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Facts
The assessee company, engaged in manufacturing aluminum composite panel sheets, filed its return for AY 2020-21. The return was processed under section 143(1) with additions for ICDS adjustment and disallowance under section 36(1)(va). Subsequently, the case was selected for scrutiny, and the AO made additions including disallowance of Rs. 15 lacs under section 80G for CSR expenses.
Held
The Tribunal held that the first ground of appeal, related to the non-adjudication of additions made under section 143(1), was dismissed as the assessee had not filed an appeal against the intimation and a rectification application was pending. Regarding the second ground, concerning the disallowance of CSR expenses under section 80G, the Tribunal held that the assessee is entitled to the deduction.
Key Issues
1. Whether the CIT(A) erred in not adjudicating the addition made under section 143(1) when a specific ground was raised by the assessee. 2. Whether the disallowance of Rs. 15 lacs under section 80G for CSR expenses was justified, considering CSR expenses are statutory obligations.
Sections Cited
143(1), 143(3), 36(1)(va), 80G, 250, 154, 246A, 135, 37(1)
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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI OM PRAKASH KANT, AM & MS. KAVITHA RAJAGOPAL, JM
+IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, MUMBAI
BEFORE SHRI OM PRAKASH KANT, AM AND MS. KAVITHA RAJAGOPAL, JM
ITA No.3663/Mum/2023 (Assessment Year: 2020-21)
M/s. Alubound Dacs India Private Dy. CIT, Circle-6(1)(1) Limited Mumbai 301, T V Industrial Estate, Vs. Behind Glaxo, Ahire Road, Worli, Mumbai-400 030
PAN/GIR No. AAICA 1569 P (Assessee) : (Respondent)
Assessee by : Ms. Simoni Chouhan Respondent by : Shri Manoj Kumar Sinha
: 28.02.2024 Date of Hearing Date of Pronouncement : 27.05.2024
O R D E R Per Kavitha Rajagopal, J M:
This appeal has been filed by the assessee, challenging the order of the learned
Commissioner of Income Tax (Appeals) (‘ld.CIT(A) for short), National Faceless Appeal
Centre (‘NFAC’ for short) passed u/s.250 of the Income Tax Act, 1961 (‘the Act'),
pertaining to the Assessment Year (‘A.Y.’ for short) 2020-21.
The assessee has raised the following grounds of appeal: 1. On the facts and in the circumstances of the case and in law the learned CIT(A) erred in treating the first ground of appeal as general in nature, this ground was against the action of the Assessing Officer making addition to the income assessed u/s. 143(1) against additions to the returned income proposed in the Final Show cause notice dated 19.02.2022. 2. On the facts and in the circumstances of the case and in law the learned CIT(A) erred in upholding the action of the Assessing Officer, in denying the deduction of Rs.15,00,000/- claimed by the appellant company u/s. 80G of the Income Tax Act.
2 ITA No. 3663/Mum/2023 (A.Y. 2020-21) M/s. Alubound Dacs India Private Limited vs. Dy. CIT 3. The brief facts of the case are that the assessee company is engaged in the
manufacturing, processing, trading and supply of aluminum composite panel sheets for
interior and exterior applications and had filed its return of income dated 15.02.2021,
declaring total income at Rs.25,63,96,298/- and the same was processed u/s. 143(1)(a) of
the Act where the total income was computed at Rs.26,29,86,460/- after making the
following addition/disallowance :
(i) Rs.60,08,528/- on account ICDS adjustment. (ii) Rs.5,81,630/- on account of disallowance u/s. 36(1)(va). 4. The assessee then filed rectification application dated 12.04.2022 which the
assessee claims was not disposed of till date. The assessee’s case was selected for
scrutiny and notice u/s. 143(2) of the Act and 142(1) were duly issued and served upon
the assessee.
The learned Assessing Officer (ld. A.O. for short) passed the assessment order
dated 17.09.2002 u/s. 143(3) r.w.s. 144B of the Act where the ld. A.O. made an
addition/disallowance as per the variation computed u/s. 143(1) of the Act which
included disallowance of Rs.15 lacs u/s. 80G of the Act which is 50% of the total
donation paid by the assessee towards corporate social responsibility (CSR) during the
year under consideration which are tabulated herein under:
Name of the party Amount 80G claim (Rs. PAN In Lakhs) M/s. Shri Jagatbharti Education & Rs.10,00,000/- AAICA1569P Charitable Trust, Surendranagar, Gujarat 15,00,000 M/s. Bharat Education Society’s Neral Rs.10,00,000/- AAATB0196Q School Building All India Social Education Trust Rs.10,00,000/- AACTA 1516D
3 ITA No. 3663/Mum/2023 (A.Y. 2020-21) M/s. Alubound Dacs India Private Limited vs. Dy. CIT 6. In an appeal before the first appellate authority, the impugned addition was upheld
by the ld. CIT(A). The assessee has challenged the ld. CIT(A)’s order on the ground that
the ld. CIT(A) has not adjudicated the addition to the income assessed u/s. 143(1) of the
Act inspite of a specific ground raised by the assessee and has also challenged the
disallowance made u/s. 80G of the Act before us.
Ground no. 1 pertains to the disallowance u/s. 143(1) of the Act where the
assessee has raised the contention that the ld. CIT(A) has not adjudicated the said ground.
It is observed that against section 143(1) intimation the assessee has filed the rectification
application u/s.154 of the Act before the ld. A.O. which is pending for disposal. It is
evident from the record that the assessee has only challenged the assessment order passed
u/s. 143(3) of the Act and not the intimation u/s. 143(1) of the Act before the first
appellate authority. We are conscious of the fact that section 246A of the Act has
specifically provided for an appeal before the ld. CIT(A) against the intimation issued
u/s. 143(1) of the Act where the cause of action had arouse and the assessee ought to have
filed an appeal against the same. Even before us, the assessee has challenged only the
assessment order passed u/s. 143(3) of the Act and not the 143(1) intimation. We,
therefore, find no merit in the ground raised by the assessee. Hence, ground no. 1 raised
by the assessee is hereby dismissed.
Ground no. 2 pertains to the disallowance of Rs.15 lacs u/s. 80G of the Act
towards CSR expenses. The ld. A.O. has rejected the claim of the assessee for the reason
that the CSR expenses is not a voluntary donation but is merely a statutory obligation u/s.
135 of the Companies Act, 2013 read with Schedule VII of the Companies Rules, 2014.
4 ITA No. 3663/Mum/2023 (A.Y. 2020-21) M/s. Alubound Dacs India Private Limited vs. Dy. CIT The ld. A.O. has also relied on the insertion of Explanation 2 to section 37(1) of the Act
vide Finance (No.2) Act, 2014 where the CSR expenses incurred by the Companies Act
shall not be allowed as ‘business expenditure’ as per the said provision. The ld. A.O.
relied on the decision of the Hon'ble Apex Court in the case of Commissioner of
Expenditure – Tax vs. PVG Raju, Raja of Vizianaram [1967] SCR (1)1017C which has
held that donation has to be voluntary for it to satisfy the test of voluntariness. The ld.
CIT(A) upheld the order of the ld. A.O. holding that the reasoning given by the ld. A.O.
was justifiable.
The learned Authorised Representative (ld. AR for short) for the assessee
contended that the issue of deduction of CSR expenses u/s. 80G of the Act is squarely
covered by various decisions of the co-ordinate bench in favour of the assessee. The ld.
AR further iterated that there has been express bar in claiming the said expenses u/s.
37(1) of the Act and also on sub clause (iiihk) and (iiihl) of section 80G(2)(a) of the Act
pertaining to Swatch Bharat Kosh and Clean Ganga Fund where donation made pursuant
to CSR is not an allowable deduction. The ld. AR further contended that the test of
voluntariness is irrelevant in claiming deduction u/s. 80G of the Act where there is no
criteria specified by the Act. The ld. AR relied on a catena of decisions where the
donation towards CSR has been allowed u/s. 80G of the Act.
The learned Departmental Representative (ld. DR for short), on the other hand,
controverted the said fact and stated that donation to CSR expenses are not voluntary in
nature and is a compliance to be made by the assessee as per section 135 of the
5 ITA No. 3663/Mum/2023 (A.Y. 2020-21) M/s. Alubound Dacs India Private Limited vs. Dy. CIT Companies Act, 2013. The ld. DR reiterated that the Hon'ble Apex Court in the case of
PVR Raju (supra) has categorically held that any payment has to be voluntary inorder to
be termed as a ‘donation’. The ld. DR relied on the orders of the lower authorities.
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 u/s. 80G 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 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 u/s. 135(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 u/s. 80G of the Act. Prior to the Finance (No.2) Act, 2014, the
said expenditure was claimed as ‘business expenditure’ u/s. 37(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 u/s. 80G 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
6 ITA No. 3663/Mum/2023 (A.Y. 2020-21) M/s. Alubound Dacs India Private Limited vs. Dy. CIT 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 u/s. 80G of the Act subject to certain conditions.
This justifies the fact that the other donations specified u/s. 80G of the Act would be
entitled to deduction provided the conditions stipulated u/s. 80G 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
(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 u/s. 80G 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 u/s. 80G 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 u/s. 80G of the Act.
7 ITA No. 3663/Mum/2023 (A.Y. 2020-21) M/s. Alubound Dacs India Private Limited vs. Dy. CIT 12. On the above observation, we deem it fit to hold that the assessee is entitled to
deduction claimed u/s. 80G 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.
In the result, the appeal filed by the assessee is partly allowed.
Order pronounced in the open court on 27.05.2024
Sd/- Sd/-
(Om Prakash Kant) (Kavitha Rajagopal) Accountant Member Judicial Member Mumbai; Dated : 27.05.2024 Roshani, Sr. PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. CIT - concerned 4. DR, ITAT, Mumbai 5. Guard File BY ORDER,
(Dy./Asstt. Registrar) ITAT, Mumbai