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Facts
The assessee claimed a deduction for expenses disallowed in a previous year, arguing it would lead to double disallowance. The Revenue's appeal concerned disallowance of CSR expenditure claimed under Section 80G and disallowance of membership fees.
Held
The Tribunal held that the disallowance of expenses from the previous year should be allowed as a deduction to avoid double disallowance, directing the AO to tax only the net amount. The CSR expenditure deduction under Section 80G was allowed by following precedent. The membership fee disallowance was restored as there was no provision for amortizing revenue expenditure.
Key Issues
Whether disallowance of expenses disallowed in a prior year should be allowed as a deduction. Whether CSR expenditure qualifies for deduction under Section 80G. Whether membership fees are allowable as business expenditure.
Sections Cited
250, 143(3), 144B, 142(1), 40(a), 139(1), 40(a)(ia), 143(2), 142(1), 80G, 37(1), 14A, 8D, 10(34), 37
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI NARENDRA KUMAR BILLAIYASHRI SANDEEP SINGH KARHAIL
Date of Hearing – 03/07/2025 Date of Order - 08/07/2025 ITAs No.494 & 792/Mum/2025 (A.Y. 2020-21) 2 O R D E R PER SANDEEP SINGH KARHAIL, J.M.
The present cross appeals by the assessee and the Revenue have been filed against the impugned order dated 29.11.2024, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [“learned CIT(A)”], for the assessment year 2020-21.
Assessee’s Appeal – A.Y. 2020-21
In this appeal, the assessee has raised the following grounds: - “
GROUND NO. I: ASSESSMENT MADE U/S 143(3) OF THE ACT IS NON-EST IN THE EYES OF LAW:
1. On the facts and circumstances of case and in law, the Ld. Commissioner of Income-tax (Appeals), NFAC |"CIT(A)"| upholding the action of the Assessing Officer ("the AO") in not making the assessment u/s 143(3) of the Act in accordance with the procedure laid down u/s 144B of the Act read with the Instructions, Circulars, Notifications, FAQs issued.
2. The Appellant prays that the assessment made by the AO u/s 143(3) of the Act be held as non-est in the eyes of law. WITHOUT PREJUDICE TO THE ABOVE GROUND NO. II: DISALLOWANCE AMOUNTING TO RS. 65,03,040/- U/S 40(a) OF THE ACT:
1. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in upholding the action of the Assessing Officer in disallowing the deduction claimed on account of expenses disallowed u/s 40(a) in the previous years.
2. The Ld. CIT(A) inter alia failed to appreciate and ought to have held that: a. The Appellant was never issued with notice u/s 142(1) giving opportunity to make submissions on the issue. b. The Appellant provided Rs.2,16,76,799/- for year-end expenses on estimate basis in the books of account for the year ending March 31, 2019;
ITAs No.494 & 792/Mum/2025 (A.Y. 2020-21) 3 c. The Appellant made suo-moto disallowance of Rs.65,03,040/- in the retum of incomer filed for AY 2019-20 being 30% of the amount of Rs, 2,16,76,799/- on which tax was deducted and provided in the books of account but not paid on or before the due date specified u/s 139(1); d. During the AY 2020-21, the Appellant never paid Rs.2,16,76,799/- to the vendors in absence of receipt of formal invoice/claim and was reversed in the books of account in the captioned assessment year; e. The Appellant was not liable to deduct tax at source on Rs.2,16,76,799/- and pay tax to the government treasury 3. The Appellant prays that the deduction amounting to Rs.65,03,040/- u/s 40(a) of the Act be allowed.”
Vide its application dated 2nd July, 2025, the assessee filed the following modified grounds of appeal
no. II: - “1. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in upholding the action of the Assessing Officer ("Id. AO") in disallowing the deduction of Rs. 65,03,040/- claimed on account of expenses disallowed u/s 40(a) in the previous years.
2. The Appellant prays that on facts and in law, an amount of Rs. 65,03,040/- be allowed as a deduction u/s 40(a)(ia) of the Act or otherwise as a deduction under the Act. Without prejudice to the above, the Id. AO be directed to tax only Rs. 1,51,73,759/- (i.e. Rs. 2,16,76,799 - Rs. 65,03,040) in the previous year instead of taxing the entire sum of Rs. 2,16,76,799/- which has been offered to tax and assessed as such.”
4. Ground No. I raised in assessee’s appeal was not pressed during the hearing. Accordingly, the same is dismissed as not pressed.
5. The issue arising in Ground No. II, raised in assessee’s appeal, pertains to the disallowance of deduction claimed by the assessee on expenses disallowed under section 40(a) of the Act in previous years.
The brief facts of the case pertaining to this issue, as emanating from the record, are: During the year under consideration, the assessee filed its original return of income on 09.02.2021, declaring a total income of ₹
ITAs No.494 & 792/Mum/2025 (A.Y. 2020-21) 4 638,32,25,180/-. The return filed by the assessee was selected for scrutiny under CASS, and statutory notices under section 143(2) and section 142(1) of the Act were issued and served on the assessee. During the assessment proceedings, upon perusal of the computation of income of the assessee, it was observed that the assessee had claimed a deduction of ₹ 65,03,040/- on account of expenses disallowed under section 40(a) in the previous year. Accordingly, the assessee was asked to show cause as to why the amount of ₹ 65,03,040/- should not be disallowed and added to the total income of the assessee in the year under consideration, as there is no provision in the Act for reversal of disallowance of the previous years. In response, the assessee submitted that it had disallowed this amount in the assessment year 2019- 20, however, no tax was required to be deducted at source.
The Assessing Officer (“AO”), vide order dated 27.09.2022 passed under section 143(3) read with section 144B of the Act, disagreed with the submissions of the assessee and held that on one hand the assessee is claiming that it had disallowed the amount in the last year as it failed to deposit TDS within the due date. On the other hand, the assessee is claiming the amount in this year. Accordingly, the AO held that the amount of ₹ 65,03,040/- is not allowable as a deduction in the year under consideration.
The learned CIT(A), vide impugned order, dismissed the ground raised by the assessee on this issue and held that once the amount is disallowed during the last assessment year under section 40(a) of the Act, the assessee cannot claim the credit of the same amount during the year under ITAs No.494 & 792/Mum/2025 (A.Y. 2020-21) 5 consideration, only by reversing the entry in the books of account. Being aggrieved, the assessee is in appeal before us.
We have considered the submissions of both sides and perused the material available on record. As per the assessee, in the assessment year 2019-20, it made a provision for the year-end expenditure of ₹ 2,16,76,799. As the tax was required to be deducted on the expenditure, and since the same was not paid on or before the due date specified under section 139(1) of the Act, accordingly in the return of income filed for the assessment year 2019-20, the assessee disallowed 30% of the amount of year-end provision of ₹ 2,16,76,799/-, i.e., ₹ 65,03,040/-. In this regard, during the hearing, the learned Authorized Representative (“learned AR”) referred to the return of income filed for the assessment year 2019-20, forming part of the paper book from pages 71-81. It is the plea of the assessee that in the current year, the assessee reversed the entire provision as no invoices/claims were received from the vendors on whom an estimated provision was made. Accordingly, as per the assessee, the entire provision of ₹ 2,16,76,799/- was offered to tax during the year under consideration. However, as per the assessee, due to inadvertence, the amount of ₹ 65,03,040/-, which was disallowed under section 40(a) of the Act during the assessment year 2019-20, was claimed as a deduction by the assessee. Therefore, as per the assessee, during the year under consideration, only the net sum of ₹ 1,51,73,759/- was offered to tax.
10. As evident from the record, the lower authorities have disagreed with the claim of the assessee of seeking deduction of the amount of ₹ 65,03,040/- disallowed under section 40(a) of the Act in the preceding year. It is the claim
ITAs No.494 & 792/Mum/2025 (A.Y. 2020-21) 6 of the assessee since the entire provision of ₹ 2,16,76,799/- was reversed during the year and was offered to tax, the denial of deduction of ₹ 65,03,040/-, during the year under consideration, would result in double disallowance, i.e., once been taxed in the assessment year 2019-20 by way of disallowance under section 40(a) of the Act and again being part of ₹ 2,16,76,799/- offered to tax in the year under consideration.
11. Having considered the submissions and perused the material available on record, we find that in the preceding assessment year, after disallowing ₹ 65,03,040/- under section 40(a) of the Act, the assessee only claimed the deduction of ₹ 1,51,73,759/-. Therefore, we agree with the submission of the assessee that during the year under consideration, only an amount of ₹ 1,51,73,759/- was required to be reversed and offered to tax. Therefore, since the lower authorities have denied the deduction claimed by the assessee of ₹ 65,03,040/-, we direct the AO only to tax the amount of ₹ 1,51,73,759/- in the year under consideration instead of taxing the entire amount of ₹ 2,16,76,799/- which is offered to tax by the assessee. Accordingly, Ground No.II raised in assessee’s appeal is allowed for statistical purposes.
In the result, the appeal by the assessee is partly allowed for statistical purposes.
Revenue’s Appeal - A.Y. 2020-21 13. In this appeal, the Revenue has raised the following grounds: - “1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition made on deduction claimed u/s. 80G amounting to Rs.4,22,50,000/- without appreciating the fact that the said amount does not qualify for deduction u/s. 80G as the payment has been made to an entity
ITAs No.494 & 792/Mum/2025 (A.Y. 2020-21) 7 not specified u/s. 80G and not being done on voluntary basis which is not qualifying for claim of deduction u/s. 80G.
2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the AO to delete the disallowance made u/s 14A r.w. Rule 8D without appreciating the fact that whether the dividend is earned during the relevant financial year or not, the provisions of section 14A are applicable and also considering the fact that investments cannot be made without inherent expenses associated while making such investments along with the technicalities involved in making investment along with expertise needed prior to making such investments, incurrence of expenses needs to be considered for making disallowance thereof.
3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the AO to delete the disallowance u/s. 37 of the Act whereas the said payment has been mentioned as personal by the tax auditor in the tax audit report and also that the amount qualifies for business expenditure has not been proved by documentary evidence during the assessment proceedings by the assessee.”
14. In the interest of justice, the slight delay of 4 days in filing the appeal by the Revenue is condoned.
15. The issue arising in Ground No.1, raised in Revenue’s appeal, pertains to the deduction claimed under section 80G of the Act on Corporate Social Responsibility (“CSR”) expenses.
The brief facts of the case pertaining to this issue, as emanating from the record, are: During the assessment proceedings, from the perusal of the details and documents filed, it was observed that the assessee had incurred expenditure amounting to ₹ 8.69 crore towards CSR during the year under consideration. From the perusal of the computation of income, it was further observed that the assessee has claimed a deduction of ₹ 4,22,50,000/- i.e., at 50% under section 80G of the Act in respect of expenditure incurred towards CSR. Accordingly, the assessee was asked to provide the details of the same and explained why the said deduction under section 80G of the Act
ITAs No.494 & 792/Mum/2025 (A.Y. 2020-21) 8 should not be disallowed. The AO, vide order passed under section 143(3) read with section 144B of the Act, disagreed with the submissions of the assessee and held that under section 80G of the Act, the sum paid needs to be a donation for the purpose of being eligible for deduction under the said section. It was further held that the amount paid by the assessee should be voluntary to become eligible for deduction under section 80G of the Act. However, in the present case, the said expenditure was incurred by the assessee as a mandatory requirement as per section 135 of the Companies Act, 2013. The AO further held that there should be an element of charity and voluntariness for any payment to be considered as a donation for the purpose of claiming a deduction under section 80G of the Act, which is missing in the present case. Accordingly, the AO disallowed a deduction of ₹ 4,22,50,000/- claimed by the assessee under section 80G of the Act on CSR expenditure.
17. The learned CIT(A), vide impugned order, allowed the ground raised by the assessee on this issue following the decision of the Mumbai Bench of the Tribunal in Synergia Lifesciences Private Limited vs. DCIT, in ITA No. 938/Mum/2023. Accordingly, the claim of deduction under section 80G of the Act amounting to ₹ 4,22,50,000/- was allowed to the assessee. Being aggrieved, the Revenue is in appeal before us.
We have considered the submissions of both sides and perused the material available on record. In the present case, it is undisputed that the assessee has not claimed the CSR expenditure under section 37(1) of the Act, and its claim is only restricted to section 80G of the Act. Further, the learned CIT(A) also noted the fact that the payment made by the assessee does not ITAs No.494 & 792/Mum/2025 (A.Y. 2020-21) 9 fall under the exclusions provided in sub-clause (iii-hk) and clause (iii-hl) of section 80G(1) of the Act.
19. During the year, the learned Departmental Representative (“learned DR”) placed reliance upon the decision of the coordinate bench of the Tribunal in Agilent Technologies (International) Pvt. Ltd., vs. CIT reported in (2024) 205 ITD 551 (Del–Trib), and submitted that the Tribunal had disallowed the deduction claimed on CSR expenditure under section 80G of the Act.
20. In his rebuttal, the learned AR placed reliance upon the decision of another coordinate bench of the Tribunal in CIT vs. Sikka Ports and Terminals Ltd., Reported in (2025) 173 taxmann.com 366 (Mum – Trib) and submitted that the aforesaid decision placed reliance upon by the learned DR in Agilent Technologies (International) Pvt. Ltd. (supra) was distinguished by the coordinate bench, by observing as follows: - “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 SR 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.”
ITAs No.494 & 792/Mum/2025 (A.Y. 2020-21) 10
From the perusal of the record, it is evident that in the present case also, the Revenue has not alleged that the payment towards CSR expenditure was made to get something material in return. Accordingly, respectfully following the decision of the coordinate bench in Sikka Ports and Terminals Ltd. (supra), we are of the considered view that the decision relied upon by the learned DR is factually distinguishable.
We find that a similar issue came up for consideration before various coordinate benches of the Tribunal. We find that in Allegis Services (India) Private Ltd. V/s ACIT, in ITA No. 1693/Bang./2019, the deduction in respect of CSR expenditure under section 80G of the Act was denied by the Revenue on a similar basis as in the present case. While deciding the issue in favour of the taxpayer, the Bangalore Bench of the Tribunal, vide order dated 29/04/2020, observed as follows: - "We have perused submissions advanced by both sides in light of records placed before us.
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.
This amendment will take effect from 1/04/2015 and will, accordingly, apply to assessment year 2015-16 and subsequent years.
12. Thus, CSR expenditure is to be disallowed by new Explanation 2 to section 37(1), while computing Income under the Head Income Business and Profession. Further, clarification regarding 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 ITAs No.494 & 792/Mum/2025 (A.Y. 2020-21) 11 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 clare 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 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 asdonations against which deduction is available.
ITAs No.494 & 792/Mum/2025 (A.Y. 2020-21) 12 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 availableunder Section 80G for all those sums that do not fallunder 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/s 80G.
In our view, expenditure incurred under section 30 to 36 are claimed while computing income under the head, 'Income form Business and Profession", whereas 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".
16. 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.
18. 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 section80G 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.
On the basis of above discussion, in our view, authorities below have erred in denying claim of assessee under section 80G of the Act. We also note that authorities below have not verified nature of payments qualifying exemption under section 80G of the Act and quantum of eligibility as per section 80G(1) of the Act.
ITAs No.494 & 792/Mum/2025 (A.Y. 2020-21) 13
Under such circumstances, we are remitting the issue back to Ld.AO for verifying conditions necessary to claim deduction under section 80G of the Act. Assessee is directed to file all requisite details in order to substantiate its claim before Ld.AO. Ld.AO is then directed to grant deduction to the extent of eligibility."
We further find that the Mumbai Bench of the Tribunal in Societe Generale Securities India (P.) Ltd. vs. Principal Commissioner of Income-tax, reported in [2023] 157 taxmann.com 533 (Mumbai - Trib), while affirming the claim of deduction under section 80G of the Act in respect of CSR expenditure, observed as follows: - "6. After computing the business income, while computing the total income of the assessee, the assessee is invoking the benefit under Chapter VIA by claiming deduction of the sums under section 80G of the Act. According to the revenue, when once such sum went to satisfy the requirement of section 135 of the Companies Act, the benefit gets exhausted and such an amount is no more available for the purpose of claiming deduction under section 80G of the Act. There is no express provision to support the contention of Revenue. On the other hand, section 80G (2) (iiihk) and (iiihl) of the Act expressly provide that such sums donated for Swatch Bharath Kosh and Clean Ganga Fund shall be the amounts other than the sums spent by the assessee in pursuance of CSR, meaning thereby the donations made towards Swatch Bharath Kosh and Clean Ganga Fund spent as a part of CSR are not qualified for deduction under section 80G of the Act. Out of so many entries under section 80G(2) of the Act, only donations in respect of two entries are restricted if such payments were towards the discharge of the CSR. The Legislature could have put a similar embargo in respect of the other entries also, but such a restriction is conspicuously absent for other entries. irresistible conclusion that would flow from it is that it is not the legislative intention to bar the payments covered by section 80G(2) of the Act which were made pursuant to the CSR, and other than covered by section 80G(2)(iiihk) and (iiihl) of the Act. As stated above, clue can be had from the restrictions by way of section 80G (2) (iiihk) and (iiihl) of the Explanation 2 to section 37(1) of the Act which denies deduction for CSR expenses by way of business expenditure is applicable only to extent of computing 'business income' under Chapter IV-D of the Act and; it could not be extended or imported to CSR contributions which was otherwise eligible for deduction under Chapter VI-A of the Act.
7. Where the deduction under section 80G of the Act is also disallowed, since CSR qualifying donations are not 'voluntary contributions', it will be a double jeopardy in the case of assessee. Assessee cannot be denied the benefit of claim under Chapter VIA of the Act, which is considered for computing 'Total Taxable Income". If assessee is denied this benefit, merely because such payment forms part of CSR, it would lead to double disallowance, which is not ITAs No.494 & 792/Mum/2025 (A.Y. 2020-21) 14
the intention of Legislature at all. Legislature on this matter simply dealing with the computation of total income under chapter IVD pertaining to "Income under the head Business and Profession" and not at all dealt with the eligibility of assessee to claim deduction u/s. 80G of the Act, falling in chapter VIA of the Act. It is further observed that genuineness of the transactions and identity of the donees are also not under challenge. All the payments were made through proper banking channel and appropriate donation receipts were also produced before the lower authorities and before us also."
Further, in another decision the Mumbai Bench of the Tribunal in Alubound Dacs India (P.) Ltd. vs. Deputy Commissioner of Income-tax, reported in [2024] 163 taxmann.com 536 (Mumbai - Trib), held that the expenditure towards CSR activities is an allowable deduction under section 80G of the Act. The relevant findings of the coordinate bench, in the decision, are reproduced as follows: -
“11. We have heard the rival submissions and perused the materials available on record. The only moot question to be decided here is whether the expenditure towards CSR activities are an allowable deduction u/s. 80G of the Act. The CSR expenses are governed by section 135 of the Companies Act, 2013, Schedule VII of the Act and Companies (CSR) Policy Rules, 2014 where companies having net worth of Rs.500 crores or more or turnover of Rs.1000 crores or more or net profit of Rs.5 crores or more have to mandatorily comply with the CSR provisions specified u/s. 135(1) of the Companies Act, 2013. The above mentioned companies are liable to spend at least 2% of its average net profit for the immediately preceding three financial years on CSR activities. In the present case, the assessee has contributed Rs.30 lacs to various educational and charitable trust for which the assessee has claimed 50% of the total donation paid as deduction u/s. 80G of the Act. Prior to the Finance (No.2) Act, 2014, the said expenditure was claimed as 'business expenditure' u/s. 37(1) of the Act where after the insertion of Explanation 2 to section 37(1) of the Act, the CSR expenses referred to in section 135 of the Companies Act, 2013 shall not be deemed to be an expenditure incurred by the assessee for the purpose of business or profession. It is observed that the said expenses pertaining to CSR has been claimed as deduction u/s. 80G of the Act which claim was perennially rejected by the Revenue for the reason that only donations which are voluntary in nature will come under the purview of section 80G of the Act and donation towards CSR was merely a statutory obligation on companies as per section 135 of the Companies Act, 2013. It is pertinent to point out that the intention of the legislature was clear when the same was clarified by the Finance (No.2) Act, 2014 that CSR expenses will not fall under the business expenditure and also there has been an express bar specified in sub clause (iiihk) and (iiihl) of section 80G(2)(a) of the Act that any sum paid by the assessee as donation to Swatch Bharat Kosh and Clean Ganga Fund will not come under the purview of deduction u/s. 80G of the Act subject to certain
ITAs No.494 & 792/Mum/2025 (A.Y. 2020-21) 15 conditions. This justifies the fact that the other donations specified u/s. 80G of the Act would be entitled to deduction provided the conditions stipulated u/s. 80G of the Act are satisfied. In the present case in hand, the contributions made by the assessee would not fall under the two exceptions specified above which clearly mandates that the assessee is entitled to claim deduction for the donations contributed during the year under consideration u/s.80G of the Act. The decision relied upon by the Id. A.O. in the case of PVG Raju, Raja of Vizianaram (supra) is distinguishable on the facts of the present case where there is no requirement of proving the voluntariness of the donation contributed by the assessee for claiming deduction u/s. 80G of the Act. The amendment brought about by Finance Act, 2015 to section 80G of the Act which had inserted the sub clauses (iiihk) and (iiihl) to be the exception for qualifying a donation for claiming u/s. 80G of the Act could also be an evidencing factor to substantiate that CSR expenditures which falls under the nature specified in section 30 to 36 of the Act are an allowable deduction u/s. 80G of the Act.
12. On the above observation, we deem it fit to hold that the assessee is entitled to deduction claimed u/s. 80G of the Act towards the CSR expenditure incurred by it. We, therefore, direct the Id. A.O. to allow the claim of the assessee subject to the condition that the assessee has satisfied the other requirements warranted u/s.80G of the Act. Hence, ground no. 2 raised by the assessee is allowed."
Thus, respectfully following the decisions cited supra, we are of the considered view that the claim for deduction under section 80G of the Act in respect of CSR expenditure cannot be denied. Therefore, we do not find any infirmity in the impugned order passed by the learned CIT(A) in allowing the claim of deduction under section 80G of the Act on CSR expenditure incurred by the assessee. Accordingly, Ground No.1 raised in Revenue’s appeal is dismissed.
The issue arising in Ground No.3, raised in Revenue’s appeal, pertains to disallowance under section 14A read with Rule 8D of the Income Tax Rules 1962.
The brief facts of the case pertaining to this issue, as emanating from the record, are: During the assessment proceedings, from the perusal of the ITAs No.494 & 792/Mum/2025 (A.Y. 2020-21) 16 details and documents filed by the assessee, it was observed that the assessee had made huge investments which could yield exempt income. It was further observed that the assessee in its computation of income did not disallow any expenditure in respect of exempt income. Accordingly, the assessee was asked to show cause as to why the disallowance under section 14A read with Rule 8D of the Rules not be made. In its reply, the assessee submitted that during the year under consideration, the company did not earn any exempt income, and therefore, no disallowance can be made under section 14A of the Act. The AO, vide order passed under section 143(3) read with section 144B of the Act, disagreed with the submissions of the assessee and held that in managing as well as for decision-making regarding the investment in the shares/mutual funds, the top executives as well as other administrative staff has to devote time and energy, and all these resources for financial cost associated with them. The AO further held that under section 14A of the Act, what is relevant is to work out the expenditure in relation to investments that could yield exempt income and not to examine whether the expenditure incurred by the assessee has resulted in exempt income or taxable income. The AO relied upon the CBDT Circular No.5 of 2014, which provides that the provisions of section 14A of the Act read with Rule 8D of the Rules shall be applicable for disallowance of expenditure even where the taxpayer, in a particular year, has not earned any exempt income. Accordingly, the AO computed the disallowance of ₹ 12,72,34,700/- under section 14A read with rule 8D of the Rules.
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The learned CIT(A), vide impugned order, allowed the ground raised by the assessee on this issue and deleted that disallowance made under section 14A of the Act. Being aggrieved, the Revenue is in appeal before us.
We have considered the submissions of both sides and perused the material available on record. In the present case, there is no dispute regarding the fact that during the year under consideration, the assessee did not earn any exempt income, and thus, claimed no exemption under section 10(34) of the Act while filing its return of income. We find that the Hon'ble Delhi High Court in Cheminvest Ltd. vs. CIT, reported in [2015] 378 ITR 33 (Delhi), held that section 14A will not apply if no exempt income is received or receivable during the relevant previous year. We further find that the Hon'ble Jurisdictional High Court in Pr. CIT v/s Kohinoor Project (P) Ltd., reported in [2020] 121 taxmann.com 177 (Bom.), rendered similar findings and dismissed the Revenue's appeal on a similar issue. Since, in the present case, the assessee has not earned any dividend income, therefore, respectfully following the aforesaid judicial pronouncements, disallowance of expenditure under section 14A read with Rule 8D is not sustainable.
We further find that vide amendment by the Finance Act, 2022, the non- obstante clause and explanation were inserted in section 14A of the Act to the effect that the section shall apply even if no exempt income has accrued or arisen or has been received during the year. We find that while dealing with the issue of whether the aforesaid amendment by the Finance Act, 2022 is prospective or retrospective in operation, the Hon'ble Delhi High Court in PCIT vs M/s Era infrastructure (India) Ltd, reported in [2022] 288 Taxman 384
ITAs No.494 & 792/Mum/2025 (A.Y. 2020-21) 18 (Delhi) held that the amendment by Finance Act, 2022 in section 14A is prospective and will apply in relation to the assessment year 2022-23 and subsequent assessment years. Thus, even in view of the aforesaid amendment also, the disallowance under section 14A read with Rule 8D is not permissible in the present case.
During the hearing, the learned DR placed on record orders passed by the Hon’ble Supreme Court in PCIT vs. Delhi International Airport Private Limited, reported in (2022) 143 taxmann.com 209 (SC) and PCIT vs. Karnataka State Financial Corporation Ltd., reported in (2022) 137 taxmann.com 135 (SC). From the perusal of these orders, we find that the Hon’ble Supreme Court has merely issued notice in the Revenue’s Special Leave Petition on a similar issue. Further, the learned DR also placed reliance upon the decision of Guwahati Bench of the Tribunal in ACIT vs. Williamson Financial Services Ltd., reported in (2022) 140 taxmann.com 164 (Guwahati – Trib), wherein the coordinate bench held that explanation inserted by Finance Act, 2022 to Section 14A of the Act w.e.f. 01.04.2022 shall be applicable retrospectively. We find that the Hon’ble Guwahati High Court allowing the appeal filed by the assessee in Williamson Financial Services Ltd. vs. CIT, reported in (2024) 166 taxmann.com 607 (Gauhati), against the afore-noted decision of the Guwahati Bench of the Tribunal held that explanation inserted to section 14A by Finance Act, 2022 is prospective in nature. Thus, we find that the Revenue has not placed on record any decision of the higher fora, wherein the decisions as noted in the foregoing paragraphs have been overruled. Therefore, we are of the considered view that the ITAs No.494 & 792/Mum/2025 (A.Y. 2020-21) 19 disallowance computed under section 14A read with Rule 8D of the Rules by the AO is completely unwarranted in the facts and circumstances of the present case. Accordingly, we do not find any infirmity in the findings of the learned CIT(A) on this, and the same are upheld. As a result, Ground No.2 raised in Revenue’s appeal is dismissed.
The issue arising in Ground No.3 raised in Revenue’s appeal pertains to the deletion of the disallowance made under section 37 of the Act.
The brief facts of the case pertaining to this issue, as emanating from the record, are: From the perusal of the Tax Audit Report during the assessment proceedings, it was noticed that the assessee has claimed an expenditure amounting to ₹ 10,31,239/- which was declared to be personal in nature. Accordingly, the assessee was asked to show cause as to why the expenses of a personal in nature should not be disallowed and added to the total income of the assessee under section 37 of the Act. In response, the assessee submitted that this amount was paid as a membership fees to Willingdon Sports Club for the purpose of holding corporate meetings and thus allowable as business expenditure under section 37 of the Act. The AO, vide order passed under section 143(3) read with section 144B of the Act, disagreed with the submissions of the assessee as the assessee failed to produce any supporting documents or bills for the amount spent for organising such meetings. Since this amount was also already stated to be personal in nature as per the Tax Audit Report, the AO disallowed the same and added it to the total income of the assessee.
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The learned CIT(A), vide impugned order, allowed the ground raised by the assessee on this issue and held that mere mentioning of an expenditure of personal nature in the Tax Audit Report cannot be a ground of disallowance. The learned CIT(A) further held that many clubs allow membership to companies or business entities, which can be beneficial for the business and profession. Accordingly, the learned CIT(A) accepted the claim of the assessee and directed the AO to allow the amount of ₹ 10,31,239/- under section 37 of the Act. Being aggrieved, the Revenue is in appeal before us.
We have considered the submissions of both sides and perused the material available on record. At the outset, we observed that the assessee amortised the entire expenditure towards the payment of membership fees to Willingdon Sports Club for next 10 years and has only claimed 1/10th of the membership charges, i.e., amounting to ₹ 10,31,239/-, as expenditure in the year under consideration under section 37 of the Act. We find that even though the assessee has made such a claim, however, there is no provision under the Act which allows the amortisation of revenue expenditure. Accordingly, on this basis alone, we do not find any merit in the claim of the assessee. Accordingly, the disallowance of the said amount is restored, and the findings of the learned CIT(A) on this issue are set aside. Accordingly, Ground No.3 raised in Revenue’s appeal is allowed.
In the result, the appeal by the Revenue is partly allowed.
To sum up, the appeal by the assessee is partly allowed for statistical purposes, while the appeal by the Revenue is partly allowed.
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Order pronounced in the open Court on 08/07/2025