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Facts
The assessee debited CSR expenses and claimed deduction under Section 80G. The AO initially allowed the 80G deduction. However, the PCIT invoked Section 263, questioning the allowability of the 80G deduction considering the CSR expenses were not allowable business expenditure under Section 37(1).
Held
The Tribunal held that CSR expenses disallowed under Section 37(1) do not bar a claim for deduction under Section 80G, as they are independent provisions. The PCIT's order was considered erroneous as the AO had made proper inquiries and taken a plausible view.
Key Issues
Whether the disallowance of CSR expenses as business expenditure under Section 37(1) precludes the assessee from claiming deduction for donations made under Section 80G.
Sections Cited
263, 37(1), 80G, 147, 144B, 135, 80G(1), 28-44DB
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Income Tax Appellate Tribunal, ‘B‘ BENCH
आदेश / O R D E R PER AMIT SHUKLA (J.M): The aforesaid appeal has been filed by the assessee against order dated 12/01/2024 passed by ld. PCIT Mumbai- 1 in his revisionary jurisdiction u/s.263 for the A.Y.2017-18.
In various grounds of appeal assessee has challenged the order of the ld. PCIT u/s.263 both on jurisdictional point and also the order of the ld. AO allowing deduction u/s.80G
The brief facts are that assessee has filed its original return of income on 30/11/2017 declaring total income of Rs. 290,47,87,930/-. Later on, the return was revised declaring total income at Rs.209,47,87,930/- under the normal provisions of the Act and book profit of Rs.212,88,18,000/-. The case was selected for scrutiny under CASS and assessment was completed by NFAC u/s.143(3) vide order dated 28/12/2019 assessing the total income at Rs.213,41,84,745/- under normal provisions of the Act. Thereafter, the assessee’s case was reopened u/s.147 and assessment was completed vide order dated 29/03/2022 passed u/s.147 r.w.s. 144B assessing total income at Rs.2,13,57,77,867/-. Later on, the ld. PCIT on examination of records noted that the reason for scrutiny selection was to examine the business income of the assessee and one of the reason was CSR expenses by the assessee. The assessee has debited Rs.5,47,00,000/- towards CSR shown in other expenses in the profit and loss statement and the same was added back in the computation of income of the assessee as same was not allowable u/s.37(1). However, assessee has claimed deduction u/s.80G of a sum of Rs.1,37,85,334/- and the Faceless Assessing Officer has allowed the claim of the assessee. Accordingly, show-cause notice was issued by the ld. PCIT holding that if CSR expenses is not allowable u/s.37(1) r.w. Explanation (2), then same expenses cannot be allowed u/s.80G because what is prohibited u/s.37(1) cannot M/s. Blue Dart Express Ltd., be allowed u/s.80G. In response, assessee has filed its submissions before the ld. PCIT which has been incorporated from pages 2-6 of the impugned order. Ld. PCIT has discussed the issue of allowability of CSR expenditure and the purpose behind insertion of Explanation 2 to Section 37(1) and held that CSR expenditure cannot be claimed as tax deductible expenditure u/s.37(1). Similarly, he held that during re-assessment proceedings, ld. AO has not made any query nor made any donation u/s.80G and therefore, he set aside the matter for the limited purpose of examining the claim of 80G.
Before us, ld. Counsel submitted that the ld. AO had called for the details of claim of 80G during the course of assessment proceedings and it was duly noted by the ld. AO that assessee had never claimed CSR and the same was added back in the computation of income. The assessee has claimed deduction u/s.80G of Rs.1,37,85,334/- being 50% of the total donation of Rs.275,70,668/-. He also referred to the submissions made before the ld. AO in the course of original assessment proceedings u/s.143(3) and specifically drew our attention to the submission dated 18/11/2019 wherein assessee has also given the detailed statement of the documents alongwith copy of donation receipts. Thus, this issue was duly enquired by the ld.AO and after examining the same he has allowed claim of deduction u/s.80G. He further pointed out that again vide notice dated 01/02/2022 in the reassessment proceedings. Ld. AO in his show-cause notice “2.3 On perusal of f Profit and Loss Account, it is seen that an amount of Rs. 5,47,00,000/- was debited on account of CSR Expenses in Other Expenses head Further the aforesaid amount is added back by the assessee in its computation of income as CSR Expenses and again claimed as deduction of Rs. 1,37,85,334/-under chapter VIA as donation Assessee had made CSR (Corporate Social Responsibility) expenses and as per the amendment made vide Finance Act 2014, this would not be allowable as business expenditure Hence, the same is required to be disallowed and added to the total income of the assessee”.
In response assessee has filed reply before the ld. AO which reads as under:- III. CSR expenses of Rs. 5.47.00.000 and claim of deduction of Rs. 1.37.85.334 under Section BOG of the Act [refer Para 2.3 of Annexure to the captioned notice] 2.17. During the captioned AY, the Assessee debited Rs. 5,47,00,000 towards corporate social responsibility (CSR). Refer Note (1) under Note 32-Other Expenses in the financial statements of the captioned AY in this regard. 2.18. At Para 2.3 of the Annexure to the captioned notice, your goodself has provided that CSR expense is added back by the Assessee in the computation of Income and again claimed deduction of Rs. 1,37,85,334 under Chapter VIA as donation. In this regard, your goodself has provided that such CSR expense is not allowable as a business expenditure in light of the amendment made vide Finance Act, 2014, and accordingly, the said expense is required to be disallowed. 2.19. At the outset, it is submitted that the Assessee had furnished the following documents before your goodself during the course of assessment proceedings:
M/s. Blue Dart Express Ltd., a. Financial statements for the year ended March 31, 2017 (refer Annexure A to assessment submission dated April 15, 2019). b. Tax audit report in Form 3CA-3CD for the captioned AY (refer Annexure A to assessment submission dated April 15, 2019) c. Revised ROI for the captioned AY (refer Annexure C to assessment submission dated April 15, 2019) d. Details of deduction claimed under Chapter VIA (including donations under Section 80G) of the Act along with copy of donation receipts (refer Point no. 10 to assessment submission dated November 18, 2019). Enclosed as Annexure B. e. Details of large deduction under Chapter VIA from total income (refer Point no. 1 to assessment submission dated December 9, 2019, wherein, the Assessee has referred details submitted vide assessment submission dated November 18, 2019). Enclosed as Annexure 9. 2.20. On perusal of the reasons stated at Para 2.18 above and on perusal of the documents listed at Pars 2.19 above, it appears that your goodself has relied on the documents/ submissions which were already furnished by the Company during the course of original assessment proceedings to conclude that the Income of the Company has escaped assessment in relation to the captioned AY. 2.21. Considering this, it appears that the reassessment proceedings have been initiated by applying second thoughts on the same material available on records with your goodself as no fresh evidence has been relied upon by your goodself in the aforesaid reasons for re-opening the assessment. Therefore, the same constitutes mere change of opinion as there has been nothing more than a fresh application of mind to the same set of facts. 2.22. Without prejudice to our above submission, the Assessee submits that in the computation of income and the ROI for the captioned AY, the Assessee has rightfully disallowed such CSR expenses in light of Explanation 2 to Section 37(1) of the Act which provides that any expenditure incurred on the activities relating to corporate social responsibility referred to in Section 135 of the Companies Act, 2013 (18 of 2013) shall not be deemed to be an M/s. Blue Dart Express Ltd., expenditure incurred for the purposes of the business or profession. 2.23. Considering that the CSR expenses are already disallowed under Section 37(1) of the Act by the Assessee, the question of disallowing the same again does not arise. 2.24. On the other hand, your goodself has also specifically provided that the Assessee has claimed deduction under Section 80G of the Act amounting to Rs. 1,37,85,334, however, the allowability of the said deduction has not been questioned in the reassessment notice. Without prejudice to this, as submitted above, the Assessee has already furnished relevant submission/documents during the course of assessment to justify such claim of deduction. 2.25. In light of the above, it appears that your goodself is uncertain on the reason for concluding that theAssessee's income has escaped assessment, and hence, has therefore, contended to disallow CSR expenses which are already disallowed by the Assessee in its ROI. In light of such uncertainty also, the re-opening is unwarranted and merits to be dropped.
After considering this reply, the ld. AO had accepted the assessee’s claim. He further drew our attention to the relevant observation of the ld. AO in the assessment order from pages 11-14. The ld. AO had accepted the contention of the assessee after observing as under:-
Above reply of the assessee and the documents enclosed as per annexure 9 have been gone through. From the computation of the assessee, it is seen that the assessee has disallowed CSR expenses u/s 37(i) but that does not put any bar for claiming deduction u/s 80G, unless the same is not according to provisions of this section. In this regard, since no such issue of mutual exclusiveness of the claim is found in this regard.
Thus, the ld. PCIT now again is trying to re-visit this issue which has been categorically examined by the ld. AO, both in
On the other hand, ld. DR relied upon the order of the ld. CIT and submitted that once an expenditure has been earmarked as CSR under the Companies Act which is otherwise disallowable u/s.37(1) r.w. Explanation 2 then, same cannot be allowed u/s.80G.
We have heard both the parties and also perused the relevant material referred to before us. First of all from the perusal of the re-assessment order which is the subject matter of revision u/s.263 by the ld. PCIT, we find that this was one of the ground for reopening and ld. AO has raised specific query as noted above on exactly same issue. The assessee has given its detailed reply and after examining those replies, the ld. AO has allowed the deduction u/s.80G holding that assessee has already disallowed CSR expenses u/s.37(1), and there is no bar for claiming deduction u/s.80G unless the same is not in accordance with the provision of the Section 80G and there is no issue of mutual exclusiveness of the claim found in this regard. Ld. PCIT has not brought on record any law or judicial precedence that such an observation and finding of the ld. AO is incorrect in law. Once the ld. AO has taken a possible view and there is no contrary law, then to take a different view in a revisionary jurisdiction u/s.263, cannot be held that the order of the ld. AO is erroneous and prejudicial to the interest of the Revenue. There is no case of invoking Explanation 2 to Section 263 M/s. Blue Dart Express Ltd., which ld. PCIT has done, because ld. AO has made his enquiry and verification on the same issue. Ld. PCIT cannot cancel the assessment order to re-examine the same issue without finding any defect in such order that how the claim made u/s.80G is unsustainable in law.
On merits also, we find that view of ld. 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 pre-condition 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 M/s. Blue Dart Express Ltd., 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-à-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 "FAQs" through General circular no. 01/2016 dated January 12, 2016 (FAQ 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."
M/s. Blue Dart Express Ltd., 11. This clarification being issued by the Ministry of Corporate Affairs, Government of India clarifies that donation covered under CSR Expenses which not are eligible for the deduction under section 80G of the Income-tax Act, 1961, but are allowed under different sections. Ergo, there is nothing that if any expenditure is disallowable u/s 37 the same cannot be allowed under other provisions of Act, if the conditions of allowability are satisfied. Thus, allowing the claim of deduction u/s.80G by the ld. AO cannot be held to be unsustainable in law or amounts to erroneous and prejudicial to the interest of the Revenue. Thus order of the Ld. PCIT is reversed on this point.
Thus, we hold that ld. PCIT is not correct in law in cancelling the assessment order by the ld. AO on this issue. Accordingly, the order of the ld. PCIT is quashed. Consequently, the appeal of the assessee is allowed.
In the result, appeal of the assessee is allowed.
Order pronounced on 3rd September, 2024.