VIMAL COAL PVT.LTD.,AHMEDABAD vs. THE DY.CIT., CIRCLE-4(1)(1), AHMEDABAD

ORDER \nPER MAKARAND V. MAHADEOKAR, AM:\nThis appeal by the assessee is directed against the order passed by the\nCommissioner of Income-tax (Appeals), National Faceless Appeal Centre\n(NFAC), Delhi [hereinafter referred to as “CIT(A)"] dated 10.06.2024 for the\n Assessment Year (AY) 2020-21, confirming the disallowance of\nRs.11,02,500/- made by the Assessing Officer [hereinafter referred to as\n“AO\"] under section 80G of the Income-tax Act, 1961 [hereinafter referred to\nas \"the Act\"].\nFacts of the Case:\n2. The assessee is engaged in the business of trading in coal. For A.Y.\n2020-21, it filed its return of income on 31.12.2020 declaring a total income of\nRs.27,60,08,710/-. The return was selected for complete scrutiny under CASS\nfor verification of large deduction claimed under section 80G where the\ndonee's approval status was in question. During the assessment proceedings,\nthe Assessing Officer observed that the assessee had made a donation of\nRs.22,05,000/- as part of its statutory Corporate Social Responsibility (CSR)\nobligation under section 135 of the Companies Act, 2013. Out of this, the\nassessee claimed Rs.11,02,500/- (i.e., 50%) as deduction under section 80G of\nthe Act. The AO disallowed the claim stating that since CSR expenditure is\nmandatory and not voluntary, it is not eligible for deduction under section\n80G. Reliance was placed on Explanation 2 to section 37(1), and the total\nincome was assessed at Rs.35,65,88,180/- after making the said disallowance.\n3. The assessee preferred an appeal before CIT(A). In the appellate\nproceedings before the CIT(A), the assessee submitted that -\nDonations were made to All India Social Education Charitable Trust\nand Dahiben Patel Charitable Trust, both of which are registered under\nsection 80G(5) of the Act.\nThese trusts are engaged in education, which is a valid CSR activity\nunder Schedule VII of the Companies Act.\nThe entire CSR expenditure was suo motu disallowed under section\n37(1) of the Act while computing business income.\nDeduction was claimed under section 80G of the Act, which operates\nindependently and is not overridden by section 37(1) of the Act.\nThe donations were made via banking channels and supported by\nproper receipts and confirmations.\n3.1.1 The CIT(A), however, confirmed the disallowance. For the sake of\nclarity the operative part of the decision of CIT(A) is reproduced\nhereunder:-\n4.\n\"I have considered the facts of the case and submission filed by the appellant carefully.\nI find that the nature of donations paid by the appellant is not covered by the clause\n80G(2)(iiihk) i.e. donation paid to Swachh Bharat Kosh set up [by the] Central Govt.\nother than the sum spent by the assessee in pursuance of Corporate Social\nResponsibility. Similarly, donations paid by the appellant is also not covered by the\nclause 80G(2)(iiihl) i.e. the Clean Ganga Fund set up [by the] Central Govt. other\nthan the sum spent by the assessee in pursuance of Corporate Social Responsibility.\nThus, I find that the donations paid are of CSR nature and hence no deduction is\nadmissible against such CSR expenditure. Therefore, the addition made by the AO\nis confirmed and the ground raised

1. The CIT(A) erred in law and in facts in confirming the addition of Rs\n11,02,500/-being deduction claimed u/s 80G of the Income Tax Act for\ndonation made as part of CSR activities to All India Social Education\nCharitable Trust and Dahiben Patel Charitable Trust, both duly engaged in\neducation related activities and also not covered by Section 80G(2)(iiihk) or\n80G(2) (iiihl) of the Income Tax Act. (Tax effect for the addition of Rs\n11,02,500/- is Rs.3,74,850/-).\n2. The Appellant reserves the right to add, alter, amend, or modify any of the\ngrounds of appeal during the course of the appellate proceedings.\"\n5. During the course of hearing before us, the assessee filed detailed\nwritten submissions reiterating that the claim under section 80G is made post\ndisallowance of CSR expense under section 37(1), Section 80G of the Act is a\ndeduction from gross total income and not a business deduction, the donees\nare not covered by exclusionary clauses 80G(2)(iiihk) or (iiihl) and there is no\nexpress bar under section 80G on claiming deduction of CSR-related\ndonations, except to the two specified funds. The assessee placed reliance on\nthe following judicial precedents:\nAia Engineering Ltd. Vs. PCIT – & 310/Ahd/2024.\nPower Mech Projects Ltd. Vs. DCIT – (2023) 156 taxmann.com 575 (\nHydrabad – Trib.).\nSociete Generale Securities India (P.) Ltd. Vs. PCIT (2023) 157\ntaxmann.com 533 (Mumbai – Trib.).\n6. The Departmental Representative (DR), on the other hand, relied on\nthe orders of lower authorities and reiterated that no such deduction is\nallowed.\n7. We have carefully considered the rival submissions, the findings of the\nlower authorities, the documentary and factual matrix on record, as well as\nthe judicial precedents placed before us. The solitary issue for adjudication is\nwhether the assessee is entitled to deduction of Rs.11,02,500/- under section\n80G of the Act in respect of donations made as part of its Corporate Social\nResponsibility (CSR) obligations.\n7.

1. The donation of Rs.22,05,000/- was made by the assessee to two\ncharitable institutions namely - All India Social Education Charitable Trust\namounting to Rs.22,00,000/- and Dahiben Patel Charitable Trust amounting\nto Rs.5000/-, both registered under section 80G(5) of the Act and engaged in\neducation-related activities. The assessee disallowed the entire CSR\nexpenditure under section 37(1) in the computation of business income and\nthereafter claimed 50% deduction under section 80G of the Act. The CIT(A),\nwhile acknowledging that the donations are not covered by the exclusions in\nsection 80G(2)(iiihk) or (iiihl), nevertheless dismissed the assessee's claim.\n7.

2. The Finance (No. 2) Act, 2014 inserted Explanation 2 to section 37(1) to\nexplicitly disallow CSR expenses as a deduction under the head “profits and\ngains of business or profession”. However, there is no corresponding bar\nintroduced in Chapter VI-A, which governs deductions from gross total\nincome, including under section 80G. The Explanatory Memorandum to the\nFinance Bill, 2014, clarifies that the objective was to prevent companies from\nreducing taxable business profits by treating CSR as business expenditure,\nsince such spending constitutes an application of income. Notably, the\nmemorandum does not propose any bar on deduction under section 80G, nor\ndoes the Finance Act insert such a restriction despite having amended section\n80G to insert specific exclusions for donations to Swachh Bharat Kosh [clause\n(iiihk)] and Clean Ganga Fund [clause (iiihl)]. This drafting choice reflects the\nprinciple of expressio unius est exclusio alterius the express exclusion of\ncertain CSR donations in clauses (iiihk) and (iiihl) implies that other CSR\ndonations, if otherwise qualifying under section 80G, remain allowable. If\nParliament had intended to prohibit all CSR-related donations from\ndeduction under section 80G, it could have explicitly done so, just as it did\nfor those two specific funds. The absence of such a general prohibition must\nbe presumed to be deliberate. Therefore, any administrative or interpretive\nextension of Explanation 2 to section 37(1) into the domain of section 80G\nwould amount to judicial legislation, contrary to settled canons of\nconstruction.\n7.