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Facts
The assessee's appeal is against an assessment order for AY 2020-21, which made additions based on international transactions and transfer pricing adjustments. The assessee also claimed deductions under Section 80G for CSR expenditure, which were disallowed.
Held
The Tribunal held that the addition made by the TPO concerning interest on outstanding receivables was unsustainable and set aside. Regarding the Section 80G deduction, the Tribunal found that CSR expenditure, even if mandatory under the Companies Act, does not preclude it from being eligible for deduction under Section 80G if other conditions are met. The rejection of the deduction was held to be illegal.
Key Issues
Whether transfer pricing adjustments for interest on receivables are justified and whether CSR expenditure is eligible for deduction under Section 80G.
Sections Cited
143(3), 144C(13), 144B, 92CA(1), 92CA(3), 37(1), 80G
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH “I”: NEW DELHI
Before: SHRI S RIFAUR RAHMAN & SHRI VIMAL KUMAR
PER VIMAL KUMAR, JUDICIAL MEMBER:
The assessee’s appeal is against final Assessment Order dated 19.07.2024 of Learned Assessing Officer/Assessment Unit, Delhi (hereinafter referred as “Ld. AO”) under Section 143(3) read with section 144C(13) and 144B of the Income Tax Act, 1961 (hereinafter referred as “the Act”) for assessment year 2020-21.
Brief facts of the case are that the assessee company filed its return of income declaring income of Rs.39,51,40,870/-. The case was selected for scrutiny under CASS. The detail of opportunities given is as under:
Type of Date of Date of Response Date of Respons Rema notice/co notice/ compliance of the Response if e type rks if mmunica communicati given assessee received (Full/pa any tion on received/n rt/adjou ot rnment) received Notice 29.06.2021 14.07.2021 Received 14.07.2021 Part u/s 143(2) Notice 24.11.2021 06.12.2021 Received 06.12.2021 u/s 142(1) Notice 13.10.2022 20.10.2022 Received 20.10.2022 u/s 21.10.2022 142(1) Notice 28.12.2022 04.01.2023 Received 04.01.2023 u/s 19.01.2023 142(1) Notice 30.05.2022 14.06.2023 Received 06.07.2023 Adjourn u/s ment in 19.07.2023 142(1) hearing Full 144C 29.09.2023 order DRP 20.06.2024 order
As per the CASS reasons the assessee had had undertaken large value international transactions. A reference for determination of Arm's Length Price (ALP) pertaining to International Transaction entered into by the assessee with its Associated Enterprises (AE) was sent to the TPO on 21.01.2022 through the AO- Technical Unit after getting approval of Ld. PCIT(AU) on 19.01.2022. The said reference was received by the TPΟ on 21.01.2022 from the AO-Technical Unit u/s 92CA(1) of the Act. Ld.TPO issued notice/show-cause-notice to assessee and passed order under Section 92CA(3) of the Act on 21.07.2023. On receipt of order of Ld. TPO, a show-cause-notice was issued to assessee on 18.09.2023 proposing to make addition to its total income as proposed by the Ld. TPO. The assessee filed reply on 21.09.2023. On completion of proceedings, Ld. AO vide order dated 19.07.2024 made additions of Rs.18,95,75,059/- and Rs.36,29,883/-.
Being aggrieved, the appellant/assessee preferred present appeal.
Learned Authorised Representative for the appellant/assessee regarding ground of appeal no.2, submitted that Ld. AO/TPO erred in enhancing the income of the Appellant by INR 187,980,588/- pertaining to provision of information technology enabled services ("ITeS") and INR 1,558,293/- pertaining to provision of software development services ("SDS"), to associated enterprises ("AEs") that do not satisfy the arm's length principle envisaged under the Act.
5.1. Ld. AO erred in passing the final assessment order dated July 19, 2024 with the same amount of adjustment amounting to INR 1,558,293 for SDS segment and INR 187,980,588 for ITeS segment made by the Ld. TPO in the original TP order dated July 21, 2023 without awaiting the appeal effect order dated July 29, 2024 passed by the Ld. TPO wherein the Ld. TPO has deleted the adjustment made in the SDS segment and reduced the adjustment to INR 163,170,629 in the ITeS segment. Appellant filed a rectification application dated 13.08.2024 Pages 232 to 238 of paper book Vol.1 against final assessment order requesting issuance of revised assessment order along with revised computation of income and notice of demand.
5.2 Hon’ble Bench that in the Appellant’s own case for AY 2015-16 (refer page 785 of paperbook volume 1 for the ITAT order for AY 2015-16) following the identical issue covered in AY 2010-11 to AY 2012-13 (refer pages 1079 and 1080 of paperbook volume 1 for the ITAT order for AY 2010-11 to AY 2012-13) has deleted the adjustment on account of interest on outstanding receivables.
Learned Authorised Representative for the Department of Revenue submitted that the Ld.TPO had taken into consideration documents pertaining to three years. I Services India Private Limited’s Annual General Meeting (AGM) was last held on 30 Dec 2023. and as per records from Ministry of Corporate Affairs (MCA), its balance sheet was last filed on 2023-03-31.1 SERVICES INDIA PRIVATE LIMITED'S NIC code is 7290 (which is part of its CIN). As per the NIC code, it is inolved in Other computer related activities (for example maintenance of websites of other firms/ creation of multimedia presentations for other firms. etc.).
From examination of record in light of above submissions, it is crystal clear that Ld. AO while passing final assessment order made adjustment of Rs.58,83,45,812/- prior to the appellate order of Ld. TPO dated 29.07.204. Ld. TPO had deleted the entire adjustment with respect to SDS segment and has reduced the adjustment in the ITeS segment and adjustment made pertaining to interest on outstanding receivables. Appellant filed rectification application dated 13.08.2024 at page 232 and 238 of paper books against final assessment order.
7.1 Ld. TPO took six comparables rejecting the comparables which were finally included in the final list. Ld. TPO wrongly rejected the comparables to be taken by appellant/assessed.
7.2 In assessment year 2018-19 in appellant’s case in ITANo.6727/Del/2019 for assessment year 2015-16 in order dated 16.06.2023. The Hon’ble ITAT observed as under:
“21. In ground no. 4, the assessee has challenged the adjustment of Rs.11,45,642/- proposed by the TPO on account of interest on outstanding receivables from the AEs.
We have heard the parties and perused the materials on record. In course of proceedings before him, the TPO found that the AE has not paid the invoice amount to the assessee within the credit period. Thus, he show-caused the assessee to explain, why proportionate interest should not be charged for delay in receiving the outstanding amount. Though, the assessee objected to the proposed action of the Assessing Officer, however, rejecting assessee’s submission, the TPO computed interest at the rate of 4.329% in respect of receivables, which remained outstanding beyond the period of 60 days from the date of issue of invoice. Accordingly, he proposed the adjustment of Rs.11,45,642/-. The adjustment so proposed by the TPO was also upheld by learned DRP.
Having considered rival submissions, we find, while considering identical issue in assessee’s own case in assessment years 2010-11, 2011- 12, 2012-13, the Tribunal has deleted similar adjustments made by the TPO. Identical view was expressed by the Tribunal while deciding assessee’s appeal for assessment year 2014-15 in after following the decision of the Hon’ble Jurisdictional High Court in case of Kusum Healthcare Pvt.ltd. (ITA No.6814/2014). Thus, respectfully following the decisions of the Coordinate Bench and maintaining judicial consistency, we decide the issue in favour of the assessee by deleting the addition. This ground is allowed.
Ground no. 5, being premature at this stage and ground no. 6 being consequential in nature, do not require adjudication.”
7.3 In view of above material facts and the judicial precedent in assessee’s own case, the addition made by Ld. TPO in transfer pricing pertaining to interest from outstanding receivables being unsustainable in law is set aside. Accordingly, ground of appeal no. 2 is allowed.
Learned Authorized Representative for the appellant/assessee regarding ground of appeal
no.4, qua rejecting deduction of Rs.36,29,883/- claimed under Section 80G of the Act in the return submitted that the Ld. AO erred in appreciating that Hon'ble Bench that in the Appellant's own case for AY 2018-
19. (refer to page no. 9 to 12 of Annexure 5 for the ITAT order passed in Appellant's own case for AY 2018-19).
9. Learned Authorized Representative for the Department of Revenue relied on orders of final assessment order.
10. From examination of record in light of aforesaid rival contentions, it is crystal clear that Ld. AO in final assessment order rejected documents claimed under Section 80G of the Act amounting to Rs.36,79,883/-.
10.1 The Co-ordinate Bench in titled as “Agilent Technologies (International) P. Ltd. Vs. ACIT” decided on 26.03.2025 in paras 8 to 13.
“8. As with regard to the rejecting of deduction claim under section 80G of the Act amounting to INR 55,41,779, the Ld. AR submitted that the Appellant as part of its Corporate Social Responsibility (‘CSR’) contributed INR 57,30,209 and disallowed the same in the computation of income under section 37 of the Act. Further, to arrive at the net taxable income, the Appellant claimed INR 55,41,779, pertaining to above contribution, as deduction under section 80G of the Act. The AO, upon directions of DRP, disallowed above deduction of INR 55,41,779 claimed 8 under section 80G of the Act. It was submitted that there is no requirement under section 80G of the Act for the contribution to be voluntary. Even if that condition is read into the section, the term voluntary must be seen contextually. There are no compulsions to contribute to a particular charitable institution under the Company Act. The act of contributing to a particular institution/ cause cannot be said to be mandated by law, which merely requires the company to make a payment towards any of the prescribed activities/ institutions. The Appellant is given a choice to contribute towards any of the prescribed CSR activities, and hence, it cannot be said that the Appellant is doing it out of compulsion, without its free will or is being coerced to make the said contribution to any eligible institution.
It was submitted that the provisions of section 80G of the Act do not restrict the deduction in relation to the amount contributed towards CSR except for the contributions made under sub-clauses (iiihk) (Swachh Bharat Kosh) & (iiihl) [Clean Ganga Fund] of section 80G(2)(a) of the Act. Apart from amounts covered under sub-clauses (iiihk) & (iiihl) of section 80G(2)(a) of the Act, there is no restriction under section 80G of the Act on claiming eligible amounts as deduction under the Act from the taxable income, even though such amounts end up being compliant with CSR provisions under Cos. Act. Ld. AR has placed upon the decisions of Delhi Bench of ITAT in the case of Interglobe Technology Quotient Private Limited vs. ACIT [2024] 163 taxmann.com 542 and other few other judgments.
In regard to the ground no. 3 with its sub-grounds we find that this issue has been extensively dealt by co-ordinate bench in case titled Interglobe Technology Quotient Private Limited (supra), where one of us, judicial member, was also in quorum, and relevant part is reproduced as below:
“7.1 Further, we like to observe that as a matter of fact as per Section 135 of the Companies Act, 2013 (‘CA 2013), the qualifying Companies as mentioned therein 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 8 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 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 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.”
11. Thus we are of considered view that ld. Tax authorities below have fallen in error to deny benefit of Section 80G to the assessee. The ground is sustained”.
10.2 In view of above material facts and judicial precedents in appellant’s own case, it is held that the rejection of deductions under Section 80G of the Act claimed in the return amounting to Rs.36,29,883/- is illegal and is set aside. Accordingly, ground of appeal no. 4 is allowed.
Ground of appeal no.1 is general and ground of appeal nos. 3, 5 & 6 are left open.
In the result, the appeal of the assessee is allowed. 10
Order pronounced in the open court on 17th September, 2025.