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Facts
The Revenue appealed against the order of the CIT(A) allowing ESOP expenditure as a deductible expense under Section 37(1) of the Income Tax Act. The Revenue also raised an issue regarding the disallowance of donations claimed under Section 80G of the Act, which were paid as CSR expenses.
Held
The Tribunal held that the ESOP expenditure was allowable as per Section 37(1) of the Act, following the decision of the Delhi High Court in CIT vs. Lemon Tree Hotels Ltd. Regarding the CSR expenditure, the Tribunal held that denial of deduction under Section 80G solely because the expenditure was part of CSR obligations would lead to double disallowance and is not intended by the legislature. The Tribunal relied on various judicial precedents to allow the deduction.
Key Issues
Whether ESOP expenditure is allowable under Section 37(1) and whether CSR expenditure is eligible for deduction under Section 80G of the Income Tax Act.
Sections Cited
37(1), 80G
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH, ‘E’: NEW DELHI
Before: SHRI C.N. PRASAD & SHRI NAVEEN CHANDRA
ORDER
PER C.N. PRASAD, JM,
This appeal is filed by the Revenue and cross objection filed by the Assessee against the order of the Ld.Commissioner of Income Tax (Appeals)/NFAC, Delhi [herein after referred as “CIT(A)”] for the dated 10.06.2025 for the A.Y. 2020-21.
The revenue in its appeal raised the following grounds :-
“1.1 The Assessing Officer, National e-Assessment Centre ('AO, NeAC') and CIT(A), NFAC failed to appreciate that ESOP expenditure has been specifically regarded as 'operating cost' in terms of the Advance Pricing Agreement ("APA") entered into by the Appellant with the Central Board of Direct Taxes ("CBOT") and had a direct nexus with the revenue earned by the Appellant and accordingly, is an allowable expenditure under section 37(1) of the Act. 1.2 The AO, NeAC and CIT(A), NFAC failed to appreciate the business model of the Appellant and ignoring the fact that the Appellant has earned a mark-up on the ESOP expenditure amounting to INR 3,20,31,321/-, thereby establishing a clear nexus with revenue earned during the year.”
In so far as the ground No.2 is concerned Ld. Counsel for the assessee submitted that identical issue was heard by the Tribunal for the A.Y.2017-18 and 2018-19 and the decision taken by the Tribunal for the A.Y. 2017-18 and 2018-19 may be followed.
Heard rival submissions, we find that the Tribunal in ITA Nol.3165/Del/2025 and 3166/Del/2025 dated 22.09.2025 for the A.Y. 2017-18 and 2018-19, the Tribunal sustained the order of the Ld. CIT(A) in allowing the ESOP expenses as allowable expenditure u/s.37(1) of the Act by observing as under ;-
Since the issues are common and the appeals and cross objections are connected, hence the same are being heard together and disposed off by this common order. We take up the Revenue's appeal being for AY 2017-18 as lead case to adjudicate the issue under consideration and the Revenue has raised the following ground :- "
Whether on the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in allowing the appeal of the assessee by deleting the addition made by the AO amounting to Rs.4,89,94,158/- on account of ESOP expenditure u/s 37(1) of the Act."
3. Brief facts of the case are, assessee filed its return of income on 30.11.2017 declaring total income of Rs. 1,49,31,17,510/-. Subsequently the case was selected through CASS with the reason disclosed in the assessment order. Accordingly, notices under section 143(2) and 142(1) of the Income-tax Act, 1961 (for short 'the Act') were issued and served on the assessee through ITBA portal from time to time. During assessment proceedings, the AO observed that assessee has claimed share based compensation to employees amounting to Rs.4,89,94,158/- debited in its Profit & Loss account comprising of compensation cost for stock options, restricted stock units and compensation towards employee's share purchase plan for shares of ultimate holding company which are granted to the employees of assessee company. On enquiry, assessee has submitted as under :- "The above said expenses were incurred as part of employee's benefit expenses and were wholly and exclusively for the purposes of the business of the assessee Company and assessee had to reimburse its ultimately holding company for ESOPS, RSUs and shares under the ESPP scheme granted to the employees of the assessee involving actual cash out flow by the assessee." Further assessee submitted that the issue under consideration is covered by the decision of Hon'ble Delhi Page | 3 High Court in the case of CIT vs. Lemon Tree Hotels Ltd(ITA 107/2015 dated 18.08.2015). After considering the submissions of the assessee, the AO rejected the submissions of the assessee and observed that the Revenue has filed SLP before the Hon'ble Supreme Court and it is pending for adjudication. Based on the above observation, he disallowed the amount claimed by the assessee under ESOP.
4. Aggrieved with the above order, assessee preferred an appeal before NFAC, Delhi and filed detailed submissions relating to the claim of this expenditure and ESPP scheme which was floated by the holding company of the assessee. After considering the detailed submissions and assessment record, Id. CIT (A) discussed the scheme of ESPP and how the FNIS Inc., USA i.e. holding company of the assessee has issued invoices to the assessee for recovery of discount amount paid to the employees and subsequent settlement made by the assessee. The assessee also submitted invoices and Form 15CA evidence of the remittances made to the FNIS Inc. by the assessee under the ESPP scheme. After considering the detailed submissions of the assessee and relying on the decision of Hon'ble Delhi High Court in the case of Lemon Tree Hotels Ltd. (supra), Id. CIT (A) allowed the appeal preferred by the assessee.
5. Aggrieved with the above order, Revenue has preferred an appeal before us and assessee has filed cross objections.
6. At the time of hearing, both the parties brought to our notice the relevant facts available on record which were already discussed in the above paragraphs. After considering the submissions of both the parties and material facts on record, we noticed that the issue under consideration is covered in favour of the assessee by decision of Hon’ble Delhi High Court in the case of Lemon Tree Hotels Pvt. Ltd. (supra). Accordingly, we dismiss the appeal preferred by the Revenue.”
As we observe from the order of the Tribunal the Tribunal following the decision of the Hon’ble Jurisdictional High Court in the case of Lemon Tree Hotels Ltd. sustained the order of the Ld. CIT(A) in allowing ESOP expenditure as allowable expenditure u/s.37(1) of the Act. Thus, respectfully following the said decision we reject the ground No.2 of grounds of appeal of the revenue.
Coming to ground No.1 of grounds of appeal. The Ld. Counsel for the assessee submitted brief synopsis which is as under :-
“Re: Ground of appeal
Nos.
1. (Departmental Appeal): Whether on facts and circumstances of case and in law, the Ld. CIT(A) has erred in allowing the appeal of the Assessee by deleting the addition made by the AO amounting to INR 1,78,77,705 on account of disallowance of donation claimed u/s 80G of the Act when it was paid under CSR expense. 1.1. In this regard, it is respectfully submitted that the AO while passing the assessment order dated 13.09.2022, has duly examined the details filed in response to query issued on CSR disallowance vs 80G allowability. The details along with receipts were filed vide submissions dated 20.02.2022 A copy of the same is annexed as Annexure
1. (pages 1 to 7 of the paperbook). The same has been recorded in the assessment order at para
5. (5.1 to 5.7 at pages 5 to 9). There is no dispute on eligibility under section 80G of the Act. The AO has alleged that Assessee is not eligible for deduction under section 80G of the Act, since CSR is not voluntary exercise and made the disallowance amounting to INR 1,78,77,705 1.2. The CIT(A) vide order dated order dated 10.06.2025, deleted the addition made by the AO by recording that CSR expenditure is eligible for deduction under section 80G of the Act, especially when the donations made by the Assessee satisfies the conditions laid under section 80G of the Act. 1.3. In other words, the controversy before the Hon'ble Bench raised vide Department Appeal narrow downs to the legal issue as to "whether the Assessee can claim 80G on the eligible expenditure and disallowed solely on the basis that CSR is not voluntary expenditure". 1.4. The above controversy has been set at rest vide various judicial precedents on the issue. Reliance is placed on the following wherein it has been held that even if CSR expenditure is disallowed, Assessees are eligible for deduction under section 80G of the Act: * Power Mech Projects Ltd. vs DCIT: [2023] 156 taxmann.com 575 (Hyd. - Trib.) * Optum Global Solutions (India) (P.) Ltd. vs DCIT: [2023] 203 ITD
14. (Hyd. -Trib.) * JMS Mining (P.) Ltd. vs PCIT: [2021]
91. ITR(T)
80. (Kol. -Trib.) * FNF India (P.) Ltd. vs ACIT: [2021] 133 133 taxmann.com 251 (Bang. Trib.) Page | 5 * Allegis Services (India) Pvt. Ltd. vs ACIT:
(Bang.-Trib.) * Goldman Sachs Services Pvt. Ltd. vs JCIT: [2020] 117 Taxmann.com 535 (Bang. - Trib. *. Sling Media (P.) Ltd. Vs. DCIT IT (TP) A No.375/Bang/2015 (Bang.Trib.) * Interglobe Technology Quotient (P.) Ltd. ACIT [2024] 163 taxmann.com 542 (Delhi - Trib.) * First American (India) Pvt. Ltd. Vs ACIT:
1.5. During hearing the Bench observed that for 80G allowability the issue can be remitted back to the AO for fresh consideration to verify the donation receipts and eligibility. In this context it was argued that the same would be ineffective exercise as the AO has not disputed the same and even the Ld DR submits that eligibility is not in dispute, it is only allowability of CSR exenses vis-à-vis 80G. In view of the same, it was respectfully submitted that a remand in instant case shall not serve the purpose and CIT(A) order deserves to be upheld especially when the ITAT is the final fact-finding authority; both CIT(A) and AO has verified the facts and the Ld. DR has not disputed the same. Attention of the Hon'ble Bench is invited to the judgement of Hon'ble Delhi Bench of the Tribunal in the case of ACIT v. Anima Investment Ltd.: [2000] 73 ITD 125 (DELHI) (TM), wherein it has been held that the "remand order should be made in very rare and exceptional case, for example, if at original stage, patently grave error was committed by the original authority or that the order was made in haste owing to the limitation or that the first appellate authority had violated the rules of natural justice." It is the respectful submissions that nothing like this has happened in the present case and thus, humbly prayed that the order of the CIT(A) deserves to be upheld.”
Heard rival submissions, perused the orders of the authorities below and the case laws relied on. We find that identical issue came up for consideration before the coordinate Bench of the Delhi Tribunal in the case of Interglobe Technology Quotient Private Ltd. Vs. ACIT (2024) 163 taxmann.com 542 wherein the Tribunal considering various decisions of various Benches on identical issue held as under :-
“6. Ld. Counsel has submitted that the appellant suo- motu disallowed the expenditure incurred as part of CSR Activities in accordance with provisions of section 37(1) of the Act. However, for the purpose of claiming Page | 6 deduction under section 80G of the Act, the donations made as part of CSR expenditure were considered. It was submitted that law in this regard is now quite settled. Ld. Counsel submitted that disallowance of deduction claimed under section 80G of the Act will result in double disallowance, which is not provided for by the Legislature. He has placed reliance on Bangalore Bench of the Tribunal judgment in the case of Allegis services (India) Pvt Ltd vs ACIT Bangalore: ITA No.1693/Bang/2019. Relevant extracts of the decision, as relied by him, are reproduced hereunder: “14. In our view, expenditure incurred under section 30 to 36 are claimed while computing income under the head 'Income from Business or Profession", whereas monies spend under section 80G are claimed while computing "Total Taxable Income" in the hands of appellant. The point of claim under these provisions are different 15. Further, intention of legislature is very clear and unambiguous, since expenditure incurred under section 30 to 36 are excluded from Explanation 2 to section 37(1) of the Act, they are specifically excluded in clarification issued. There is no restriction on an expenditure being claimed under above sections to be exempt, as long as it satisfies necessary conditions under section 30 to 36 of the Act, for computing income under the head "Income from Business or Profession".
For claiming benefit under section 80G, deductions are considered at the stage of computing "Total Taxable Income". Even if any payment under section 80G forms part of CSR payment (Keeping in mind ineligible deduction expressly provided u/s 80G), the same would already stand excluded while computing, Income under the head "Income from Business or Profession", The effect of such disallowance would lead to increase in Business income. Thereafter benefit accruing to appellant under Chapter VIA for computing "Total Taxable Income" cannot be denied to appellant, subject to fulfilment of necessary conditions therein.
We therefore do not agree with the arguments advanced by Ld Sr DR.
In our view, appellant cannot be denied the benefit of claim under appellant is denied this benefit, merely because such payment forms part of CSR. would lead to double disallowance, which is not the intention of legislature. Accordingly, ground raised by appellant stands allowed. "(emphasis supplied). 6.1 Ld. Counsel has relied judgment in Goldman Sachs Services Pvt Ltd vs JCIT:
of the Bangalore Bench of the Tribunal to submit that that deduction under section 80G cannot be denied in respect of CSR expenditure incurred under section 135(5) of the Companies Act, 2013. He submitted that the Tribunal while allowing the deduction under section 80G, has also considered clauses (iiihk) & (iiihl) of section 80G(2) to hold that contribution made under section 135(5) of the Companies Act, 2013 other than to "Swachh Bharat Kosh" and "Clean Ganga Fund" shall be eligible for deduction under section 80G of the Act. The relevant extracts of the decision, as relied by him, are as under: “"16.............. We find that the CSR expenses are required to be incurred by companies as per Section 135 of the Companies Act and the deduction w/s. 37(1) of the Act, is not available from Assessment Year 2015-16 as per the Explanation 2 to Section 37(1) of the Act inserted by the Finance Act No.2. 2014. Whereas, the appellant company has made a claim for deduction of CSR expenses w/s. 80G of the Income Tax Act, 1961. But the assessing officer has rejected the assesses claim without verifying the nature of contributions and observed that it is not a donation, and was not spent voluntarily for the eligibility of claim u/s.80G of the Act but due to legal obligation prescribed w/s. 135 r.w. Schedule VII of Companies Act, 2013. We find that the A.O has allowed eduction n/s.80G of the Act in respect of contribution made to PM Relief Fund which is not disputed. We are of the opinion that the A.O. has not made his observations clear that no CSR expenses are eligible for deduction m/s. 80G of the Act. We consider it appropriate to refer to the Clauses (link) & (d) of sub section 2 of Section 80G of the Act which are read as under: "(link) the Swachh Bharat Kosh, set up by the Central Government, other than the sum spent by the appellant in pursuance of Corporate Social Responsibility under sub-section (3) of Section 135 of the Companies Act, 2013 (18 of 2013): or (iihl) the Clean Ganga Fund, set up by the Central Government. where such appellant is a resident and such sum is other than the sum spent by the appellant Page | 8 in pursuance of Corporate Social Responsibility under sub-section (5) of Section 135 of the Companies Act, 2013) (18 of 2013)" Where these two exceptions are provided in Section 80G of the Act, it can be inferred that the other contributions made us. 135(5) of the Companies Act are also eligible for deduction u/s 80G of Income Tax Act subject to appellant satisfying the requisite conditions prescribed for deduction u/s 80G of the Act. In the present case the A.O. has not dealt on these aspects, prima facie, considered the contributions as not voluntary but a legal obligation and has accepted the genuineness of the contributions. We are of the opinion that the matter has to be considered for examination and verification of facts subject to the appellant satisfying the requirements of claim u/s 80G of the Act. Accordingly, we restore the entire disputed issues to the file of A.O. for fresh examination and verification as discussed above and the appellant should be provided adequate opportunity of hearing and shall co-operate in submitting the information and we allow the ground of appeal of the appellant for statistical purposes." (emphasis supplied) 6.2 Ld. Counsel has then relied a co-ordinate Delhi bench of Tribunal decision in the case of Honda Motorcycle and Scooter India Pvt Ltd vs ACIT: vide order dated 22.08.2023, where relying on the decision of Bangalore bench of the Tribunal in the case Goldman Sachs (supra), the Co- ordinate bench has held that there is no restriction in the Act that expenditure when disallowed for CSR cannot be considered under section 80G of the Act. The said donation also formed part of CSR expenditure of the assessee, though the assessee disallowed the said expenditure under section 37(1) of the Act. The Tribunal. however, remitted the issue to the file of the assessing officer with the directions to allow deduction under section 80G of the Act subject to verification that the payments qualified as donation under that section. The relevant extracts of the decision, as relied by him, are as under;
18. We have heard both the parties and perused the records. We find that ITAT, Bangalore Bench in the case of Goldman Sachs Services (P.) Lad. (supra) has held that the other contributions made under section 135 (5) of the Companies Act are also eligible for deduction's 80G of the Act ITA No. 1523/Del./2022 subject to Page | 9 satisfying the requisite conditions prescribed for deduction w/s 80G of the Act. For this purpose, the issue is remanded to the file of AO to examine the same whether the payments satisfy the claim of donation's 80G of the Act. We find that the case law is fully applicable to the facts of the case. There is no restriction in the Act that expenditure when disallowed for CSR cannot be considered w/s 80G of the Act, Hence, we remit the issue to the file of AO to verify whether these payments were qualified as donations u/s 80G of the Act or not, if they qualify as donation u/s 80G of the Act then the requisite amount deserves to be allowed" (emphasis supplied) 6.3 Ld. Counsel also relied judgment in case of Teradata India Pvt Ltd vs. DCIT : ITA 1248/Del/2022, the co-ordinate Delhi Bench of the Tribunal, wherein the bench allowed the deduction claimed under section80G of the Act in respect of donations made to eligible institutions as part of CSR Expenditure, holding as under : “16. It is not in dispute donations made to eligible institutions as part of CSR Expenditure, holding as under; "16. It is not in dispute that contributions made by the assessee are made to eligible institutions which are enjoying exemption u/s 80G of the Act. The fact that those contributions were made only to eligible institutions are not in dispute before us. We find that all the institutions listed in the tabulation are enjoying exemption u/s 80G of the Act and accordingly, assessee would be entitled for deduction w/s 80G of the Act thereon, irrespective of the fact that it is made as part of CSR obligations. The assessee in the instant case had duly complied the provisions of Companies Act, 2013 read with CSR rules thereon and as per the provisions of the Income Tax Act had also voluntarily disallowed the CSR expenditure while computing the taxable income. Since, the donee institutions are eligible institutions enjoying exemption u/s 80G of the Act, the assessee has claimed deduction u/s 80G of the Act which is also provided in the statute itself to the assessee. Hence, denial of deduction w/s 80G of the Act to the assessee would result in gross injustice. We direct the ld AO to grant deduction u/s 80G of the Act to the assessee. Accordingly, the ground No. 6 to 6.6 Page | 10 raised by the assessee are allowed." (emphasis supplied) 6.4 He has also made reference to Hyderabad Bench of the Tribunal decision in the case of Optum Global Solutions (India) (P) Ltd vs DCIT: [2023] 203 ITD 14 (Hyd Trib.) that where assessee satisfied conditions of section 80G, the assessee shall be eligible to claim deduction under the said section in respect of such donations, even if the same formed part of spends towards CSR. The relevant extracts of the decision, as relied by him, are as under: "13. After computing the business income, while computing the total income of the assessee, the assessee is invoking the benefit under chapter-VIA by claiming deduction of the sums under section 80G of the Act. According to the Revenue, when once such sum went to satisfy the requirement of section 135 of the Companies Act, the benefit gets exhausted and such an amount is no more available for the purpose of claiming deduction under section 80G of the Act.
Coming to the Income-tax Act, 1961, there is no express provision to support the contention of Revenue. On the other hand, section 80G(2)(iiihk) and (iiihl) of the Act expressly provide that such sums donated for Swatch Bharath Kosh and Clean Ganga Fund shall be the amounts other than the sums spent by the assessee in pursuance of CSR, meaning thereby the donations made towards Swatch Bharath Kosh and Clean Ganga Fund spent as apart of CSR are not qualified for deduction under section 80G of the Act. Out of so many entries under section 80G(2) of the Act, only donations in respect of two entries are restricted if such payments were towards the discharge of the CSR. The Legislature could have put a similar embargo in respect of the other entries also, but such a restriction is conspicuously absent for other entries. The irresistible conclusion that would flow from it is that it is not the legislative intention to bar the payments covered by section 80G(2) of the Act which were made pursuant to the CSR, and other than covered by section 80G(2)(iiihk) and (iiihl) of the Act. As stated above, clue can be had from the restrictions by way of section 80G(2)(iiihk) and (iihl) of the Act.
This aspect has been dealt with by successive Co- ordinate Benches in the cases relied upon by the assessee. While elaborately discussing this issue in the case of JMS Mining (P.) Ltd....
We are in agreement with such observations and findings of the Co-ordinate Bench of the Tribunal and while respectfully following the same, we hold that inasmuch as the assessee satisfied the conditions of section 80G of the Act, the assessee is entitled to claim deduction under section 80G of the Act in respect of such donations which formed part of the spend towards CSR. Accordingly, we hold Ground No. 2 in favour of the assessee." (emphasis supplied) 6.5 Reliance was also placed on the decision of Mumbai Bench of the Tribunal in the case of Synergia Lifesciences Pvt Ltd vs DCIT:
(Mum Trib), which has relied on the decision of Bangalore bench of the Tribunal in the case of Allegis (supra) and held that "the claim for deduction under section 80G of the Act in respect of CSR expenses cannot be denied". The Tribunal, however, remitted the issue to the file of the assessing officer with the directions to allow deduction under section 80G of the Act is the conditions specified therein are satisfied. He also cited the following decisions for the same proposition of law. FNF India Private Limited vs ACIT: 133 taxmann.com 251 (Bang Trib.) Infinera India (P.) Ltd vs. JCIT: 194 ITD 463 ( Bang Trib.) First American (India) Private Limited:
(Bang. Trib) Sling Media (P) Ltd vs. DCIT: 194 ITD 1 (Bang Trib.) JMS Mining (P.) Ltd vs PCIT: 130 taxmann.com 118 (Kol Trib.) DCIT vs. Peerless General Finance & Investment Co Ltd: 112 taxmann.com 410 (Kol Trib.) Diamond Beverages Private Limited vs PCIT: ITA No.208/Kol/2022 (Kol Trib.)
Power Mech Projects Ltd vs DCIT:
(Hyd Trib.) Supreme Buildestates Pvt Ltd vs DCIT:
(Jpr Trib.) Naik Seafoods Pvt Ltd vs. PCIT: ITA 490/Mum/2021 (Mum Trib.) Societe Generale Securities India Pvt Ltd vs. PCIT: ITA 1921/Mum/2023 (Mum Trib.) Act.
Learned DR has failed to bring forth any decision to the contrary. Thus, we accept the plea of learned counsel on the basis of case law cited, denial of CSR expenditure u/s 37(1) of the Act is not embargo to claim deduction u/s 80G of the 7.1 Further, we like to observe that as a matter of fact as per Section 135 of the are required to spend certain percentage of profits of last three years on activities pertaining to Corporate Social Responsibility (CSR). The expenditure on CSR, could be by way of expenditure on projects directly undertaken by said companies, such as setting up and running schools, social business projects, etc. Such expenditure would include expenditure otherwise falling for consideration under section 37(1) of the Act. On the other hand, companies, instead of undertaking or participating directly in a project, may choose to give donations to institutions that are engaged in undertaking such projects, which is also a recognized way of compliance of CSR obligation. 7.2 The assessing officer and CIT(A) have relied upon General Circular 14/2021 dated 25.08.2021 issued by MCA and "Explanatory Notes to the provisions of the Finance (No.2) Act, 2014" to hold that donations made as part of CSR expenditure are not allowable as deduction. The foundation of their reasoning being that the donation is voluntary in nature, while CSR expenditures are under statutory obligations. 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 2013, shall not be deemed to be an expenditure Page | 13 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." (emphasis supplied) 7.4 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 donation. Further, section 80G(2) lists down the sums 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. 7.5 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 Page | 14 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.”
Ratio of the above decisions squarely apply to the facts of the asessee’s case and respectfully following the said decisions we sustain the order of the Ld. CIT(A) in allowing deduction u/s.80G for the expenses paid under CSR. Ground No.1 of grounds of appeal of the revenue is rejected.
9. As we have sustained the order of the Ld. CIT(A), the cross objection filed by the assessee on without prejudice ground becomes infructuous and accordingly the same is disposed of.
In the result, the appeal of the revenue as well as cross objection of the assessee are dismissed.
Order pronounced in the open court on 14.01.2026.
Sd/- Sd/- [NAVEEN CHANDRA] [C.N. PRASAD] ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 14.01.2026 NEHA , Sr.P.S.*