MAHANSARIA ENTERPRISES PVT LTD,MUMBAI vs. PR. CIT, MUMBAI-5, MUMBAI

“5. I have perused the facts of the case and submissions made by the assessee. The contention of the assessee that the expenditure on Corporate Social Responsibility (CSR) can be claimed as deduction under section 80Gof the Act for any donation made cannot be accepted for the following reasons: 5.1. Section 37(1) of the Act allows for deduction of business expenses provided they are incurred "wholly and exclusively" for the purposes of business. Explanation to Section 37(1), introduced through the Finance (No.2) Act, 2014, specifically disallows CSR expenses, noting that these expenses are not considered business-related and thus cannot be deducted. This provision underscores the legislative intent to impose CSR obligations without tax relief. CSR expenditures were never intended to provide fiscal advantages to companies but to ensure they fulfill their statutory obligations under Section 135 of the Companies Act, 2013. The legislative intent of introduction of Explanation 2 to Section 37(1) of the Act, introduced through the Finance (No. 2) Act, 2014, is elaborated in the Explanatory Notes to the Finance Bill 2014 (CBDT Circular No.1/2015 dated 21.01.2015) which is reproduced below:- "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/tumover/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." From the above, it is clear that the CSR expenditure is not to be allowed as deduction in any form to avoid subsidizing of CSR expenditure by government and therefore claim of the assessee and the contention of the assessee regarding allowability of CSR expenditure under section 80G is against the basic intent of the provision. It is trite law that what cannot be allowed in view of specific provisions cannot be allowed indirectly unless specifically provided in the Act. 5.2. Section 80G of the Act provides tax deductions for voluntary donations made to specified charitable institutions or funds. The core purpose of this section is to encourage philanthropy and voluntary social contributions. The issue at hand is whether mandatory CSR contributions can be reclassified as donations under this section. It is imperative to note that Section 80G was designed to incentivize purely voluntary donations, not statutorily mandated CSR obligations. Allowing CSR expenditures to qualify under Section 80G would undermine the legislative intent behind the disallowance introduced in Section 37(1). CSR expenses are mandated by law, and as such, they lack the essential characteristic of voluntariness, which is a core requirement for claiming deductions under Section 80G. The essence of a donation, as confirmed by several judicial precedents, is its voluntary nature, which is absent in the case of CSR expenditures. The Hon'ble Supreme Court in the case of PVG Raju, Raja of Vizianagaram [1976 SCR (1) 1017] has specifically held that donations refer to payments made voluntarily, without coercion or legal obligation. This principle is directly applicable here since CSR payments are mandated by law. The payments made by the assessee towards CSR, therefore, cannot be construed as 80G. While contributions to the Swachh Bharat Kosh and Clean Ganga Fund are recognized as eligible for deductions under Section 80G, this eligibility is confined to voluntary contributions. However, when these contributions are made as part of the statutory CSR obligations under Section 135 r.w. Schedule VII of the Companies Act, 2013, they cease to qualify as voluntary donations. The exclusion for deduction u/s 80G of the Act for Prime Minister's National Relief Fund, Swachh Bharat Kosh, Clean Ganga Fund or other specified funds does not necessarily mean that all other donations made out of CSR expenditures are entitled for claim u/s. 80G of the Act. These exceptions are provided for claiming deduction under Section 80G of the Act, hence it cannot be inferred that the amount spent under section 135(5) of the Companies Act, 2013, the assessee is also eligible for deduction u/s. 80G of the Act even though the assessee may be satisfying the requisite conditions prescribed for deduction u/s 80G of the Act. 5.3. The provisions of Sections 37(1) (including Explanation 2) and Section 80G of the Act must be read harmoniously. Allowing CSR expenditures to be deductible under Section 80G of the Act would render Explanation 2 to Section 37(1) of the Act nugatory and would effectively nullify the specific disallowance legislated by the Parliament. The principle of harmonious construction requires that statutes be interpreted in a manner that gives effect to all provisions without rendering any part redundant. The Hon'ble Supreme Court in the case of South India Corporation (Pvt.) Ltd. V/s. Secretary, Board of Revenue, Trivandrum & Anr. [AIR 1964 SC 207] has laid down the principle that statutes must be read as a whole and construction must be adopted that gives effect to all parts of the statute. The principle of harmonious construction mandates that provisions must be interpreted to avoid conflicts and each part of the statute should be given meaningful effect. Accordingly, allowing CSR expenditures to be claimed under Section 80G of the Act would negate the specific statutory disallowance under Section 37(1) of the Act and result in unintended tax benefits which would be inconsistent with the legislative framework governing CSR and tax deductions. The intention of the legislature was never to allow deduction u/s 80G of the Act for CSR expenditure carried out, else it would result in subsidizing the CSR expenditure. 5.4. CSR expenditure has to be mandatorily incurred by certain specified companies as per provisions of Section 135 of the Companies Act. Accordingly, it is a statutory obligation cast upon certain companies to share certain portion of profits to the activities towards social responsibilities. It is for this reason that this expenditure was clarified to be an expenditure not incurred fully and wholly for the purpose of business through Explanation 2 to the section 37(1) of the Act. Further, Ministry of Corporate Affairs Circular No. 01/2016 dated 12.01.2016 clarifies that no specific tax exemptions have been extended to CSR expenditures. The Circular explicitly reinforces that CSR expenditures are not eligible for tax deductions as business expenditures under Section 37(1) of the Act and by extension should not qualify as voluntary donations under Section 80G of the Act. The expression "shall ensure" used in Section 135(5) of the Companies Act, 2013 clearly implies that there is a mandate to spend 2% of average net profits of the preceding three years on CSR activity. 5.5. As regards the judicial pronouncements cited by the assessee, it is stated that appeals filed by the Department before the Hon'ble Bombay High Court on this issue are pending for adjudication in the following cases:- S Name of the PAN ITAT Order No. High Court r Assessee Lodging No. 1 Blue Cross AAACB1549G 1806/Mum/202 ITXAL/30782/20 Laboratories 3 24 Pvt. Ltd. 2 Worley AAACH0456J 554/Mum/2024 ITXAL/4392/202 Services 5 Industries Pvt. Ltd. Since the issue is sub-judice before the jurisdictional Bombay High Court, the contention of the assessee cannot be accepted.

6. The submissions of the assessee that the issue of allowability of deduction u/s. 80G of the Act for CSR payments had been examined by the AO during the course of assessment proceedings and that any change in that view during the proceedings u/s 263 of the Act would amount to 'change of opinion', have been considered carefully but are not found to be acceptable for the following reasons: …..….. ……….. 6.1.4. In view of the above, it is clear that the decision of the AO in the present case is erroneous on merits and that he has accepted the submissions made by the assessee without a demur. Hence action uls 263 of the Act is warranted in this case.

7. From the above, it is clear that the assessee has made CSR expenses amounting to Rs.3,52,06,000/- and disallowed the same in the computation of income u/s 37(1) of the Act. Further the assessee has claimed the said expenditure in the guise of donation and claimed deduction on it. Though it is a disallowable expenditure, the assessee company claimed the same as a deduction u/s 80G of the Act and the AO in the order dated 22.09.2022 passed under section 143(3) r.w.s. 1448 of the Act has allowed it. Therefore, the order of the AO, u/s 143(3) r.w.s.

144B of the Act dated 22.09.2022 is erroneous in so far as it is prejudicial to the interest of the revenue. ……… ……….

6. During the course of hearing, the Ld.AR submitted that the assessee company is engaged in the business of holding long term strategic stake in operating companies, investing in real estate, investing in mutual funds, bonds, investing in renewable power generation business, etc. It was submitted that as a part of its regular business activities, the assessee had given donations to various institutions amounting to Rs. 3,52,06,000/- as part of its CSR under the Companies Act, 2013. It was submitted that as the said expenditure was not allowable expenditure under the provisions of section 37(1) of the Act, the assessee-company while computing the taxable income under the provisions of the Act has added back the said amount and has not claimed any deduction while computing its income, which has been offered to tax. At the same time it was submitted that since the said donations were eligible u/s. 80G of the Act, the assessee- company has claimed an amount of Rs. 2,62,06,000/- u/s. 80G of the Act.

7. It was further submitted that the case of the assessee was selected for complete scrutiny and one of the reasons for selection of the case relates to examination of deduction from total income under Chapter-VIA of the Act and business expenses. It was submitted that during the course of assessment proceedings, the details/information/documentation were called for by the AO from time to time which includes specific queries concerning the donations made u/s. 80G of the Act as well as CSR expenses. In this regard, the assessee filed necessary submissions and duly complied all these notices issued by the AO and our reference was drawn to the letter dt. 14-07-2021, wherein the assessee has submitted the details of all donations along with supporting documents, notices u/s. 142(1) of the Act dt. 20-10-2021, wherein specific query was made by the AO on the issue of claim of deduction u/s. 80G of the Act, letter dt. 03-11- 2021 wherein the assessee submitted the requisite details, notice dt. 15- 12-2021, wherein the specific queries were raised with respect to CSR expenses of Rs. 3.52 crores, letter dt. 21-12-2021 wherein the assessee submitted the break-up of the expenses along with supporting documents and it was also brought to the notice of the AO that these expenses were added back while computing the income and deduction under Chapter-VIA of the Act has been claimed. Thereafter notice dt. 21-03-2022 wherein the AO again sought various details and letter dt. 24-03-2022, wherein the assessee submitted the requisite details. Thereafter, notice for proposed addition of Rs. 15.50 lacs u/s. 80G of the Act was issued by the AO followed by video conference on 02-09-2022, wherein the issue of deduction u/s. 80G of the Act was also discussed, letter dt. 05-09-2022, wherein the assessee filed written submissions and explanation with regard to the claim of deduction u/s. 80G of the Act. It was accordingly submitted that it was only after proper enquiry and verification, including the aspect of CSR expenses vis-à-vis the claim u/s. 80G of the Act, the AO passed the assessment order u/s. 143(3) of the Act and our reference was drawn to the assessment order, wherein the AO has discussed the matter relating to claim of deduction u/s. 80G of the Act and it was finally allowed by him.

8. It was further submitted that thereafter, a show cause u/s. 263 of the Act was issued by the Ld.PCIT, proposing to revise the assessment order. It was submitted that in the show cause notice, it can be observed that the same is cryptic and does not even whisper about any lack of enquiry/inadequate enquiry on the part of the AO and it just simply states that the CSR expenses are not allowable u/s. 37(1) of the Act, the assessment order so passed by the AO is erroneous.

9. It was submitted that the assessee filed exhaustive submissions vide its submission dt. 11-03-2025 before the Ld.PCIT in which the assessee in detail dealt with various factual and legal aspects and a summary of the submissions reads as under:

“(i) Invited attention of the PCIT towards various communication exchanged between the Appellant and the A.O. on the aspect of CSR expenses and the claim u/s 80 G of the Act, signifying the fact that the claim allowed by the A.O. after due verification. (ii) Referred six judgments on the very aspect of validity of exercise of revision power vis a vis CSR expenses. (iii) Referred various judgments on merits of the case, directly covering the case of the Appellant. (iv) Referred Circular No. 1 of 2016 issued by the Ministry of Corporate Affairs (MCA) dated 12.01.2016 to the effect that the claim of donation under Chapter VI A of the Act is not barred. (v) Analysed the legislative background behind insertion Explanation 2 to section 37 (1) of the Act, which clarified that even a claim of deduction u/s 30 to 36 is not barred. (vi) Analysed the legislative history of section 80G of the Act, which showed that whenever a claim of deduction via a vis a specific donation, which was a part of CSR obligation, was desired to be barred, such donation is specifically enumerated. (vii) Analysed the legal position on the aspect of exercise of power u/s 263 of the Act, where the A.O. has simply adopted one possible legal view after due inquiry. (viii) Drew attention, alternatively, that even otherwise, the CSR obligation for the year was only to the extent of Rs. 1.04 crores, against which the Appellant had donated Rs. 3.52 crores.”

10. It was submitted that without appreciating the submissions so filed by the assessee, the Ld.PCIT passed the impugned order and it can be observed from the said order that none of the basic facts and the legal position was denied/disputed or controverted by the Ld.PCIT. It was submitted that the preliminary jurisdictional objection as raised by the assessee that the assessment order was not erroneous in as much as the AO had applied his mind while allowing the claim by adopting one of the possible views was not even disputed/controverted by the Ld.PCIT. It was submitted that in any case as per the prevailing legal position, this was the only possible view and there was no contrary view at the relevant point of time. It was submitted that the Ld.PCIT has not denied or disputed that the AO had made adequate enquiries and the view adopted by the AO was impossible or far starched. It was further submitted that the Ld.PCIT did not deal with various factual and legal aspects, as raised by the assessee, he did not even refer to various case law cited by the assessee, much less dealing with them judicially and judiciously.

11. It was submitted that as far as the legal aspects are concerned, it is not denied/disputed that the case of the assessee is fully covered by the catena of judgments, including the judgment rendered by Mumbai Benches of the Tribunal and the only reason given by the Ld.PCIT for not following the same is that the Department has preferred appeal against such judgments before the Hon‟ble Bombay High Court. It was further submitted that the Ld. PCIT not just set aside the assessment order, but also directing the AO to initiate penalty proceedings which is beyond scope of the jurisdiction u/s. 263 of the Act.

12. Further, reference was drawn to the decision of the Co-ordinate Benches of the Tribunal in following cases:

i. Alubound Dacs India Private Limited vs. DCIT [(Ι.Τ.Α. No 3663/Mum/2023)] ii. DCIT v/s. Motilal Oswal Securities Ltd. [(Ι.Τ.Α. No 1795 & 1796 Mum/2023)] iii. Naik Seafoods Pvt Ltd. v/s. PCIT [(Ι.Τ.Α. Νο 490/Mum/2021)] iv. FDC Ltd. v/s. PCIT [(2023) 157 Taxmann.com 387 (Mum.)] v. Societe Generale Securities India (P.) Ltd. vs. PCIT [(2023) 157 taxmann.com 533 (Mum - Trib)] vi. Synergia Lifesciences Pvt. Ltd vs. DCIT [(I.T.A. No 938/Mum/2023)] vii. Sikka Ports & Terminals Limited vs. PCIT [(Ι.Τ.Α. No 1865/Mum/2024)] viii. Worley Services India Pvt Ltd. vs. PCIT [(I.T.A. No 554/Mum/2024)] ix. Sequel Logistics Private Ltd. vs. PCIT [(Ι.Τ.Α. No 1114/Ahd/2024)] x. American Express (India) P. Ltd. v. PCIT [(2024) 208 ITD 564 (Delhi - Trib.)] xi. ACIT vs. Sikka Ports and Terminals Ltd [2025] 173 taxmann.com 366 (Mumbai - Trib.)] xii. American Express (India) P. Ltd. vs. PCIT [2024] 166 taxmann.com 91 (Delhi-Trib.) xiii. Interglobe Technology Quotient (P.) Ltd. vs. ACIT [2024] 163 taxmann.com 542 (Delhi-Trib.)

“5. We heard the parties and perused the material on records. The assessee during the year disallowed a sum of Rs.33,85,00,000 under section 37 of the Act towards the CSR Spend in compliance with section 135 of the Act. Since the institutions to which the said amounts are given are registered under section 80G of the Act, the assessee claimed 50% i.e. 16,92,50,000 of the same as deduction. The argument of the revenue is that the payment are made to comply with the mandate under the Companies Act, and therefore it cannot be treated as donations which are "voluntary" payments. The further argument of the revenue is that when the statute has denied the direct claim of the CSR spend under section 37, the assessee claiming the deduction indirectly under section 80G is against the intention of the legislature and cannot be allowed. The assessee's contention is that there is no restriction under section 80G to the effect that the contribution should be voluntary and that the CSR spend is an application of income which is eligible for deduction from the gross total income of the assessee as per the provisions of section 80G.

11. The next issue is whether the impugned payments are otherwise eligible for deduction under section 80G of the Act. We have already established that the payments made by the assessee are donations and therefore if the other conditions for the deduction under section 80G is are fulfilled then there should not be any restriction for the assessee to claim the deduction. Before holding so we will address the contention of the revenue that the payments made towards CSR spend are monitored and controlled by the assessee and are not voluntary. In this regard it is relevant to note that though there is a statutory obligation of CSR expenditure under section 135 of Companies Act 2013, there are many prescribed modes and activities under Schedule VII of the Companies Act for spending the CSR expenditure, (the list is not exhaustive but inclusive). Further neither section 135 of the Companies Act nor Schedule VII to the Companies Act nor the CSR Rules, mandates donations to the institutes/funds prescribed under section 80G of the Act. Therefore, in our considered view there is merit in the submission of the ld AR that though the quantum of CSR spend is mandatory there is no mandate on how amount is to be spent or to whom the contribution is to be made. Accordingly the act of the assessee to choose to M/s.Reliance Foundation and M/s Shyam Kothari Foundation which are eligible to accept donations under section 80G of the Act is voluntary and is not mandated under section 135 of the Companies Act 2013. Further from the perusal of CSR applicable in assessee's case, we notice that the monitoring of the CSR spend is to ensure that the same is as per the CSR policy of the company and it does not provide for monitoring the utilization of the funds by the third party donees. In any case the donations made for a specific cause does not result denial of deduction which is otherwise allowable as per the provisions of section 80G of the Act. The Kolkata Bench of the Tribunal in the case of L&T Finance Ltd v. DCIT [2024] 167 taxmann.com 503 (Kolkata Trib.), has elaborately discussed the allowability of CSR spend as a deduction under section 80G of the Act and it is relevant to take note of the following observations made regarding monitoring of CSR spend by the donor i.e.assessee - 12.2. The contribution made by a company toward the discharge of it's CSR to a registered charitable institution, in our view, is akin to corpus donations. Section 11(1)(d) of the Income Tax Act speaks of the specific or corpus, donations, although it has not been defined under Income Tax Act, 1961. Corpus donations are donations wherein, the donor makes the donations to the donee for a specific purpose or object. Prior to the amendment made by amended CSR Rules of 2021, Rule 7 of the erstwhile CSR Rules permitted corpus contributions to charitable institutions as cligible CSR expenditure. Further, the Ministry of Corporate Affairs vide Circular No.21/2014 dated 18th June 2014 had also clarified that contribution to Corpus of a Trust/ society/ section 8 companies etc. will qualify as CSR expenditure, if such a donee institution or the said corpus has been created exclusively for a purpose related to the activities provided under the CSR framework. However, under the old rules, the mechanism to monitor and ensure that such donation has been actually spent on CSR activity was missing. The donor company would get absolved of its liability of CSR by just donating to the eligible trust/society/company, without ensuring that the amount has been actually spent by the donee on such specific object or purpose (CSR activity) for which it was donated. Therefore, Rule 7 of the CSR Rules, which permitted corpus contributions as eligible CSR expenditure, has been substituted and under the amended CSR Rules of 2021, corpus contributions to any entity shall not be admissible as CSR expenditure. The object and purpose of the aforesaid amendment is to ensure that the expenditure made is actually utilised towards CSR activities.

12. One more point that needs to be considered while deciding the deduction under section 80G for CSR spend is that the restriction on the allowability of the said spend as provided in Explanation 2 to section 37 is for computing the business income under the provision of Section 28-44DB whereas the deduction under section 80G is claimed under Chapter VIA ie. after computing the Gross Total Income. The provisions of section 80G does not impose any condition that the contribution should be voluntary and therefore when the CSR spend is evaluated independently under the provisions of the Act, in our considered view there is no restriction for the assessee to claim deduction under section 80G provided the CSR spend meets the conditions specified therein. In other words, the provisions of section 37 computation provision whereas section 80G is a beneficial provision which allows deduction towards payments made by the assessee for charitable purposes and therefore these two sections are independent each other. Let us assume a situation when a company which is not required to comply with the provisions of section 135 of the Companies Act 2013 makes a donation or a company makes donations in excess of 2% even then the payment may get disallowed under section 37 but in that case the revenue would not impose any restriction to evaluate the payment for claiming deduction under section 80G. If the same analogy is applied to the CSR spend in our view the assessee should be able to claim deduction under section 80G if the other conditions are fulfilled. Denying the claim for the reason that there is a specific mention under section 37 for disallowance and that the payments are made in compliance with section 135 of the Companies Act in our view is not legally tenable unless there is an explicit provision for e.g. contributions towards 'Swacha Bharat Kosh' and 'Clean Ganga Fund'. This view of ours is supported by the decision of the coordinate bench of the Tribunal in the case of Blue Dart Express Limited v. PCIT (ITA No.1101/Mum/2024 dated 03.09.2024) where in the context of revision under section 263 of the Act, the bench has considered the issue of allowing deduction under section 80G towards CSR spend and held that -

10. On merits also, we find that view of Id. AO is correct in law. Claiming a deduction from computation of business income as provided from sections 28 to 44DB is different from claiming a deduction under chapter VIA of the Act which is allowed from Total Income. As per Explanation 2 to Section 37, CSR expenditure is not allowable as deduction while computing the business income under the provision of Section 28-44DB, whereas deduction u/s.80G is allowed while computing the total income under Chapter VIA. There is no precondition that claim for deduction u/s.80G on a donation should be voluntary. It is independent of computation of business income as it is allowed from Gross Total Income. The assessee had disallowed the CSR expenses while computing business income. Further, there is no dispute that the assessee has filed complete details of donation and also filed the certificate u/s.80G which was enclosed before the AO. Section 80G (1) of the Act provides that in computing total income of the assessee, they shall be deducted in accordance with the provision of Section, such sum paid by the assessee in the previous year as a donation. Deduction under Chapter VIA provides deduction from the gross total income which is computed after making necessary allowances / disallowances in accordance with Section 28-44BB of the Act including Explanation to Section 37(1). Thus, Section 37(1) and Section 80G of the Act are independent and the principles governing what is not allowable u/s. 37(1) have been provided in the section itself. Even in section 80G also, what is not allowable has also been provided under the Act. For instance, Section 80G specifically mentions two clauses, viz., section 800(2)(a)(iihk) and (iiihl), i.e., contributions towards 'Swacha Bharat Kosh' and 'Clean Ganga Fund', where donation in the nature of CSR Expenditure is not allowable as deduction under section 80G of the Act. Therefore, the disallowances for deduction under section 80G vis-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 of 80G (2) (a) of the Act and as such entire donation claimed by the assessee is allowable u/s. 80G. The Ministry of Corporate Affairs ("MCA") has issued "FAQ through General circular no. 01/2016 dated January 12, 2016 (FAO 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."

13. In view these discussions and considering the judicial precedence in this regard, we are of the view that there is no infirmity in the order of the CIT(A) in allowing the deduction under section 80G to the assessee towards donations made to M/s. Reliance Foundation and M/s.Shyam Kothari Foundation by placing reliance on the decision of the coordinate bench in the case of M/s. Naik Seafoods Pvt Ltd v. Pr.CIT (ITA No.490/MUM/2021). Accordingly the grounds raised by the revenue are dismissed.”

In the result, the appeal of the assessee is allowed.