Bangalore ITAT: CSR Donations Eligible for Section 80G Deduction; No 14A Disallowance When No Exempt Income Earned

Schneider Electric IT Business India Private Limited Vs DCIT (ITAT Bangalore)

Bangalore ITAT: CSR Donations Eligible for Section 80G Deduction; No 14A Disallowance When No Exempt Income Earned

The Bangalore ITAT, in the case of Schneider Electric IT Business India Pvt. Ltd., held that a deduction under Section 80G cannot be denied merely because the donation formed part of the assessee’s Corporate Social Responsibility (CSR) expenditure. The Tribunal observed that while CSR expenditure is specifically disallowed as a business deduction under Section 37(1) by Explanation 2, there is no corresponding prohibition against claiming deduction under Chapter VI-A, including Section 80G, provided the conditions of that section are satisfied. The Tribunal noted that the Income-tax Act itself excludes only certain CSR-related donations, such as those made to the Swachh Bharat Kosh and Clean Ganga Fund, indicating that other eligible donations continue to qualify for deduction under Section 80G. Denial of both Section 37 and Section 80G benefits would result in an unintended double disallowance. Accordingly, the deduction of ₹3.75 crore claimed under Section 80G was allowed.

On the issue of Section 14A, the Tribunal deleted the disallowance made by the Assessing Officer since the assessee had not earned any exempt income during the year. Relying on the decisions of the Delhi High Court in Cheminvest Ltd. and the Bombay High Court in Kohinoor Project Pvt. Ltd., the Tribunal reiterated that no disallowance under Section 14A can be made where no exempt income has been earned. The Tribunal further observed that the amendment made by the Finance Act, 2022, expanding the scope of Section 14A applies prospectively from AY 2022-23 and cannot be invoked for earlier years. Consequently, the entire disallowance under Section 14A read with Rule 8D was directed to be deleted.

FULL TEXT OF THE ORDER OF ITAT BANGALORE

1. The assessee has filed the present appeal against the impugned final assessment order dated 26.07.2024, passed under section 143(3) r.w.s 144C(13) r.w.s. 144B of the Income-tax Act, 1961 (“the Act”), pursuant to the directions dated 26.06.2024 issued by the learned Dispute Resolution Panel-2, Bengaluru [“/earned DRP”], for the assessment year 2020-21.

2. The present appeal was listed for hearing before us pursuant to the common order dated 01.06.2026, passed by the Co-ordinate Bench of the Tribunal in Scheider Electric IT Business India Pvt Ltd. v/s DCIT, M.A. no.26/Bang./2026 (in ITA no.1585/Bang./2024, for the assessment year 2020-21), whereby, the earlier order dated 04.12.2025, passed under section 254(1) of the Act was recalled limited to the extent of adjudication of grounds no. 5-10, since these grounds could not be decided.

3. During the hearing, the learned Authorised Representative (“learned AR”) submitted that ground no.5 was decided vide order dated 04.12.2025 by the Co-ordinate Bench and the issue was restored to the file of TPO/AO for de novo Thus, it was submitted that only grounds no.6-10 require adjudication.

4. At the outset, the learned AR wishes not to press grounds no.6,7 and 10 raised in the assessee’s appeal. Accordingly, these grounds are dismissed as not pressed.

5. Ground no.8, raised in assessee’s appeal, pertains to the denial of deduction claimed under section 80G of the Act on Corporate Social Responsibility (“CSR”)

6. We have considered the submissions of both sides and perused the material available on record. The brief facts of the case are that during the year under consideration, the assessee incurred expenditure of Rs. 5,86,20,701 towards CSR expenses. Accordingly, the assessee suo moto disallowed the said amount under section 37 of the Act. Further, the assessee claimed a deduction of Rs. 3,75,70,351 in relation to the said expenditure under section 80G of the Act. Accordingly, the assessee was asked to provide the details of the same and explained why the said deduction under section 80G of the Act should not be disallowed. In support of its claim, the assessee made a reference to the donation receipts, which form part of the paper book on page 1983-1986. The Assessing Officer (“AO”), vide draft assessment order, disagreed with the assessee’s submissions and held that, under section 80G of the Act, the sum paid must be a donation to be eligible for deduction under the said section. It was further held that the amount paid by the assessee should be voluntary to become eligible for deduction under section 80G of the Act. However, in the present case, the said expenditure was incurred by the assessee under a legal obligation as per section 135 of the Companies Act, 2013. Accordingly, the AO proposed to disallow a deduction of Rs. 3,75,70,351 claimed by the assessee under section 80G of the Act on CSR expenditure. The learned DRP, vide its direction issued under section 144C(5) of the Act,rejected the objections filed by the assessee on this issue. In conformity, the AO passed the impugned final assessment order denying the claim under section 80G of the Act and made an addition of Rs. 3,75,70,351 to the total income of the assessee. Being aggrieved, the assessee is in appeal before us.

7. Thus, the grievance of the assessee is against the denial of deduction under section 80G of the Act in respect of CSR expenditure. In the present case, it is undisputed that the assessee has not claimed the CSR expenditure under section 37(1) of the Act, and its claim is only restricted to section 80G of the Act. We find that a similar issue came up for consideration before various Co-ordinate Benches of the Tribunal. In Allegis Services (India) Private Ltd. vs. ACIT, in ITA No. 1693/Bang./2019, the deduction in respect of CSR expenditure under section 80G of the Act was denied by the Revenue on a similar basis as in the present case. While deciding the issue in favour of the taxpayer, the Co-ordinate Bench of the Tribunal, vide order dated 29.04.2020, observed as follows: –

“We have perused submissions advanced by both sides in light ofrecords placed before us.

10. 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 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.

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

12. 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 dare 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.”

13. 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 and insurance 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 states conditions for depreciation and development rebate.
  • Section 35 grants deduction on expenditure for scientific research and knowledge extension in natural and applied sciences under agriculture, animal husbandry and fisheries. Payment to approved universities/research institutions or company also qualifies for deduction. In-house R&D is eligible for deduction, under this section.
  • Section 35CCD provides deduction for skill development projects, which constitute the flagship mission of the present Government.
  • Section 36 provides deduction regarding insurance premium on stock, health of employees, loans or commission for employees, interest on borrowed capital, employer contribution to provident fund, gratuity and payment of security transaction tax. Income Tax Act, under section 80G, forming part of Chapter VIA, provides for deductions for computing taxable income as under:
  • Section 80G(2) provides for sums expended by an assessee as donations against which deduction is available.

a) Certain donations, give 100% deduction, without any qualifying limit like Prime Minister’s National Relief Fund, National Defence Fund, National Illness Assistance Fund etc., specified under section 80G(1)(i).

b) Donations with 50% deduction are also available under Section 80G for all those sums that do not fall under section 80G(1)(i).

Under Section 80G(2) (iiihk) and (iiihl) there are specific exclusion of certain payments, that are part of CSR responsibility, not eligible for deduction u/s80G.

14. 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 the hands of assessee. 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 and Profession”.

16. 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 VIA for computing “Total Taxable Income” cannot be denied to assessee, subject to fulfillment of necessary conditions therein.

17. We therefore do not agree with arguments advanced by Ld. Sr. DR.

18. In present facts of case, Ld. AR submitted that all payments forming 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 section8OG 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.

19. 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.

20. 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 calim before Ld.AO. Ld.AO is then directed to grant deduction to the extent of eligibility.”

8. We further find that the Co-ordinate 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 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.

7. 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 u/s. 80G 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.”

9. 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. Further, 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 are not qualified for deduction under section 80G of the Act. Thus, 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. However, from the perusal of the details placed on record, it is evident that in the present case, the donation was not made to Swatch Bharath Kosh or Clean Ganga Fundby the assessee. Therefore, in the facts and circumstances of the present case, the assessee’s claim of deduction under section 80G of the Act is allowed. Accordingly, ground no.8 raised in assessee’s appeal is allowed.

10. Ground no.10, raised in assessee’s appeal, pertains to the disallowance made under section 14A of the Act.

11. We have considered the submissions of both sides and perused the materials available on record. In the present case, on perusal of the audited financial statements and the computation of income for the year under consideration, we find that the assessee did not earn any exempt income and, accordingly, claimed no exemption under section 10(34) of the Act while filing its return of income. We find that the Hon’ble Delhi High Court in the case of Cheminvest Ltd. vs. CIT, reported in (2015) 378 ITR 33 (Del.), held that section 14A of the Act will not apply if no exempt income is received or receivable during the relevant previous year. We further found that the Hon’ble Bombay High Court in PCIT vs. Kohinoor Project Pvt. Ltd., reported in (2020) 121 com 177 (Bom.), rendered similar findings and dismissed the Revenue’s appeal on a similar issue. Since, in the present case, the assessee has not earned any dividend income, therefore, respectfully following the judicial precedents, cited supra, disallowance of expenditure under section 14A r.w.s. Rule 8D of the Income Tax Rules, 1962, is not sustainable.

12. We further find that vide amendment by the Finance Act, 2022, the non-obstante clause and an Explanation were inserted in section 14A of the Act to the effect that the section shall apply even if no exempt income has accrued or arisen or has been received during the year. We find that while dealing with the issue of whether the aforesaid amendment by the Finance Act, 2022, is prospective or retrospective in operation, the Hon’ble Delhi High Court in PCIT vs. M/s. Era Infrastructure (I) Ltd., reported in (2022) 288 Taxman 384 (Del.), held that the amendment by the Finance Act, 2022, in section 14A of the Act is prospective and will apply in relation to the assessment year 2022-23 and subsequent years. Thus, in view of the aforesaid amendment, the disallowance under section 14A of the Act, read with Rule 8D, is not permissible in the present case.

13. Therefore, we are of the considered view that a disallowance computed by the AO under section 14A read with Rule 8D of the Rules is completely unwarranted in the facts and circumstances of the present case. Accordingly, the same is directed to be deleted. As a result, ground no.10 raised in assessee’s appeal is allowed.

14. In the result, the appeal by the assessee is partly allowed.

Order pronounced in the open court on 8^th June, 2026.