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Facts
The assessee appealed against the disallowance of a ₹52.69 crore transfer to special reserve under Section 45IC of the RBI Act, a ₹1.50 crore deduction for CSR donations under Section 80G of the Income Tax Act, and a ₹29.98 crore exclusion claimed for a special reserve under Section 36(1)(viii) for book profit calculation under Section 115JB. Additionally, a disallowance for a one-day delay in ESI contributions, caused by a public holiday, was challenged. The AO and CIT(A) had confirmed these disallowances/additions.
Held
The tribunal dismissed the appeal regarding the special reserve under RBI Act 45IC, holding it an appropriation of profit. However, it allowed the deductions for CSR donations under Section 80G, clarifying that such donations, unless specifically excluded, are eligible. It also allowed the exclusion of the special reserve under Section 36(1)(viii) from book profit calculation under Section 115JB. Furthermore, the tribunal allowed the deduction for ESI contributions, noting the delay was due to a public holiday and citing precedents.
Key Issues
1. Whether transfer to special reserve under RBI Act 45IC is an appropriation of profit. 2. Whether CSR donations are eligible for Section 80G deduction. 3. Whether special reserve under Section 36(1)(viii) is excludable from book profit under Section 115JB. 4. Whether a one-day delay in ESI contributions due to a public holiday can be condoned for deduction purposes.
Sections Cited
45IC (RBI Act), 115JB, 80G, 37(1), 36(1)(viii), 143(1), 135 (Companies Act, 2013), 10 (General Clauses Act)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “D” BENCH, KOLKATA
This is an appeal preferred by the assessee against the order of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 27.03.2025 for the AY 2018-19.
The ground No.1, is general in nature and need no specific adjudication.
The issue raised in ground number 2 & 3 is against the order of ld. CIT (A) confirming the addition as made by the ld. AO of ₹52,69,60,000/- being amount transferred to Special Reserve under section 45IC of RBI Act, 1934.
3.2. In the appellate proceedings, the ld. CIT (A) also dismissed the appeal of the assessee by holding that the issue decided against the assessee by the decision of the coordinate bench in assessee’s own case for A.Y. 2008-09 in vide order dated 12.09.2014.
3.3. After hearing the rival contentions and perusing the materials available on record, we find that the issue is squarely covered against the assessee by the decision of the coordinate bench in assessee’s own case in for A.Y. 2008-09 and also for assessment year 2011-12, wherein it has been held that transferring of amount to special reserve pursuant to provision of section 45 IC of the RBI Act 1934 is appropriation of profit and therefore, not admissible as deduction while computing the books profit as well as normal profits under the Act. Accordingly, Ground No. 2 and 3 raised by the assessee are dismissed.
The issue raised in Ground No. 4 is against the order of ld. CIT (A) upholding the order of ld. AO wherein the AO disallowed the donation 4.1. The facts in brief are that during the course of assessment proceedings, the ld. AO noted that the assessee has claimed deduction under section 80G of the Act of ₹2,02,83,000/- in respect of donation to certain funds, charitable institutions, etc. as per its return of income and accordingly, the assessee was called upon to furnish the details. Thereof. From the details furnished by the assessee, the AO noted that assessee has donated ₹3.00 crore to SREI Foundation and 50% of the same was claimed as deduction under section 80G of the Act. The assessee submitted before the AO that the assessee has donated ₹3.00 crore to the SREI institution on account of CSR (Corporate Social Responsibility initiatives).It was further submitted that the said amount was duly added back while computing income in the return of income of the assessee. Thereafter, the deduction under section 80G of the Act was claimed of Rs.1,50,00,000/- equal to 50% of the CSR expenses which are eligible u/s 80G of the Act.
4.2. According to the ld. AO, the CSR is not a voluntary but mandatory expenditure. The Learned AO noted that the Act requires companies to spend certain portion of their profits towards CSR activities as per section 135 of Companies Act, 2013 and therefore, these donations made under CSR expenses could not be allowed as deduction under section 80G of the Act and consequently, disallowed deduction claimed of ₹1,50,00,000/-.
4.3. In the appellate proceedings, the Learned CIT (A) also confirmed the order of the Learned AO on this issue.
4.5. Similarly, the case of the assessee also find support from the decision of the coordinate bench in the case of Goldman Sachs Services Pvt. Ltd. Vs. JCIT in IT(TP)A No. 2355/Bang/2019, wherein it has been held as under:-
“16. The last ground of appeal argued by the learned Authorized Representative in respect of disallowance of deduction under Section 80G of the Act. In the 5. The issue raised in Ground No. 5 is against the order of ld. CIT (A) upholding the order of ld. AO wherein the AO has not allowed the exclusion of amount transferred to income tax special reserve in computing the book profit under section 115JB of the Act of ₹29,98,69,029/-.
5.1. During the assessment proceeding, the ld. AO noted that the assessee has transferred an amount of Rs. 29,98,69,029 to income tax special reserve in accordance with provision of section 36(1)(viii) of the Act. According to the assessee, the said amount was transferred to the income tax special reserve out of statutory compulsion and, therefore, was to be excluded in computing the book profit under section 115JB of the Act. According to the assessee, the said amount is neither provisions made for meeting uncertain liabilities nor amount credited to any reserve and hence, not covered by clause (b) or clause (c) to section 1 to section 115JB(2) of the Act. Accordingly, the AO 5.2. In the appellate proceedings, the ld. CIT (A) confirmed the order of the ld. AO.
5.3. After hearing the rival contentions and perusing the materials available on record, we find that the provisions of section 36(1)(viii) of the Act provided for creation of special reserve and deduction of the same. Section 36(1)(viii) of the Act provides for taxability of the amount withdrawn from the special reserve under section 36(1)(viii) of the Act under the head, profit and gains from the business and profession. Therefore, the amount transferred to special reserve as per section 36(1)(viii) of the Act is taxable in the year in which the amount is withdrawn from such reserve. Therefore, in our opinion, the said amount transferred to reserve under section 36(1)(viii) shall not be included in the book profit under section 115JB of the Act. If we allow the grant of reserve to be added to the book profit, it will create several practical difficulties. Therefore, we are inclined to set aside the order of ld. CIT (A) and direct the AO to allow the said provisions while computing the book profit under section 36(1)(viii) of the Act.
The issue raised in Ground No. 6 is against the order of ld. CIT (A) upholding the order of ld. AO in adding back in employee’s contribution to ESI deposited within due date of filing rate of return.
Month of Amount deducted Due date of Actual date of No. of days of Deduction (₹) payment payment delay September 2017 1,17,518 15-10-2017 16.10.2017 NIL (Being Sunday/ September 2017 23,050 17.10.2017 1 Holiday) September 2017 16,941 17.10.2017 1 6.2. The assessee has made payment of the above amount on 16-10- 2017 when the due date was 15-10-2017 which happens to be a public holiday i.e. Sunday and therefore, there is a delay in depositing the ESI for the month of September 2017.The AO disallowed the same and added the income to the assessee which was confirmed by ld. CIT (A). We find that the issue is squarely covered by the decision of the Coordinated Bench in assessee’s own case in vide order dated 19.02.2024 for A.Y. 2018-19, wherein a similar issue has been decided in favour of the assessee by the co-ordinate Bench while deciding the appeal filed by the assessee against the order of ld. CIT (A) wherein the order passed u/s 143(1) of the Act was upheld which is extracted as under: -
“3. After hearing the rival contentions and perusing the material on record, we find that the addition made by the AO was in respect of disallowance of employees contribution to ESI on the ground of late payment. However we note from the records before us that the last day of depositing ESI’s contribution happened to be Sunday and therefore the payment was made immediately in the next following date i.e. Monday. The detail is extracted below:
”
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open court on 15.09.2025.