AXIS FINANCE LIMITED ,MUMBAI vs. DCIT 6(1)2, MUMBAI

1 During the course of assessment proceeding the assessee was asked to provide details of CSR expenses and details of deduction claimed u/s 80G of the Act out of CSR activity. In response, it provided appropriate response along with receipt of donation made to Axis Bank Foundation and relevant extract of bank statement Subsequently, the assessee was issued show cause notice proposing to disallow deduction claimed under section 80G of the Act, against which detailed response was made. However, its claim was not allowed deduction u/s 80G of the Act of Rs. 29,974,374-.The disallowance was also upheld by the ld.CIT(A) in view of the provisions of Explanation 2 to section 37 of the Act as also in the light of the provisions of section 135 of the Companies Act which mandates certain corporates to spend certain part of their income on CSR activities which is mandatory in nature. On the other

Before us, the ld.CIT(DR) has submitted that the authorities below were fully justified in disallowing the CSR expenses claimed deductible u/s 80G of the Act stating that such deduction would negate the very purpose of making CSR expenses mandatory which could not be allowed as deduction in view of specific provisions of Explanation 2 to section 37 of the Act.

Per contra, the ld.AR has made oral and written submissions in this regard. It is argued that CSR expenditure is not deemed to be an expenditure incurred for the purpose of business and thereby not deductible under section 37 of the Act. However, if it is in the nature of expenditure referred to in section 30 to 36 of the Act, then the assessee is eligible to claim the same. Applying the same principle, if the contribution is entitled to deduction under section 80G, then same is permissible deduction. It is submitted that it is pertinent to refer to the Circular No. 1/2015 dated 21 January 2015, wherein aforesaid Explanation 2 to section 37(1) of the Act has been introduced vide Finance Act, 2014. The explanatory notes to the provisions of the P a g e | 5 A.Y. 2020-21 Axis Finance Limited, Mumbai Finance (No. 2) Act, 2014, clarified that CSR expenditure which is of the nature described in section 30 to section 36 of the Act is deductible if condition laid down in those section is satisfied. Further, provisions of section 80G of the Act provide for deduction for contribution made to specified funds which is other than CSR under section 135(5) of the Companies Act, 2013. The extract of those two exceptions is reproduced below:

1 It is further submitted that as part of social responsibility cast upon the profit making entities by legislature mandatorily under the corporate law has been duly complied by the assessee. This obligation is fulfilled by contributing to charitable institutions/ trust registered as 80G entities. As Axis Bank Foundation does not fall in any of the exception of section 80G of the Act, its contribution is eligible for P a g e | 6 A.Y. 2020-21 Axis Finance Limited, Mumbai deduction under section 80G of the Act which is dealt with under Chapter-VIA of the Act.

2 It is pleaded that documentary evidences with respect to the donation given i.e. the extract of bank statement and the copy of donation receipt clearly stating that such donation was eligible for deduction under section 80G were provided to the AO at the time of assessment proceedings. It is contented that the aforesaid issue of donation being voluntary and the allowability of deduction under section 80G as well as legislative intent has been examined judicially in various cases and the deduction has been allowed to the taxpayer. Reliance has been placed on a few rulings of the Mumbai Tribunal i.e ACIT v. Sharda Cropchem Limited [ITA No. 6163/MUM/2024 (A.Y. 2018) ITA No. 6164/MUM/2024 (Α.Υ. 2016),ACIT v. Sikka Ports and Terminals Ltd. [2025] (173 taxmann.com 366) and M/s. Alubound Dacs India Private Limited v. DCIT [ITA No. 3663/Mum/2023 (AY: 2020- 21)].

3 Attention has also been invited to re-assessment proceeding u/s 148 of the Act in case of the assessee for AY 2016-17. It is submitted that re-assessment proceeding were proposed to be initiated on similar facts i.e, on account of donation made to Axis Bank Foundation for P a g e | 7 A.Y. 2020-21 Axis Finance Limited, Mumbai which deduction was claimed u/s 80G of the Act and the same were also forming part of CSR expenditure. However, the ld. AO considering the assessee's submission dropped the re-assessment proceeding stating as under:

1 The submissions filed by the assessee is duly considered. It is seen from the computation of business income (Schedule OI) of the ITR for the year under consideration that the assessee has added back the entire amount of donation in the form of CSR expenses to the tune of Rs. 1,22,24,577/-, The assessee has claimed deduction u/s 80G of the Act of Rs. 61,12,288/-, being 50% of the eligible donation paid to M/s Axis Bank Foundation to the tune of Rs. 1,22,24,577/-. The assessee has also furnished the donation receipt dated 23.03.2016 of Rs. 1,22,24,577/- issued by M/s Axis Bank Foundation to establish the genuineness of its claim. If the assessee is denied this benefit, merely because such payment forms part of CSR, it would lead to double disallowance.

2 In view of the above facts, the reply of the assessee is found to be acceptable and it is, therefore, construed that no income has escaped assessment for the AY 2016-17. 6. We have carefully considered all relevant facts of the case and rival submissions. We find that the issue of deduction of CSR expenses claimed u/s 80G is being consistently held in favour of the assessee in a plethora of orders by the coordinate benches of ITAT, Mumbai some of which are relied upon by the assessee in the preceding para. Therefore,whether the CSR expenditure is allowable u/s. 80G of the Act is no more res integra by a catena of decisions.We refer to one of such decisions of the Mumbai Bench of the Tribunal in the case of Alubond Dacs India (P.) Ltd. in (2024) 163 taxmann. com 536 (Mum)

We have heard the rival submissions and perused the materials available on record. The only morn question to be decided here is whether the expenditure towards CSR activities are an allowable deduction us 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 of more or turnover of Rs. 1000 crores or more or net profit of Rs 5 crores of more have to mandatorily comply with the CSR provisions specified us. 135(1) of the Companies Act, 2011. The above mentioned companies are liable to spend atleast 25% 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. 800 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 conditions. This justifies the fact that the other donations specified us 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 ld. A.O in the case of PVG Raju (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 us. 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.

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 ld. 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." 6.1 Further, coordinate bench of Delhi Tribunal in the case of Interglobe Technology Quotient (P.) Ltd. (2024) 163 Taxmann. com 542 (Del)held that mandatory nature of CSR expenditure does not justify disallowance of same u/s. 80G, if other conditions relating to the section are satisfied, by observing as under: "7.3 As we take notice of the fact that Parliament legislated that CSR expenses would not be eligible for deduction as business expenditure under section 37 of the Act by inserting Explanation 2 to section 37(1) vide the Finance (No.2) Act, 2014 (applicable from the assessment year 2015-16), which provided that any expenditure incurred by an assessee on the activities relating to CSR referred to in section 135 of the CA 2011, shall not be deemed to be an expenditure incurred by an assessee for the purpose of business or profession and shall not be allowed as deduction under section 37(1) of the IT Act. The intent of Parliament in bringing the aforesaid provision is given in the Explanatory Memorandum to the Finance (No.2) Bill, 2014 and is reproduced as under; "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 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."

4 The aforesaid explanatory memorandum categorically expresses the legislative intent and the rationale of disallowance of CSR expenditure referred to in section 135 of the Companies Act, that such expenditure is application of income and not incurred for the purposes of business. We are of considered view that this in itself justifies the grant of deduction u/s 80G. As CSR expenditure is application of income of the assessee under the Income Tax Act, that means it continues to form part of the Total income of the assessee. Section 80G(1) of the Act provides that in computing the total income of an assessee, there shall be deducted, in accordance with the provisions of this section, such sum paid by the assessee in the previous year as a P a g e | 10 A.Y. 2020-21 Axis Finance Limited, Mumbai donation. Further, section 80G(2) lists down the suns on which deduction shall be allowed to the assessee. Section 80G falls in Chapter VIA, which comes into play only after the gross total income has been computed by applying the computation provisions under various heads of income, including the Explanation 2 to section 37(1) of the Act. Thus, there is no correlation between suo- moto disallowance in section 37(1) and claim of deduction under section 80G of the Act.

5 As with regard to the reasoning that CSR expenditure are not voluntary but mandatory in nature due to penal consequences, we are of considered view that voluntary nature of donation is by nature of fact that it is not on the basis of any reciprocal promise of donee. The CSR expenditures are also without any reciprocal commitment from beneficiary being philanthropic in nature. The Act permits deduction of donations as per Section 80G of the Act, even though, assessee is not gaining any benefit out of any reciprocity from donee. Similar is the case of CSR expenditure. Thus the reasoning of learned Tax Authority, the CSR expenditure is mandatory, does not justify disallowance of these expenditures u/s 80G, if other conditions of section 80G are fulfilled. There is no allegation of Revenue that other conditions of Section 80G are not fulfilled. We, thus sustain the ground."

Therefore, as discussed in the preceding paras, we are of the considered view that deduction of CSR expenses under section 80G of the Act is allowable as consistently held by the courts. Besides, as pointed out by the ld.AR in para 5.3 above, that in AY 2016-17, the Revenue itself has considered similar claim allowable as deduction u/s 80G in as much proceedings initiated u/s 148 of the Act have been subsequently dropped. The ld.DR has not controverted such a factual. Therefore, respectfully following the above judicial precedents and also the rules of consistency, we hereby set aside the order of the ld.CIT(A) as unsustainable, allowing the grounds of appeal raised by the assessee. The AO is directed to delete the disallowance and allow the claim of the assessee.

In the result, the appeal filed by the assessee is hereby allowed. Order pronounced in the open court on 16.06.2025. SANDEEP GOSAIN PRABHASH SHANKAR (न्याययक सदस्य /JUDICIAL MEMBER) (लेखाकारसदस्य/ACCOUNTANT MEMBER)