in the u/s.40(a)(ia) of the Act in the return of income. 2.1 Before the assessing officer the assessee submitted that, voluntary donation of Rs.18,64,183/- was made to WPP India Corporate Social Responsibility Foundation, during the financial year relevant to assessment year under consideration towards education, livelihood and health project. The assessee submitted that, the donation was also eligible for deduction u/s.80G also at the rate of 15% as per the relevant provisions under the Act. The assessee brought to the notice of the Ld.AO that, it made suo moto disallowance 15% of the donation and claimed only 15% in total under 80G of the Act. In support the assessee placed reliance on the decision of Hon’ble Bangalore Tribunal in case of A.Y. 2020-21 Glitch Media Private Limited (1) decision of Hon’ble Bangalore Tribunal in case of First American (India) Pvt. Ltd. Vs. ACIT dated 29.04.2020 (2) decision of Hon’ble Bangalore Tribunal in case of Allegis services(India) Pvt. Ltd. ITA.No.1693/Bang/2019, dated 09.03.2020. (3) decision of Hon’ble Bangalore Tribunal in case of Goldman Sachs services Pvt. Ltd. reported in (2020) 117 Taxmann.com 535 (4)decision of Hon’ble Bangalore Tribunal in case of FNF India (P.) Ltd. vs. Assistant Commissioner of Income-tax reported in [2021] 133 taxmann.com 251 The Ld.AO rejected the submissions of the assessee. The Ld.AO further, made disallowances u/s. 36(1)(va) of the Act amounting to Rs. 9,24,959/- and also enormously made double addition as per the intimation issued u/s.148(1) of the Act u/s.40(a)(i)/(ia) of the Act amounting to Rs.1,68,69,084. Aggrieved by the order of the Ld.AO assessee preferred appeal before the Ld.CIT(A). The Ld.CIT(A) after considering the submissions of the assessee upheld the disallowance as per the assessment order. Aggrieved by the order of the Ld.CIT(A), the assessee is in appeal before this Tribunal.
3. At the outset, the Ld.AR submitted that Ground Nos.1 & 2 are general and therefore do not require any adjudication. Ground Nos. 3 & 4 raised by the assessee is on the disallowance of deduction claimed under section 80 G that also formed part of CSR spending. 3.1 The Ld.AR submitted that, assessee had debited Rs.18,64,183/-as expenditure on CSR activities in its profit and loss account. The amount was added back while computing taxable income as the same was not allowable u/s. 37(1) of the Act. However, the assessee claimed Rs.9,32,092/- out of the CSR A.Y. 2020-21 Glitch Media Private Limited Expenditure, as deduction u/s.80G of the Income Tax Act. The Ld.AR submitted that, the documents evidencing the genuiness of donation being the bank statement reflecting the payment and certificate under 80G were filed before the authorities below. He submitted that as per section 80G(1) assessee was eligible for 50O\% of the CSR expenditure as deduction. He also placed reliance on circular no. 1/2016 dated 12/01/2016 being the frequently asked question(FAQ) issued by Ministry of Corporate Affairs (MCA) that clarifies 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”
3.2 The Ld.AR placed reliance on the memorandum to the finance (no.2) bill, 2014 pertaining to the corporation social responsibility that reads as under : “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. 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 A.Y. 2020-21 Glitch Media Private Limited 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. The existing provisions of section 37(1) of the Act provide that deduction for any expenditure, which is not mentioned specifically in section 30 to section 36 of the 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 Act shall be allowed deduction under those sections subject to fulfilment of conditions, if any, specified therein. This amendment will take effect from 1st April, 2015 and will, accordingly, apply in relation to the assessment year 2015-16 and subsequent years.”
He thus submitted that, it is all by virtue of this amendment that explanation to section 37(1) inserted was as to clarify the purpose of section 37(1) that expenditure incurred by an assessee for activities relating to CSR referred in section 145 of the Companies Act 2013, shall not to be deemed to be a expenditure incurred for the purpose of its business or profession. He thus submitted that, the CSR expenditure is therefore to be disallowed under the Explanation 2 to section 37(1) while computing income under the head income from business profession. He thus submitted that the memorandum A.Y. 2020-21 Glitch Media Private Limited clarifies the impact of Explanation 2 to 37(1), wherein the legislature clearly indicated its mind regarding allowablity of deduction under those sections subject to fulfilment of conditions if any specified therein.
The Ld.AR submitted that, even though the expenditure under the head CSR is disallowed u/s. 37(1), there is no such embargo to consider if the same is allowable u/s.80G of the Act. He submitted that, if the assessee is denied this benefit merely because such payment formed part of CSR expenditure, would lead to double disallowance which is not the intention of the legislature.
6. On the contrary, the Ld.DR vehemently supported the order passed by the authorities below. He also placed reliance on the decision of Hon’ble Delhi Tribunal in case of Agilent Technology (international)Pvt. Ltd. vs. ACIT reported in(2024) 160 taxmann.com 238. He submitted that, the test of voluntariness is not satisfied in respect of the expenditure incurred under CSR. He submitted that, under 80G the claim of deduction is assuming the character of donation and the thus any payment made voluntarily can only be considered for deduction u/s.80G subject to the necessary conditions being satisfy therein. He emphasis that, the payment made under CSR lacks the character of it be a donation and therefore cannot be considered for deduction u/s.80G of the Act.
In the counter to the above agreement of the Ld.DR, the Ld.AR placed reliance on a recent decision of coordinate bench of this Tribunal in case of ACIT vs. Sikka Port and Terminal Ltd. reported in (2025) 173 taxmann.com 366. He submitted that, the “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.' A.Y. 2020-21 Glitch Media Private Limited 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 Id 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 v. 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”
We have perused the submissions the advance by both sides in the light of record placed before us.
We note that the decision of Hon’ble Bangalore Tribunal relied by the Ld.AR in case of First American (India) Pvt. Ltd. v. ACIT in of 2019, vide order dated 29.04.2020 dealt with the applicability of section 80G by observing as under: 11. Section 135 of Companies Act, 2013 requires companies with CSR obligations, with effect from 01/04/2014. Finance (No.2) Act, 2014 inserted new Explanation 2 to sub- section (1) of section 37, so as to clarify that for purposes of sub- section (1) of section 37, 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 be an expenditure incurred by the assessee for the purposes of the business or profession.
A.Y. 2020-21 Glitch Media Private Limited 12. This amendment will take effect from 1/04/2015 and will, accordingly, apply to assessment year 2015-16 and subsequent years.
Thus, CSR expenditure is to be disallowed by new Explanation 2 to section 37(1), while computing Income under the Head 'Income form Business and Profession'. Further, clarification regarding impact of Explanation 2 to section 37(1) of the Income Tax Act in Explanatory Memorandum to The Finance (No.2) Bill, 2014 is as under: "The existing provisions of section 37(1) of the Act provide that deduction for any expenditure, which is not mentioned specifically in section 30 to section 36 of the 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 expenditure 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 Act shall be allowed deduction under those sections subject to fulfilment of conditions, if any, specified therein."
From the above it is clear that under Income tax Act, certain provisions explicitly state that deductions for expenditure would be allowed while computing income under the head, 'Income from Business and Profession" to those, who pursue corporate social responsibility projects under following sections. • Section 30 provides deduction on repairs, municipal tax and insurance premiums. • Section 31, provides deduction on repairs and insurance of plant, machinery and furniture • Section 32 provides for depreciation on tangible assets like building, machinery, plant, furniture and also on intangible assets like know- how, patents, trademarks, licenses. • Section 33 allows development rebate on machinery, plants and ships. • Section 34 states conditions for depreciation and development rebate. • Section 35 grants deduction on expenditure for scientific research and knowledge extension in natural and applied sciences under agriculture, animal husbandry and fisheries. Payment to approved universities/research institutions or company also qualifies for deduction. In-house R&D is eligible for deduction, under this section. • Section 35CCD provides deduction for skill development projects, which constitute the flagship mission of the present Government. • Section 36 provides deduction regarding insurance premium on stock, health of employees, loans or commission for employees, interest on A.Y. 2020-21 Glitch Media Private Limited borrowed capital, employer contribution to provident fund, gratuity and payment of security transaction tax. Income Tax Act, under section 80G, forming part of Chapter VIA, provides for deductions for computing taxable income as under: • Section 80G(2) provides for sums expended by an assessee as donations against which deduction is available. a) Certain donations, give 100% deduction, without any qualifying limit like Prime Minister's National Relief Fund, National Defence Fund, National Illness Assistance Fund etc., specified under section 80G(1)(i) b) Donations with 50% deduction are also available under Section 80G for all those sums that do not fall under section 80G(1)(i). Under Section 80G(2) (iiihk) and (iiihl) there are specific exclusion of certain payments, that are part of CSR responsibility, not eligible for deduction u/s80G.
In our view, expenditure incurred under section 30 to 36 are claimed while computing income under the head, 'Income form Business and Profession", where as monies spent under section 80G are claimed while computing "Total Taxable income" in the hands of assessee. The point of claim under these provisions are different.
Further, intention of legislature is very clear and unambiguous, since expenditure incurred under section 30 to 36 are excluded from Explanation 2 to section 37(1) of the Act, they are specifically excluded in clarification issued. There is no restriction on an expenditure being claimed under above sections to be exempt, as long as it satisfies necessary conditions under section 30 to 36 of the Act, for computing income under the head, "Income from Business and Profession".
For claiming benefit under section 80G, deductions are considered at the stage of computing "Total taxable income". Even if any payments under section 80G forms part of CSR payments( keeping in mind ineligible deduction expressly provided u/s.80G), the same would already stand excluded while computing, Income under the head, "Income form Business and Profession". The effect of such disallowance would lead to increase in Business income. Thereafter benefit accruing to assessee under Chapter VIA for computing "Total Taxable Income" cannot be denied to assessee, subject to fulfillment of necessary conditions therein.
We therefore do not agree with arguments advanced by Ld.Sr.DR.
In present facts of case, Ld.AR submitted that all payments forming part of CSR does not form part of profit and loss account for computing Income under the head, "Income from Business and Profession". It has been submitted that some payments forming part of CSR were claimed as deduction under section 80G of the Act, for computing "Total taxable income", which has been disallowed by authorities below. In our view, assessee cannot be denied the benefit of claim under Chapter VI A, which is considered for computing 'Total Taxable Income". If assessee is denied this benefit, merely because such payment forms part of CSR, would lead to double disallowance, which is not the intention of Legislature.
A.Y. 2020-21 Glitch Media Private Limited 9. The above decision analyses the ambit of exemption available under section 80G of the Income Tax Act and the specific exceptions in respect of payments forming part of CSR (Corporate Social Responsibility) expenditure, on which deduction is not available under the said section. Accordingly, in respect of all other payments, deduction under section 80G cannot be denied merely on the ground that such payments form part of CSR spending.
It is important to note that payments forming part of CSR do not form part of the profit and loss account for the purpose of computing income under the head “Profits and Gains of Business or Profession.” However, if certain payments that form part of CSR expenditure are otherwise eligible under section 80G, the deduction under section 80G cannot be denied, since the benefit under Chapter VI-A is available for the purpose of computing “Total Taxable Income.”
We therefore are of the opinion that the decision relied by the Ld.DR fails to appreciate the implication of the provisions of the Act and we concur with the view of coordinate bench of this Tribunal in case of decision of coordinate bench of this Tribunal in case of ACIT vs. Sikka Port and Terminal Ltd. (supra) on this aspect. We therefore are of the view that the decision relied by the Ld.DR do not support revenue’s contention. Accordingly, ground nos.3-4 raised by the assessee stand allowed.
Ground Nos. 5 to 7 is alleging double disallowance of Rs.1,69,68,083/- section 40(a)(i)/40(a)(ia) of the act. The Ld.AR submitted that, the assessee wrongly entered the disallowance A.Y. 2020-21 Glitch Media Private Limited u/s. 40(a)(i) instead of 40(a)(ia). It is submitted that in the tax audit report, the assessee correctly reflected the disallowance u/s.40(a)(ia) of the Act. However the intimation issued u/s.143(1) of the Act erroneously disallowed the same amount of Rs. 1,69,68,084/- under Section 40(a)(i) as well as section 40(a)(ia) of the act. The assessee also filed rectification application on 27/02/2025 on the issue which is not yet disposed off. Based on the above discussion, the Ld.AO is directed to verify necessary facts and consider the claim in accordance with law. Accordingly, ground nos. 5-7 raised by the assessee stand allowed.
13. Ground Nos.8-9 is regarding the disallowance under section 43B of Rs.9,24,959/- towards late payment to PF & ESI Funds. This issue now stands covered against assessee by decision of Hon’ble Supreme Court in case of Checkmate Services (P.) Ltd. vs. CIT reported in (2022) 143 taxmann.com 178. It is submitted that there are payments deposited by the assessee which are within the due dates that also has been disallowed.
14. We therefore direct Ld.AO is to re verify the payment dates vis a vis due date as per the PF & ESI Act, and to restrict the disallowance only in respect of such payments deposited beyond the due date. Accordingly, ground nos.8-9 raised by the assessee stand partly allowed for statistical purpose.
15. Ground No.10 is on levy of interest under section 234A of the Act, the Ld.AO is directed to verify the date when the return of income filed by the assessee, and consider the claim in accordance with law.
A.Y. 2020-21 Glitch Media Private Limited Accordingly, ground no.10 raised by the assessee stand allowed for statistical purposes. Ground Nos. 11-12 are consequential in nature and do not require any adjudication In the result the appeal filed by the assessee stands partly allowed. Order pronounced in the open court on 24/07/2025