ACIT CC 4 3, MUMBAI, MUMBAI vs. MAERSK LINE INDIA PRIVATE LIMITED, MUMBAI

The Assessing Officer (“AO”), vide order dated 29.09.2023 passed under section 143(3) of the Act, from the perusal of the Tax Audit Report filed by the assessee for the assessment year 2019-20, observed that the tax auditor has mentioned “NOPAN1234A” in the column meant for mentioning PAN of the payee. Accordingly, since the PAN of the payees were not available, the AO, in light of the provision of section 206AA of the Act, held that the assessee should have deducted TDS @ 20% and the non- deduction of TDS under the prescribed rate without any valid reason, tantamount to non-compliance with the provision of TDS. Accordingly, the AO denied the claim of deduction made by the assessee of expenses of Rs.2,26,24,534/- under section 40(a)(ia) and Rs.2,81,527/- under section 40(a)(i) of the Act.

Having considered the submissions from both sides and perused the material available on record, we find that in the present case, the assessee, in the financial year 2018-19, made provision for certain expenditure amounting to Rs. 7,54,15,117/- and Rs. 2,81,527/-, in cases where the payees were not identified and hence tax was not deducted at source on such provision. As per the assessee, out of abundant caution, the assessee suo moto disallowed 30% of the provision amount, i.e., Rs. 2,26,24,534/- (30% of Rs. 7,54,15,117/-) under section 40(a)(ia) and Rs. 2,81,527/- in an entirety under section 40(a)(i) of the Act for non-deduction of tax during financial year 2018-19. As per the assessee, these provisions were made without any clarity regarding the quantum of the amount or the names of the payees. Further, such provision amount was created on a best estimate basis following the mercantile system of accounting. It is the plea of the assessee that the policy of making/creating provisions for expenses is consistently followed by the assessee on a monthly basis, and these provisions were reversed on the first day of the subsequent month. Accordingly, as per the assessee, in the financial year 2019-20, i.e., relevant to the year under consideration, it reversed the entire provision (A.Y. 2020-21) Maersk Line India Pvt. Ltd. made in the financial year 2018-19 and suo moto offered the same to tax. Insofar as the suo moto disallowance @30% under section 40(a)(ia) and @100% under section 40(a)(i) of the Act made in the financial year 2018- 19, the assessee claimed the deduction in the year under consideration on the basis that the TDS was deducted and deposited during the year under consideration. Thus, as per the assessee, since the amount claimed as deduction in the year under consideration was already suo moto disallowed by the assessee in the financial year 2018-19, any further disallowance in the year under consideration would result in double disallowance of the same amount once in the year of provision and again in the year of reversal, which would be grossly incorrect in law and on facts.

From the perusal of the record, we find that the AO denied the deduction claimed by the assessee on the basis that the TDS at the prescribed rate, i.e., at 20% under section 206AA of the Act, was not deducted by the assessee. From the plain reading of the provision of section 206AA of the Act, we find that the same is applicable only in case of payments, where tax is deductible at source, and the payee fails to furnish their Permanent Account Number to the person responsible for deducting such tax. However, we find that in the present case, the consistent plea of the assessee is that the provisions were made as the payees were not identified. Accordingly, we do not find any merit in the findings of the AO that the assessee failed to deduct TDS @20% under section 206AA of the Act.

Insofar as the submission of the assessee that the entire provision created in the financial year 2018-19 were reversed in the year under consideration and to the extent of suo moto disallowance made by the assessee in the financial year 2018-19 under section 40(a)(ia) of the Act @30% and under section 40(a)(i) of the Act @100% should be allowed in the year under consideration, we are of the considered view that such claim is only permissible in a case where tax was deducted at source by the payer under Chapter XVII-B of the Act. During the hearing, the learned Authorised Representative (“learned AR”) submitted that the tax was duly deducted at source by the assessee under Chapter XVII-B of the Act in the year under consideration, and therefore, the amount disallowed from the provision under section 40(a)(ia) and section 40(a)(i) of the Act in the financial year 2018-19 should be allowed as deduction in the year under consideration. In support of its submission, the learned AR referred to TDS certificates in respect of tax deducted at source on payments made to various parties, which form part of the paper book. We find that the details of tax deducted at source by the assessee in the year under consideration have not been examined by any of the lower authorities, which is paramount for deleting any disallowance made under section 40(a)(ia) and section 40(a)(i) of the Act. Therefore, we deem it appropriate to restore this issue to the file of jurisdictional AO for de novo adjudication after necessary verification/examination of the details regarding the deduction of tax by the assessee under Chapter XVII-B of the Act in the year under consideration, (A.Y. 2020-21) Maersk Line India Pvt. Ltd. while making payments to the parties. Since this issue is restored to the file of the AO for consideration afresh, the assessee shall be at liberty to furnish all the details in support of its claim. We order accordingly. Needless to mention, no order shall be passed without affording reasonable and adequate opportunity of hearing to the assessee. With the above observation, the impugned order on this issue is set aside, and grounds no. 1-5 raised in the Revenue’s appeal are allowed for statistical purposes.

Grounds no. 6 and 7 raised in Revenue’s appeal are general in nature and therefore need no separate adjudication.

Grounds no. 8 and 9, raised in Revenue’s appeal, pertain to the deduction claimed under section 80G of the Act on Corporate Social Responsibility (“CSR”) expenses.

We have considered the submissions of both sides and perused the material available on record. During the assessment proceeding, upon perusal of the P & L account and computation of total income of the assessee, it was observed that the assessee incurred CSR expenses amounting to Rs. 23,67,243/- during the year under consideration. However, the assessee disallowed the same suo moto under section 37 (1) of the Act while computing its income. It was further noticed that the assessee claimed an amount of Rs. 11,83,622/-, i.e., 50% of CSR expenditure, as a deduction under section 80G of the Act. Accordingly, the assessee was asked to show cause as to why the deduction under section (A.Y. 2020-21) Maersk Line India Pvt. Ltd. 80G of the Act should not be denied. In response, the assessee submitted that the CSR expenditure is not allowed in view of the explanation to section 37 and hence, the same is disallowed and added back while computing the total income. However, it was submitted that the Act nowhere states that the expenditure disallowed in terms of the Explanation to section 37 cannot be allowed by way of deduction in terms of section 80G of the Act. The AO, vide order passed under section143(3) of the Act, disagreed with the submission of the assessee and held that the provision of section 135 of the Companies Act, 2013, mandates that every company having a certain net worth/turnover/net profit must incur expenditure towards the activities relating to CSR. The AO held that the payments made by the assessee were for the purpose of CSR expenditure to meet the legal obligation as prescribed under section 135 read with Schedule VII of the Companies Act, 2013, and not in the nature of a voluntary contribution. Accordingly, the AO disallowed the deduction of Rs. 11,83,622/- claimed by the assessee under section 80G of the Act.

The learned CIT(A), vide impugned order, allowed the grounds raised by the assessee on this issue and directed the AO to delete the addition made on account of the claim under section 80G of the Act, by observing as follows: - “7.1 It is seen from the assessment order passed by the jurisdictional A.O. that the appellant fall under the requirement of provision of section 135 of the Companies Act and has spent the amount as per the said requirement. Further the Appellant itself has added back the same expenditure to the total income as per the provision of section 37(1) of the Act. Further it is noted that the appellant has claimed the said expenditure u/s 80G of the I.T. Act, 1961. The A.O. has added the same claim in the computation of (A.Y. 2020-21) Maersk Line India Pvt. Ltd. total income on the ground that only voluntary donation made qualifies for the deduction u/s 80G of the Act. On perusal of entire assessment proceeding and reply submission made before me that the appellant has relied upon the various judicial pronouncement made by different Hon’ble ITAT. The appellant is rightly added the expenditure made on account of CSR expenditure and claimed the same u/s 80G of the Act. On insertion of Explanation 2 to section 37(1) vide Finance (No.2) Act, 2014 CSR expenses were excluded from business expenditure and it specified that donations to “Swachh Bharat Kosh and Clean Ganga Fund” were not deductible under section 80G. Nonetheless, this implied that other donations under section 80G were deductible if conditions were met. Since assessee’s contributions did not fall under specified exceptions, they were entitled to section 80G deduction for their donations. Therefore the A.O. is directed to delete the addition made on account of claim made u/s 80G of the Act. Hence, this ground of appeal is Allowed.” Being aggrieved, the Revenue is in appeal before us.

Section 135 of Companies Act, 2013 requires companies with CSR obligations, with effect from 01/04/2014. Finance (No.2) Act, 2014 inserted new Explanation 2 to sub- section (1) of section 37, so as to clarify that for purposes of sub- section (1) of section (A.Y. 2020-21) Maersk Line India Pvt. Ltd. 37, any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession.

This amendment will take effect from 1/04/2015 and will, accordingly, apply to assessment year 2015-16 and subsequent years.

Thus, CSR expenditure is to be disallowed by new Explanation 2 to section 37(1), while computing Income under the Head Income form Business and Profession'. Further, clarification regarding impact of Explanation 2 to section 37(1) of the Income Tax Act in Explanatory Memorandum to The Finance (No.2) Bill, 2014 is as under: “The existing provisions of section 37(1) of the Act provide that deduction for any expenditure, which is not mentioned specifically in section 30 to section 36 of the Act, shall be allowed if the same is incurred wholly and exclusively for the purposes of carrying on business or profession. As the CSR expenditure (being an application of income) is not incurred for the purposes of carrying on business, such expenditure cannot be allowed under the existing provisions of section 37 of the Income-tax Act. Therefore, in order to provide certainty on this issue, it is proposed to clare that for the purposes of section 37(1) any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to have been incurred for the purpose of business and, hence, shall not be allowed as deduction under section 37. However, the CSR expenditure which is of the nature described in section 30 to section 36 of the Act shall be allowed deduction under those sections subject to fulfilment of conditions, if any, specified therein."

From the above it is clear that under Income tax Act, certain provisions explicitly state that deductions for expenditure would be allowed while computing income under the head, 'Income from Business and Profession" to those, who pursue corporate social responsibility projects under following sections.  Section 30 provides deduction on repairs, municipal tax andinsurance premiums.  Section 31, provides deduction on repairs and insurance ofplant, machinery and furniture.  Section 32 provides for depreciation on tangible assets like building, machinery, plant, furniture and also on intangible assets like know-how, patents, trademarks, licenses.  Section 33 allows development rebate on machinery, plantsand ships.  Section 34 statesconditions for depreciation and development rebate.

In our view, expenditure incurred under section 30 to 36 are claimed while computing income under the head, 'Income form Business and Profession", where as monies spent under section 80G are claimed while computing "Total Taxable income" in thehands of assessee. The point of claim under these provisions aredifferent.

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 and Profession".

For claiming benefit under section 80G, deductions are considered at the stage of computing "Total taxable income". Even if any payments under section 80G forms part of CSR payments( keeping in mind ineligible deduction expressly provided u/s.80G), the same would already stand excluded while computing, Income under the head, "Income form Business and Profession". The effect of such disallowance would lead to increase in Business income. Thereafter benefit accruing to assessee under Chapter (A.Y. 2020-21) Maersk Line India Pvt. Ltd. VIA for computing "Total Taxable Income" cannot be denied to assessee, subject to fulfillment of necessary conditions therein.

We therefore do not agree with arguments advanced byLd.Sr.DR.

In present facts of case, Ld. AR submitted that all paymentsforming part of CSR does not form part of profit and loss account for computing Income under the head, "Income from Business and Profession". It has been submitted that some payments forming part of CSR were claimed as deduction under section80G of the Act, for computing "Total taxable income", which has been disallowed by authorities below. In our view, assessee cannot be denied the benefit of claim under Chapter VI A, which is considered for computing Total Taxable Income". If assessee is denied this benefit, merely because such payment forms part of CSR, would lead to double disallowance, which is not the intention of Legislature.

On the basis of above discussion, in our view, authorities below have erred in denying claim of assessee under section 80G of the Act. We also note that authorities below have not verified nature of payments qualifying exemption under section 80G of the Act and quantum of eligibility as per section 80G(1) of the Act.

Under such circumstances, we are remitting the issue back to Ld.AO for verifying conditions necessary to claim deduction under section 80G of the Act. Assessee is directed to file all requisite details in order to substantiate its claim before Ld.AO. Ld.AO is then directed to grant deduction to the extent of eligibility.”

We further find that the coordinate bench of the Tribunal in Societe Generale Securities India (P.) Ltd. vs. Principal Commissioner of Income- tax, reported in [2023] 157 taxmann.com 533 (Mumbai – Trib), while affirming the claim of deduction under section 80G of the Act in respect of CSR expenditure, observed as follows: – “6. 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. 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 a part of CSR (A.Y. 2020-21) Maersk Line India Pvt. Ltd. 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 (iiihl) of the Act. Explanation 2 to section 37(1) of the Act which denies deduction for CSR expenses by way of business expenditure is applicable only to extent of computing 'business income' under Chapter IV-D of the Act and; it could not be extended or imported to CSR contributions which was otherwise eligible for deduction under Chapter VI-A of the Act.

Where the deduction under section 80G of the Act is also disallowed, since CSR qualifying donations are not 'voluntary contributions', it will be a double jeopardy in the case of assessee. Assessee cannot be denied the benefit of claim under Chapter VIA of the Act, which is considered for computing 'Total Taxable Income". If assessee is denied this benefit, merely because such payment forms part of CSR, it would lead to double disallowance, which is not the intention of Legislature at all. Legislature on this matter simply dealing with the computation of total income under chapter IVD pertaining to "Income under the head Business and Profession" and not at all dealt with the eligibility of assessee to claim deduction under section80G of the Act, falling in chapter VIA of the Act. It is further observed that genuineness of the transactions and identity of the donees are also not under challenge. All the payments were made through proper banking channel and appropriate donation receipts were also produced before the lower authorities and before us also.”

Further, the coordinate bench of the Tribunal in Alubound Dacs India (P.) Ltd. vs. Deputy Commissioner of Income-tax, reported in [2024] 163 taxmann.com 536 (Mumbai – Trib), held that the expenditure towards CSR activities is an allowable deduction under section 80G of the Act. The relevant findings of the coordinate bench, in the decision, are reproduced as follows: – “11. We have heard the rival submissions and perused the materials available on record. The only moot question to be decided here is whether the expenditure towards CSR activities are an allowable deduction under section80G 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 or (A.Y. 2020-21) Maersk Line India Pvt. Ltd. more or turnover of Rs.1000 crores or more or net profit of Rs.5 crores or more have to mandatorily comply with the CSR provisions specified under section135(1) of the Companies Act, 2013. The above mentioned companies are liable to spend atleast 2% 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 under section80G of the Act. Prior to the Finance (No.2) Act, 2014, the said expenditure was claimed as 'business expenditure' under section37(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 under section80G 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 under section80G of the Act subject to certain conditions. This justifies the fact that the other donations specified under section80G of the Act would be entitled to deduction provided the conditions stipulated under section80G 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, Raja of Vizianaram (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 under section80G 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 under section80G 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 under section80G of the Act.

On the above observation, we deem it fit to hold that the assessee is entitled to deduction claimed under section80G 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.”

Thus, respectfully following the aforementioned decisions, we are of the considered view that the claim for deduction under section 80G of the Act in respect of CSR expenses cannot be denied. In the present case, it is evident from the record that none of the authorities had verified the details submitted by the assessee in support of its claim of deduction under section 80G of the Act. Therefore, respectfully following the aforesaid decisions rendered by the coordinate benches of the Tribunal, we remit this issue to the file of the jurisdictional AO to verify the conditions necessary for claiming deduction under the provisions of section 80G of the Act. The assessee is also directed to file all the necessary details for the complete adjudication of this issue. We further direct that if the conditions as laid down in section 80G of the Act are found to be satisfied, then a deduction be granted to the assessee. With the above directions, the impugned order on this issue is set aside, and grounds no. 8 and 9 raised in the Revenue’s appeal are allowed for statistical purposes.

In the result, the appeal filed by the Revenue is allowed for statistical purposes. Order pronounced in the open Court on 05/03/2026