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Facts
The assessee company, engaged in financial services, claimed a deduction under Section 80G for a donation classified as CSR expenditure. The Assessing Officer allowed this claim after examining the details. However, the Principal CIT invoked Section 263, holding that CSR expenditure is mandatory and not voluntary, thus not eligible for 80G deduction, and that the issue was not properly discussed in the assessment order.
Held
The Tribunal held that the Principal CIT wrongly invoked Section 263. The AO had conducted an inquiry and accepted the deduction. The Tribunal further noted that while CSR expenditure may not be deductible under Section 37(1), it can be eligible for deduction under Section 80G if conditions are met, and Section 80G does not mandate the donation to be voluntary. The specific CSR contributions made by the assessee were not to the excluded categories under Section 80G.
Key Issues
1. Whether the Principal CIT rightly invoked Section 263 when the AO had already examined the issue of Section 80G deduction for CSR expenditure. 2. Whether donation classified as CSR expenditure is eligible for deduction under Section 80G.
Sections Cited
263, 143(3), 144B, 80G, 37(1), 135, 28, 44DB, 44BB, 80G(2)(a)(iiihk), 80G(2)(a)(iiihl)
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Income Tax Appellate Tribunal, Mumbai “A” Bench, Mumbai.
Before: Shri Sandeep Gosain(JM) & Shri Prabhash Shankar(AM)
Per Sandeep Gosain (JM) :- The present appeal has been filed by the assessee against the order passed by Ld. PCIT under section 263 dated 20.3.2025 for the A.Y. 2020-21.
Both the grounds raised by the assessee are interrelated and 2. interconnected and relates to challenging the order of Ld. PCIT passed under section 263 of the I.T. Act. Therefore we have decided to adjudicate these grounds through the present consolidated order.
Ld. AR appearing on behalf of the assessee relied upon his written submissions and the same are reproduced herein below : “The resent appeal is filed against the order dated 20th March 2025 passed under Section 263 of the Income-tax Act ('the Act') by Principal Commissioner of Income-tax-4, Mumbai. The effective grounds of appeal
are as under:
1. The Ld. Principal Commissioner of Income-tax-4, Mumbai erred in invoking the jurisdiction under Section 263 of the Income-tax Act, 1961 ('the Act') and passing the order dated 20th March 2025 setting aside the assessment order passed u/s. 143(3) of the Act, without appreciating that the assessment order dated 24th September 2022 passed under Section Axis Securities Limited 143(3) r.w.s. 144B of the Act is not erroneous in so far as it is prejudicial to the interest of the Revenue and thus the order passed u/s. 263 of the Act is without jurisdiction.
The Ld. Principal Commissioner of Income-tax-4, Mumbai erred in directing the Assessing Officer to disallow the claim of deduction to the extent of Rs. 96,83,474/- under Section 80G of the Act on the ground that the donation classified as 'Corporate Social Responsibility' expenditure is not eligible for deduction under Section 80G of the Act."
3. The Appellant is a company engaged in the business of broking, distribution of financial products and advisory services. During FY 2019- 20 relevant to AY 2020-21, the Appellant had made donation as under:
Sr. Donation % of Donation Amount of Name of Donee No. Amount (Rs.) eligible for Deduction deduction claimed u/s. u/s. 80G 80G
1 Axis Foundation 1,93,66,947 50% 96,83,474 Total 1,93,66,947 96,83,474 The amount of donation of Rs. 1,93,66,947/- was classified as 'Corporate Social Responsibility' ('CSR') expenses under Section 135 of the Companies Act, 2013 in the books of account (Refer Note 22 of the audited financial statements at Page 22 of the Paper book). In accordance with Section 37 of the Act read with Explanation 2 thereof, amount of Rs. 1,93,66,947'/- classified as CSR expense was suo moto disallowed by the Appellant in the return of income (Refer Computation of Income at Page 2 of the Paper book).
5. In the return of income, the Appellant claimed deduction of Rs. 96,83,474/- under Section 80G of the Act as per table at para 2 above. The fact of claim of deduction was duly disclosed in the Computation of Income (Page 2 of the Paper book) and Tax Audit Report (Clause 33 at Page 37 of the Paper book).
6. The claim was duly examined and allowed by the Assessing Officer in the assessment order dated 24th September 2022 passed under Section 143(3) of the Act.
7. The Principal Commissioner of Income Tax - 4, Mumbai invoked revisionary jurisdiction under Section 263 of the Act and passed order dated 20th March 2025 holding that the I deduction under Section 80G was erroneously allowed since the donation was in the nature of CSR expenditure which is not voluntary in nature and thus not eligible for deduction. It was further held that the issue of Section 80G/CSR was not discussed in the assessment order and hence the assessment order is erroneous in so far as it is prejudicial to the interest of the revenue. ' Ground of Appeal No. 1: Conditions for invoking Section 263 not satisfied Specific query raised during the assessment proceedings and Assessing Officer, having examined the facts, adopted a view which cannot be treated as erroneous:
8. During the course of assessment proceedings, the Assessing Officer vide Notice dated 20th December 2021 (Page 75-77 of the Paper book) raised specific query on donations made and their eligibility under Section 80G of the Act (Refer Query No. 4 at Page 76 of the Paper book) which is reproduced below:
"4. With respect to Income for the year under consideration and the claim of refund during the year, kindly submit the below specified details: i.) Furnish the details of deductions, exemptions and rebate claimed during the year along with supporting documents."
9. In response to the above-mentioned notice, the Appellant, vide letter dated 13th January 2022 (Page 78-86 of the Paper book), furnished details of donation made and furnished 80G Certificate of the donees and the receipts. Attention is invited to the Appellant's response at Page 81 of the Paper book wherein it was specifically stated that the donation claimed is out of "Expenses towards Corporate Social Responsibility".
Based on the above, it is evident that details of donation and CSR expenditure were enquired by the AO and explanation was furnished by the Appellant which was accepted. The Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT [243 1TR 83] has held that the phrase "prejudicial to the interest of revenue" occurring in section 263 of the Act has to be read in conjunction with the expression "erroneous" order passed by the Assessing Officer. Further every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of the revenue. It is settled law that if the Assessing Officer has conducted enquiry and adopted a view which is plausible and sustainable in law, Section 263 of the Act cannot be invoked merely because the CIT has a different view.
10. The Principal Commissioner of Income-tax, in para 5.9 of the 263 order has held that the issue pertaining to section 80G/CSR expenses do not find any mention in the assessment order. It is submitted that merely because the assessment order does not contain reference to an issue examined by the AO does not make the order amenable to revision under section 263 of the Act. In this regard, reliance is placed on the decision of the Hon'ble Bombay High Court in the case of CIT v. Reliance Communication Ltd. [396 ITR 217] wherein it was held as under:
"10. In the case before us, the concession of the assessee's authorized representative apart, what the Tribunal found and on all Axis Securities Limited the three items highlighted by Mr. Tejveer Singh is that there were materials before the Assessing Officer. The Assessing Officer made enquiries about the above referred aspects and which have been noted by the Commissioner. The assessee made submissions by placing all relevant documents before the Assessing Officer. Thus the case does not fall within the parameters laid down in the decision of the Hon'ble Supreme Court and other High Courts. The mere fact that the Assessing Officer did not make any reference to these three issues in the assessment order cannot make the order erroneous when the issues were indeed looked into. The entire details were filed and the order itself indicates that it can be inferred that the Assessing Officer not only made enquiries, but satisfied himself with the assessee's replies furnished from time to time in support of its stand. When the Tribunal concludes in this manner and finally in paragraph 16 holds that the Assessing Officer took a perfectly correct or a possible view, then, the order passed by him cannot be termed as erroneous insofar as it is prejudicial to the interest of the Revenue. The Commissioner of Income Tax was not, therefore, justified in invoking section 263 of the Act." (Emphasis supplied) 11. In view of the above, it is submitted that the twin conditions for invoking the provisions of section 263 of the Act have not been fulfilled and therefore the invocation of section 263 of the Act by Principal Commissioner of Income-tax - 4, Mumbai is invalid and consequential order dated 20th March 2025 is bad in law and deserves to be quashed.
Ground of Appeal
No. 2: Deduction under Section 80G eligible in respect of donation classified as 'Corporate Social Responsibility' expenses
12. With respect to the issue of deduction under section 80G of the Act in respect of expenses classified as Corporate Social Responsibility, the Pr. Commissioner of Income-tax has held that since CSR expenditure is mandatory, »the same cannot constitute a donation which is voluntary and hence not eligible for deduction under section 80G of the Act. It is an undisputed fact that donation made by the Appellant are to entities registered under section 80G and that the Appellant is otherwise eligible to claim deduction under section 80G of the Act.
13. It is submitted that though section 135 of the Companies Act, 2013 mandates the quantum of CSR expense, it does not mandate to whom and how the amount to be spent and the Appellant at its discretion can choose the mode of spending towards CSR. The donations made by the Appellant to Axis Foundation are made voluntarily as there is no reciprocal commitment from the donees. In any case, section 80G of the Act does not put any condition for the donation to be voluntary in nature for the purpose of claiming deduction.
Axis Securities Limited 14. CBDT, vide Circular No. 1/2015 dated 21st January 2015 which contains the Explanatory Notes provisions of the Finance (No. 2) Act, 2014, has stated that expenditure incurred which is eligible for CSR and allowable under other sections, shall be allowed as a deduction while computing income. The relevant extract of CBDT Circular is reproduced as under: "13.3 The provisions of section 37(1) of the Income-tax Act provide that deduction for any expenditure, which is not mentioned specifically in section 30 to section 36 of the Income-tax Act, shall be allowed if the same is incurred wholly and exclusively for the purposes of carrying on business or profession. As the CSR expenditure (being an application of income) is not incurred for the purposes of carrying on business, such expenditures cannot be allowed under the provisions of section 37 of the Income-tax Act. Therefore, in order to provide certainty on this issue, said section 37 has been amended to clarify that for the 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 have been incurred for the purpose of business and hence shall not be allowed as deduction under said section 37. However, the CSR expenditure which is of the nature described in section 30 to section 36 of the Income-tax Act shall be allowed as deduction under those sections subject to fulfillment of conditions, if any, specified therein."
The CBDT Circular clearly states that the restriction on claiming deduction of CSR expense is only with respect to Section 37(1) of the Act wherein it will not be deemed to be a business expenditure for the purpose computing income under the head 'Profits and Gains from Business or Profession'. The Circular itself clarifies that CSR expenditure will be allowable under other sections under the same head of income. In view of CBDT Circular, it is clear that there is no express bar in claiming deduction in respect of CSR expenditure, other than under Section 37(1) of the Act.
The Ministry of Corporate Affairs ("MCA") has issued Frequently Asked Questions ("FAQ") through General Circular No. 01/2016 dated January 12, 2016 (FAQ No. 6) 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. What 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 find place in Schedule VII, already enjoys exemptions under different sections of the Income-tax Act, 1961.
Axis Securities Limited This clarification being issued by the Ministry of Corporate Affairs, Government of India also confirms that donation covered under CSR Expenses are eligible for the deduction under section 80G of the Income- tax Act, 1961.
Reliance is placed on the decision of Hon'ble Mumbai Tribunal in the case of ACIT v. Sharda Cropchem Limited (ITA No. 6163/Mum/2024) wherein it was held that donations which are classified as CSR expenditure are eligible for deduction under Section 80G of the Act. The relevant extract of the order is reproduced as under:
"9. We have carefully perused relevant provisions of the Act and legal position emerging from the cited decision (supra).The CSR expenses which are required to be mandatorily incurred by the assessee-company as per section 135 of the Companies Act are not entitled to deduction under section 37(1) for assessment year 2015- 16 by virtue of the fetter placed by Explanation 2 to section 37(1), which was inserted by the Finance (No. 2) Act, 2014. A plain reading of Explanation 2 to section 37(1) shows that any expenditure incurred towards CSR activities as referred to in section 135 of the Companies Act, 2013 shall not be allowed as ' business expenditure' and shall be deemed to have not been incurred for purpose of business. The embargo created by Explanation 2 inserted in section 37 by Finance (No. 2) Act, 2014 was to deny deduction for (3SR expenses incurred by companies, as and by way of regular business expenditure while computing 'income under the head business'. So, it can be clearly seen that this Explanation 2 to section 37(1) which denies deduction for CSR expenses by way of business expenditure is applicable only to the extent of computing 'business income' under Chapter IV-D. The said Explanation cannot be extended or imported to CSR contributions which are otherwise eligible for deduction under any other provision or Chapter, so as to say donations made by charitable trust registered under section 80G.Parliament has expressed its intention clearly by bringing in restriction in respect of expenditure classified by an assessee company while claiming deduction under section 80G i.e. CSR expenditure related to Swachh Bharat Kosh and Clean Ganga Fund. And if the Parliament desired, it could have been made such kind of restriction or any restriction like in the case of donation to Swachh Bharat Kosh& Clean Ganga Fund. So the assertion of the Assessing Officer is erroneous and therefore cannot be accepted. It can be safely inferred that when the Legislature in particular has provided for only the above referred tivo specific exceptions in section 80G, then it is the implied intent of the Legislature to permit deduction under section 80G in respect of CSR contributions made to funds/organizations referred to in all other sub-clauses of section 80G [other than (iiihk) and (iiihl)] of the Act.
Axis Securities Limited 9.1 It may be stated here that the co-ordinate Bench of IT AT, Mumbai in the case Alubound Dacs India Private Limited vs. Dy. CIT in IT A No. 3663/M u m/2023 ( A. Y. 2020 - 21)has duly considered similar contentious issue and decided the same in favour of the assessee. The relevant extracts are reproduced below for the sake of ready reference:
9.3 Respectfully following the decisions cited above, we 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.SOG of the Act. We do not find any infirmity in the appellate order. Hence, ground no. 3 raised by the Revenue is dismissed.
Reliance is also placed on the decision of Hon'ble Mumbai Tribunal in the case of Inter Gold (India) Pvt. Ltd. v. Pr. CIT (ITA No. 400/Mum/2023) wherein it was held that the provisions of Section 263 of the Act cannot be invoked for denial of deduction claimed under Section 80G in respect of donations classified as CSR. The relevant extract of the order is reproduced below:
"11. After considering the aforesaid submissions and the reasons given by the Id. PCIT, we are unable to sustain the impugned order u/s.263 on this issue for the reason that, this issue has been duly enquired and examined by the Id. AO during the course of assessment proceedings and without finding any defect in such order or how the claim allowed by the Id. AO u/s.80G is unsustainable in law, he cannot cancel the assessment order. Assessee has also relied upon various Tribunal decisions directly on this issue which has also been incorporated in the impugned order, wherein it has been held that even if the money spent for CSR is disallowable but if the same has been paid to charitable organisation and donation is claimed u/s.80G,,the same is allowable, because both operate separately. Thus, taking a contrary opinion does not mean that order of the Id. AO erroneous and prejudicial to the interest of the Revenue.
12. Claiming a deduction from computation of business income as provided from sections 28 to 44DB is different from claiming a deduction under chapter VIA of the Act which is allowed from Total Income. As per Explanation 2 to Section 37, CSR expenditure is not allowable as deduction while computing the business income under the provision of Section 28-44DB, whereas deduction u/s.SOG is allowed while computing the total income under Chapter VIA. There is no pre-condition that claim for deduction u/s.SQG 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.
Axis Securities Limited Further, there is no dispute tlwt the assessee has filed complete details of donation and also filed the certificate u/s.80G which was enclosed before the AO. Section 80G (1) of the Act provides that in computing total income of the assessee, they shall be deducted in accordance with the provision of Section, such sum paid by the assessee in the previous year as a donation. Deduction under Chapter VIA provides deduction from the gross total income which is computed after making necessary allowances / disallowances in accordance with Section 28-44BB of the Act including Explanation to Section 37(1). Thus, Section 37(1) and Section 80G of the Act are independent and the principles governing what is not allowable u/s. 37(1) have been provided in the section itself. Even in section 80G also, what is not allowable has also been provided under the Act. For instance, Section 80G specifically mentions two clauses, viz., section 800(2)(a)(iihk) and (iiihl), i.e., contributions towards 'Swacha BharatKosh' 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-a-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 ofSOG (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."
12. Tins clarification being issued by the Ministry of Corporate Affairs, Government of India clarifies that donation covered under CSR Expenses which not are eligible for the deduction under section 80G of the Income-tax Act, 1961, but are allowed under different sections. Ergo, there is nothing that if any expenditure is disallowable u/s 37 the same cannot be allowed under other provisions of Act, if the conditions of allowability are satisfied. Titus, allowing the claim of deduction u/s. 80G by the Id. 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."
Axis Securities Limited 18. In view of the above, it is respectfully prayed that the impugned order dated 20th March 2025 passed by the Ld. Principal Commissioner of Income-tax -4, Mumbai under Section 263 of the Act be quashed.
On the contrary, Ld. DR relied upon the orders passed by Ld. PCIT.
We have heard the counsels of both the parties, perused the material placed on record, Judgements cited before us and also orders passed by Revenue Authorities. From the record, we noticed that as per the facts of the present case the assessee is a company engaged in the business of broking, distribution of financial products etc. During the year under consideration, the assessee had made donation to Axis Foundation of Rs. 1,93,66,947/- and had claimed deduction under section 80G of the Act. Although the assessee had classified the amount of donation as “Corporate Social Responsibility” (CSR) expenses under section 135 of the Companies Act, 2013 in his books of account and suo moto disallowed the same in computation of income in accordance Explanation 2 of section 37 of the Act. However, in his return of income, the assessee claimed deduction under section 80G of the Act. The said claim was duly disclosed in the computation of income and tax audit report, which was examined and allowed by the Ld. AO while passing the order of assessment under section 143(3) of the Act dated 24.9.2022.
Later on, Ld. PCIT invoked revision jurisdiction under section 263 of the Act and passed the impugned order by holding that deduction under section 80G of the Act was erroneously allowed, since donation was in nature of CSR expenditure which is not voluntary in nature and thus not eligible for deduction. It was further held that the issue of section 80G/CSR was not discussed in the assessment order and hence assessment order is erroneous in so far as it is prejudicial to the interest of the Revenue.” Now, the question for determination before us is as to whether deduction claimed under section 80G of the Act is eligible in respect of donation classified as “Corporate
First for all, we take up the first issue/question and after hearing the parties at length on this issue, we noticed that Ld. PCIT has held that since CSR expenditure is mandatory therefore the same cannot constitute a donation, which is voluntary and hence not eligible for deduction under section 80G of the Act. Whereas it is an undisputed fact that donation made by the assessee are to entities registered under section 80G and that the assessee is otherwise eligible to claim deduction under section 80G of the Act.
We noticed that though section 135 of the Companies Act, 2013 mandates the quantum of CSR expenses, it does not mandate to whom and how the amount to be spent and the Appellant at its discretion can choose the mode of spending towards CSR. The donations r made by the Appellant to Axis Foundation are made voluntarily as there is no reciprocal commitment from the donees. In any case, section 80G of the Act does not put any condition for the donation to be voluntary in nature for the purpose of claiming deduction. CBDT, vide Circular No. 1/2015 dated 21st January 2015 which contains the Explanatory Notes provisions of the Finance (No. 2) Act, 2014, has stated that expenditure incurred which is eligible for CSR and allowable under other sections, shall be allowed as a deduction while computing income. The relevant extract of CBDT Circular is reproduced as under: "13.3 The provisions of section 37(1) of the Income-tax Act provide that deduction for any expenditure, which is not mentioned specifically in section 30 to section 36 of the Income-tax Act, shall be allowed if the same is incurred wholly and exclusively for the purposes of carrying on business or profession. As the CSR expenditure (being an application of income) is not incurred for the purposes of carrying on business, such expenditures cannot be allowed under the provisions of section 37 of the Income-tax Act. Therefore, in order to provide certainty on this issue, said section 37 has been amended to clarify that for the purposes of sub-section (1) of section 37 any expenditure incurred by an assessee on the activities Axis Securities Limited 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 said section 37. However, the CSR expenditure which is of the nature described in section 30 to section 36 of the Income-tax Act shall be allowed as deduction under those sections subject to fulfillment of conditions, if any, specified therein."
The CBDT Circular clearly states that the restriction on claiming deduction of CSR expense is only with respect to Section 37(1) of the Act wherein it will not be deemed to be a business expenditure for the purpose computing income under the head 'Profits and Gains from Business or Profession'. The Circular itself clarifies that CSR expenditure will be allowable under other sections under the same head of income. In view of CBDT Circular, it is clear that there is no express bar in claiming deduction in respect of CSR expenditure, other than under Section 37(1) of the Act. The Ministry of Corporate Affairs ("MCA") has issued Frequently Asked Questions ("FAQ") through General Circular No. 01/2016 dated January 12, 2016 (FAQ No. 6) 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. What 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 find place in Schedule VII, already enjoys exemptions under different sections of the Income-tax Act, 1961."
This clarification being issued by the Ministry of Corporate Affairs, Government of India also confirms that donation covered under CSR Expenses are eligible for the deduction under section 80G of the Income-tax Act, 1961. Moreover, reliance is placed on the decision of the Coordinate Bench of the ITAT, Mumbai Bench in the case of ACIT v. Sharda Cropchem Limited (ITA No. 6163/Mum/2024) wherein it was held that donations which are classified as CSR expenditure are eligible for deduction under Section 80G of the Act. The relevant extract of the order is reproduced as under:
Axis Securities Limited "9. We have carefully perused relevant provisions of the Act and legal position emerging from the cited decision (supra).The CSR expenses which are required to be mandatorily incurred by the assessee-company as per section 135 of the Companies Act are not entitled to deduction under section 37(1) for assessment year 2015-16 by virtue of the fetter placed by Explanation 2 to section 37(1), which was inserted by the Finance (No. 2) Act, 2014. A plain reading of Explanation 2 to section 37(1) shows that any expenditure incurred towards CSR activities as referred to in section 135 of the Companies Act, 2013 shall not be allowed as ' business expenditure' and shall be deemed to have not been incurred for purpose of business. The embargo created by Explanation 2 inserted in section 37 by Finance (No. 2) Act, 2014 was to deny deduction for (3SR expenses incurred by companies, as and by way of regular business expenditure while computing 'income under the head business'. So, it can be clearly seen that this Explanation 2 to section 37(1) which denies deduction for CSR expenses by way of business expenditure is applicable only to the extent of computing 'business income' under Chapter IV-D. The said Explanation cannot be extended or imported to CSR contributions which are otherwise eligible for deduction under any other provision or Chapter, so as to say donations made by charitable trust registered under section 80G.Parliament has expressed its intention clearly by bringing in restriction in respect of expenditure classified by an assessee company while claiming deduction under section 80G i.e. CSR expenditure related to Swachh Bharat Kosh and Clean Ganga Fund. And if the Parliament desired, it could have been made such kind of restriction or any restriction like in the case of donation to Swachh Bharat Kosh& Clean Ganga Fund. So the assertion of the Assessing Officer is erroneous and therefore cannot be accepted. It can be safely inferred that when the Legislature in particular has provided for only the above referred tivo specific exceptions in section 80G, then it is the implied intent of the Legislature to permit deduction under section 80G in respect of CSR contributions made to funds/organizations referred to in all other sub-clauses of section 80G [other than (iiihk) and (iiihl)] of the Act.
9.1 It may be stated here that the co-ordinate Bench of ITAT, Mumbai in the case Alubound Dacs India Private Limited vs. Dy. CIT in IT A No. 3663/M u m/2023 ( A. Y. 2020 - 21)has duly considered similar contentious issue and decided the same in favour of the assessee. The relevant extracts are reproduced below for the sake of ready reference: ............. 9.3 Respectfully following the decisions cited above, we 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.SOG of the Act. We do not find any infirmity in the appellate order. Hence, ground no. 3 raised by the Revenue is dismissed.
Axis Securities Limited 11. Thus, after evaluating the facts of the present case and also decision of the Coordinate Bench and the settled proposition of law, we are also of the view that the assessee is entitled for deduction claimed under section 80G of the Act towards CSR expenditure incurred by it.
12. Now the question for determination before us is as to whether Ld. PCIT could have invoked section 263 of the Act for denial of deduction claimed under section 80G of the Act in respect of donation classified as CSR. In this regard reliance is being placed upon the decision of Hon'ble Mumbai Tribunal in the case of Inter Gold (India) Pvt. Ltd. v. Pr. CIT (ITA No. 4400/Mum/2023) wherein it was held that the provisions of Section 263 of the Act cannot be invoked for denial of deduction claimed under Section 80G in respect of donations classified as CSR. The relevant extract of the order is reproduced below: "11. After considering the aforesaid submissions and the reasons given by the Id. PCIT, we are unable to sustain the impugned order u/s.263 on this issue for the reason that, this issue has been duly enquired and examined by the Id. AO during the course of assessment proceedings and without finding any defect in such order or how the claim allowed by the Id. AO u/s.80G is unsustainable in law, he cannot cancel the assessment order. Assessee has also relied upon various Tribunal decisions directly on this issue which has also been incorporated in the impugned order, wherein it has been held that even if the money spent for CSR is disallowable but if the same has been paid to charitable organisation and donation is claimed u/s.80G, the same is allowable, because both operate separately. Thus, taking a contrary opinion does not mean that order of the Id. AO erroneous and prejudicial to the interest of the Revenue.
12. Claiming a deduction from computation of business income as provided from sections 28 to 44DB is different from claiming a deduction under chapter VIA of the Act which is allowed from Total Income. As per Explanation 2 to Section 37, CSR expenditure is not allowable as deduction while computing the business income under the provision of Section 28-44DB, whereas deduction u/s.SOG is allowed while computing the total income under Chapter VIA. There is no pre-condition that claim for deduction u/s.SQG 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 tlwt the assessee has filed complete details of donation and also filed the certificate u/s.80G which was enclosed before the AO. Section 80G (1) of the Act provides that in computing total income of the assessee, they shall be deducted in Axis Securities Limited 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-a- 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 ofSOG (2)(a) of the Act and as such entire donation claimed by the assessee is allowable u/s 80G. Tlie Ministry of Corporate Affairs ("MCA") has issued "FAQs" through General circular no. 01/2016 dated January 12, 2016 (FAQ No. 6) and has clarified on the issue as follows:
Question No. 6: What tax benefits can be availed under CSR? Answer: No specific tax exemptions have been extended to CSR expenditure per se. The Finance Act, 2014 also clarifies that expenditure on CSR does not form part of business expenditure. While no specific tax exemptions have been extended to expenditure incurred on CSR, spending on several activities like Prime Minister's Relief Fund, scientific research, rural development projects, skill development projects, agriculture extension projects etc, which fund place in Schedule VII, already enjoys exemptions under different sections of the Income-tax Act, 1961.
This clarification being issued by the Ministry of Corporate Affairs, Government of India clarifies that donation covered under CSR Expenses which not are eligible for the deduction under section 80G of the Income- tax Act, 1961, but are allowed under different sections. Ergo, there is nothing that if any expenditure is disallowable u/s 37 the same cannot be allowed under other provisions of Act, if the conditions of allowability are satisfied. Titus, allowing the claim of deduction u/s. 80G by the Id. 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."
Therefore after having gone through the decisions referred above and also keeping in view of the facts of the present case, we are also of the view that Ld. PCIT has wrongly invoked provisions of section 263 of the Act for denial of deduction claimed by the assessee under section 263 of the Act in respect of donation classified as CSR. Therefore we do not find Axis Securities Limited substance in the impugned order and the same is thus stands quashed and the assessment order passed by the Ld. AO is restored and accordingly appeal of the assessee is allowed.
In the result, appeal filed by the assessee is allowed.
Order pronounced in the open Court on 17/06/2025.