NATCO Pharma Ltd. Vs ACIT (ITAT Hyderabad)
Hyderabad ITAT: CSR Donations Eligible for Section 80G Deduction; Section 14A Cannot Apply to Equity Investments Yielding Taxable Dividends
In NATCO Pharma Ltd. v. ACIT, ITA No. 640/Hyd/2026 (AY 2022-23), order dated 21.08.2026, the Hyderabad ITAT allowed the assessee’s appeal on two significant issues. The AO had, inter alia, disallowed ₹5.86 crore under Section 80G relating to donations forming part of CSR expenditure and ₹62.55 lakh under Section 14A.
On the CSR donations, the Tribunal held that a donation otherwise satisfying Section 80G cannot be denied deduction merely because it was made in discharge of the company’s CSR obligation. The Legislature has expressly excluded CSR contributions to the Swachh Bharat Kosh and Clean Ganga Fund in the specified clauses of Section 80G; no similar restriction has been imposed on other eligible donations. Therefore, an additional prohibition cannot be read into Section 80G. Following Deloitte Tax Services India Pvt. Ltd. and Penna Cement Industries Ltd., the ITAT directed deletion of the ₹5.86 crore disallowance.
On Section 14A, the Tribunal held that its fundamental requirement is expenditure relating to income which does not form part of total income. After the Finance Act, 2020, dividend income from domestic companies is taxable from AY 2021-22. Hence, where the investments considered by the AO are equity shares capable of yielding taxable dividend income, Section 14A cannot be invoked. Importantly, the Explanation inserted in Section 14A does not convert taxable income into exempt income; it only addresses cases where income is inherently exempt but happens not to arise during the particular year. Accordingly, the ₹62,55,526 disallowance was deleted.
Thus, the assessee’s appeal was allowed, providing important rulings both on Section 80G deduction for eligible CSR donations and the post-Finance Act 2020 scope of Section 14A for equity investments yielding taxable dividends.
List of Cases Discussed / Relied Upon
- Optum Global Solutions (India) Private Limited Vs. DCIT, ITA Nos. 145 & 482/Hyd/2022 — ITAT Hyderabad considered deduction under section 80G for donations forming part of CSR expenditure and held the issue to be one requiring verification in the relevant circumstances.
- JMS Mining (P.) Ltd. Vs. PCIT, [2021] 190 ITD 702 (Kolkata – Trib.) — considered the allowability of section 80G deduction for eligible CSR donations and held that the revisionary order could not be sustained on the issue.
- Deloitte Tax Services India Private Limited Vs. DCIT, ITA Nos. 341 & 342/Hyd/2023, order dated 19.06.2024 — relied upon for the proposition that there is no blanket prohibition against section 80G deduction for otherwise eligible CSR donations, subject to the statutory exclusions referred to in the supplied material.
- ACIT Vs. Penna Cement Industries Limited, ITA Nos. 1083 & 1084/Hyd/2024, order dated 21.01.2026 — Coordinate Bench decision relied upon for holding that eligible donations forming part of CSR expenditure cannot be denied section 80G deduction merely because of their CSR character.
- Agilent Technologies (International) P. Ltd. Vs. ACIT/NFAC, Delhi, (2024) 205 ITD 551 (Delhi) — cited by the Departmental Representative in the section 80G controversy in support of the Revenue’s contention regarding CSR expenditure.
- Ahluwalia Contracts (India) Limited Vs. ACIT, ITA No. 7474/Del/2025, A.Y. 2023-24, order dated 30.03.2026— relied upon on the section 14A issue for the proposition that dividend income taxable in the hands of the shareholder is not exempt income for purposes of section 14A.
- Cheminvest Limited Vs. CIT, ITA No. 749/2014, Delhi High Court, order dated 02.09.2015 — discussed in the material concerning the earlier position on section 14A where no exempt income was earned.
- CIT Vs. Holcim India (P.) Ltd., (2014) 272 CTR 282 (Delhi) — referred to in the section 14A discussion concerning the absence of disallowance where no exempt income was earned.
- PCIT Vs. Era Infrastructure (India) Ltd., ITA No. 204 of 2022, Delhi High Court, order dated 20.07.2022 — referred to in the material concerning the amendment to section 14A by the Finance Act, 2022 and its applicability from A.Y. 2022-23.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
