Rishabh Instruments Ltd Vs PCIT-3 (ITAT Mumbai)
Summary: The Income Tax Appellate Tribunal (ITAT), Mumbai D Bench, in Rishabh Instruments Ltd Vs PCIT-3, allowed the assessee’s appeal for Assessment Year 2020-21 and quashed the revisionary order passed under Section 263 of the Income-tax Act, 1961. The dispute concerned whether donations incurred by a company towards its Corporate Social Responsibility (CSR) obligations could qualify for deduction under Section 80G even though such expenditure was disallowed as business expenditure under Explanation 2 to Section 37(1). The Tribunal held that the restriction under Section 37(1) did not automatically prohibit a separate deduction under Section 80G, provided the applicable statutory conditions were satisfied. It further held that the Principal Commissioner could not revise an assessment merely because he disagreed with the legally sustainable view adopted by the Assessing Officer after examining the relevant documents.
The assessee had made donations aggregating to ₹21,07,500 during the relevant previous year and claimed a deduction of ₹10,53,750 under Section 80G. The donations were classified as CSR expenditure in the company’s books under Section 135 of the Companies Act, 2013. While computing its business income, the assessee suo motu disallowed the CSR expenditure under Explanation 2 to Section 37(1). However, it independently claimed deduction under Section 80G in its return of income. The claim was disclosed in the computation of income and tax audit report. During scrutiny assessment, the Assessing Officer specifically called for supporting documents under Section 142(1), and the assessee furnished documentary evidence through its reply dated 4 February 2022. After examining the claim, the Assessing Officer completed assessment under Section 143(3) read with Section 144B on 26 September 2022 and allowed the deduction.
Subsequently, the Principal Commissioner invoked Section 263 and held that the assessment order was erroneous and prejudicial to the interests of the Revenue. According to the Principal Commissioner, CSR expenditure was mandatory under Section 135 of the Companies Act and therefore lacked the voluntary character ordinarily associated with donations. On that reasoning, he considered the deduction under Section 80G inadmissible. The Principal Commissioner also observed that the assessment order did not specifically discuss the allowability of CSR donations under Section 80G. The assessee challenged the revision, arguing that the original assessment record clearly demonstrated examination of the claim and that the law did not impose a general prohibition against claiming Section 80G deduction for CSR donations.
On the substantive question, the Tribunal observed that while Section 135 of the Companies Act prescribed the quantum of CSR expenditure for qualifying companies, it did not ordinarily mandate the precise recipient or manner of expenditure. Companies retained discretion to choose eligible activities and recipients. The Tribunal also observed that Section 80G did not prescribe a general condition requiring every qualifying donation to be voluntary in the sense asserted by the Principal Commissioner. The recipient entities were approved under Section 80G and the assessee’s eligibility otherwise was not disputed. The Tribunal referred to CBDT Circular No. 1/2015 dated 21 January 2015, explaining that the disallowance introduced by Explanation 2 to Section 37(1) was directed at computation of business income, while other deductions were governed by their respective statutory provisions.
The Tribunal also considered the Ministry of Corporate Affairs’ General Circular No. 01/2016 dated 12 January 2016, particularly FAQ No. 6 concerning tax benefits on CSR expenditure. The clarification explained that CSR expenditure did not enjoy an independent blanket exemption but that expenditure on qualifying activities could receive tax benefits under provisions otherwise applicable under the Income-tax Act. The Tribunal relied upon ACIT Vs Sharda Cropchem Limited, in which the coordinate Bench had held that CSR donations qualifying under Section 80G could be deducted independently of the restriction under Section 37(1). The cited decision also recognised that Parliament expressly excluded qualifying CSR contributions to Swachh Bharat Kosh and Clean Ganga Fund under specified clauses of Section 80G, without imposing a similar blanket restriction on other qualifying donations.
Further, the Tribunal considered the decision in Alubound Dacs India Private Limited Vs DCIT, which allowed Section 80G deduction for eligible CSR contributions subject to fulfilment of the statutory requirements. The Tribunal found the principle applicable to the assessee’s claim. It accordingly concluded that the donations did not become ineligible merely because they had been incurred in compliance with the CSR obligation under the Companies Act. The Tribunal maintained the distinction between the computation of business income under Chapter IV-D and deductions from gross total income under Chapter VI-A.
On the jurisdictional question under Section 263, the Tribunal relied on Inter Gold (India) Pvt. Ltd. Vs PCIT, ITA No. 4400/Mum/2023. In that case, the coordinate Bench had held that the Principal Commissioner could not revise an assessment allowing eligible CSR donations under Section 80G when the Assessing Officer had examined the claim and adopted a legally sustainable view. The mere existence of a contrary opinion did not establish that the assessment order was erroneous and prejudicial to the Revenue. The Tribunal considered the earlier distinction between Section 37(1) and Section 80G decisive. Since the assessee had already added back CSR expenditure in its computation of business income and claimed Section 80G deduction separately, allowing the eligible deduction did not amount to allowing the same expenditure twice under the same provision.
Applying these principles, the Tribunal found that the Assessing Officer had issued a specific inquiry and examined the supporting documentation before allowing the deduction. The Principal Commissioner’s disagreement with the conclusion did not establish the conditions necessary for exercising revisionary jurisdiction. The Tribunal accordingly quashed the Section 263 order and restored the original assessment. The assessee’s appeal was allowed. The decision reinforces that the restriction on deduction of CSR expenditure under Section 37(1) operates independently of the eligibility requirements under Section 80G and that a completed assessment cannot be revised merely because the Principal Commissioner prefers a different interpretation of the law.
Cases Discussed
1. Alubound Dacs India Private Limited Vs DCIT (ITAT Mumbai); ITA No. 3663/Mum/2023; 27/05/2024. Discussed through the Sharda Cropchem judgment reproduced in the present order. The Tribunal followed the principle that donations forming part of CSR expenditure may qualify for deduction under Section 80G, subject to the prescribed statutory requirements.
2. Inter Gold (India) Pvt. Ltd. Vs Principal Commissioner of Income Tax (ITAT Mumbai); ITA No. 4400/Mum/2023. Directly relied upon in determining the legality of revision under Section 263. The decision held that the PCIT could not treat an assessment as erroneous merely because a CSR-related Section 80G deduction had been allowed after examination by the Assessing Officer. Related discussion: CSR Donations and Section 80G Deductibility.
3. Blue Dart Express Ltd. (ITAT Mumbai); ITA No. 1101/Mum/2024; 03/09/2024. Cited by the assessee in support of its submissions. The uploaded order identifies the appeal number and decision date but does not independently reproduce or analyse this judgment.
4. Maharashtra Industrial Development Corporation (ITAT Mumbai); ITA No. 2838/Mum/2024; 06/01/2025. Cited by the assessee. The uploaded order does not provide a complete case caption or substantive discussion of its ratio.
5. ACIT Vs Sharda Cropchem Limited (ITAT Mumbai); ITA Nos. 6163 & 6164/Mum/2024; 21/01/2025. Directly relied upon for allowing deduction under Section 80G in respect of eligible CSR donations and for distinguishing the restriction under Section 37(1) from deductions allowable under Chapter VI-A.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The present appeal has been filed by the assessee challenging the impugned order dt. 17.03.2025 passed under section 250 of the Income Tax Act, 1961 (‘the Act’), by the National Faceless Appeal Centre (NFAC) / CIT(A) for the assessment year 2020-21.
2. Both the grounds raised by the assessee are interrelated and interconnected and relates to challenging the order of Ld. PCIT passed under section 263 of the I.T. Act. Therefore we have decided to adjudicate these grounds through the present consolidated order.
3. Ld. AR appearing for the assessee relied on the orders of Tribunal in the case of Sharda Cropchem Ltd. in ITA No. 6163 & 6164/Mum/2024 dated 21.1.2025 ITA No. 1101/Mum/2024 dated 3.9.2024 in the case of Blue Dart Express Ltd. and ITA No. 2838/Mum/2024 dated 6.1.2025 in the case of Maharashtra Industrial Development Corporation.
4. On the contrary, Ld. DR relied upon the orders passed by Ld. PCIT.
5. We have heard the counsels of both the parties, perused the material placed on record, Judgements cited before us and also orders passed by Revenue Authorities. From the record, we noticed that during the year under consideration, the assessee had made donation to various entities of Rs. 21,07,500/- and had claimed deduction amounting to Rs. 10,53,750/- under section 80G of the Act. Although the assessee had classified the amount of donation as “Corporate Social Responsibility” (CSR) expenses under section 135 of the Companies Act, 2013 in his books of account and suo moto disallowed the same in computation of income in accordance Explanation 2 of section 37 of the Act. However, in his return of income, the assessee claimed deduction under section 80G of the Act. The said claim was duly disclosed in the computation of income and tax audit report, which was examined in detail and allowed by the Ld. AO while passing the order of assessment under section 143(3) r.w.s 144B of the Act dated 26.09.2022. In this regard we have perused the noticed issued u/s 142(1) of the Act during the course of assessment wherein specific documents / evidences were sought for seeking deduction claimed u/s 80G of the Act and the assessee in response thereof had already submitted the documentary evidences vide its reply on 04.02.2022. And thereafter after considering the issue in question, the order of assessment was passed.
6. Later on, Ld. PCIT invoked revision jurisdiction under section 263 of the Act and passed the impugned order by holding that deduction under section 80G of the Act was erroneously allowed, since donation was in nature of CSR expenditure which is not voluntary in nature and thus not eligible for deduction. It was further held that the issue of section 80G/CSR was not discussed in the assessment order and hence assessment order is erroneous in so far as it is prejudicial to the interest of the Revenue.” Now, the question for determination before us is as to whether deduction claimed under section 80G of the Act is eligible in respect of donation classified as “Corporate Social Responsibility (CSR) and as to whether conditions for invoking section 263 of the Act are satisfied or not.
7. First for all, we take up the first issue/question and after hearing the parties at length on this issue, we noticed that Ld. PCIT has held that since CSR expenditure is mandatory therefore the same cannot constitute a donation, which is voluntary and hence not eligible for deduction under section 80G of the Act. Whereas it is an undisputed fact that donation made by the assessee are to entities registered under section 80G and that the assessee is otherwise eligible to claim deduction under section 80G of the Act.
8. We noticed that though section 135 of the Companies Act, 2013 mandates the quantum of CSR expenses, it does not mandate to whom and how the amount to be spent and the Appellant at its discretion can choose the mode of spending towards CSR. The donations made by the Appellant to ACS Cares Foundation are made voluntarily as there is no reciprocal commitment from the donees. In any case, section 80G of the Act does not put any condition for the donation to be voluntary in nature for the purpose of claiming deduction. CBDT, vide Circular No. 1/2015 dated 21st January 2015 which contains the Explanatory Notes provisions of the Finance (No. 2) Act, 2014, has stated that expenditure incurred which is eligible for CSR and allowable under other sections, shall be allowed as a deduction while computing income. The relevant extract of CBDT Circular is reproduced as under:
“13.3 The provisions of section 37(1) of the Income-tax Act provide that deduction for any expenditure, which is not mentioned specifically in section 30 to section 36 of the Income-tax 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 expenditures cannot be allowed under the provisions of section 37 of the Income-tax Act. Therefore, in order to provide certainty on this issue, said section 37 has been amended to clarify that for the 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 have been incurred for the purpose of business and hence shall not be allowed as deduction under said section 37. However, the CSR expenditure which is of the nature described in section 30 to section 36 of the Income-tax Act shall be allowed as deduction under those sections subject to fulfillment of conditions, if any, specified therein.”
9. The CBDT Circular clearly states that the restriction on claiming deduction of CSR expense is only with respect to Section 37(1) of the Act wherein it will not be deemed to be a business expenditure for the purpose computing income under the head ‘Profits and Gains from Business or Profession’. The Circular itself clarifies that CSR expenditure will be allowable under other sections under the same head of income. In view of CBDT Circular, it is clear that there is no express bar in claiming deduction in respect of CSR expenditure, other than under Section 37(1) of the Act. The Ministry of Corporate Affairs (“MCA”) has issued Frequently Asked Questions (“FAQ”) through General Circular No. 01/2016 dated January 12, 2016 (FAQ No. 6) has clarified on the issue as follows:
“Question No. 6: What tax benefits can be availed under CSR?
Answer: No specif ic 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. What 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 find place in Schedule VII, already enjoys exemptions under different sections of the Income-tax Act, 1961.”
10. This clarification being issued by the Ministry of Corporate Affairs, Government of India also confirms that donation covered under CSR Expenses are eligible for the deduction under section 80G of the Income-tax Act, 1961. Moreover, reliance is placed on the decision of the Coordinate Bench of the ITAT, Mumbai Bench in the case of ACIT v. Sharda Cropchem Limited (ITA No. 6163/Mum/2024) wherein it was held that donations which are classified as CSR expenditure are eligible for deduction under Section 80G of the Act. The relevant extract of the order is reproduced as under:
“9. We have carefully perused relevant provisions of the Act and legal position emerging from the cited decision (supra).The CSR expenses which are required to be mandatorily incurred by the assessee-company as per section 135 of the Companies Act are not entitled to deduction under section 37(1) for assessment year 2015-16 by virtue of the fetter placed by Explanation 2 to section 37(1), which was inserted by the Finance (No. 2) Act, 2014. A plain reading of Explanation 2 to section 37(1) shows that any expenditure incurred towards CSR activities as referred to in section 135 of the Companies Act, 2013 shall not be allowed as ‘ business expenditure’ and shall be deemed to have not been incurred for purpose of business. The embargo created by Explanation 2 inserted in section 37 by Finance (No. 2) Act, 2014 was to deny deduction for (3SR expenses incurred by companies, as and by way of regular business expenditure while computing ‘income under the head business’. So, it can be clearly seen that this Explanation 2 to section 37(1) which denies deduction for CSR expenses by way of business expenditure is applicable only to the extent of computing ‘business income’ under Chapter IV-D. The said Explanation cannot be extended or imported to CSR contributions which are otherwise eligible for deduction under any other provision or Chapter, so as to say donations made by charitable trust registered under section 80G.Parliament has expressed its intention clearly by bringing in restriction in respect of expenditure classified by an assessee company while claiming deduction under section 80G i.e. CSR expenditure related to Swachh Bharat Kosh and Clean Ganga Fund. And if the Parliament desired, it could have been made such kind of restriction or any restriction like in the case of donation to Swachh Bharat Kosh& Clean Ganga Fund. So the assertion of the Assessing Officer is erroneous and therefore cannot be accepted. It can be safely inferred that when the Legislature in particular has provided for only the above referred tivo specific exceptions in section 80G, then it is the implied intent of the Legislature to permit deduction under section 80G in respect of CSR contributions made to funds/organizations referred to in all other sub-clauses of section 80G [other than (iiihk) and (iiihl)] of the Act.
9.1 It may be stated here that the co-ordinate Bench of ITAT, Mumbai in the case Alubound Dacs India Private Limited vs. Dy. CIT in IT A No. 3663/M u m/2023 ( A. Y. 2020 – 21)has duly considered similar contentious issue and decided the same in favour of the assessee. The relevant extracts are reproduced below for the sake of ready reference: ………….
9.3 Respectfully following the decisions cited above, we 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 Id. A.O. to allow the claim of the assessee subject to the condition that the assessee has satisfied the other requirements warranted u/s.SOG of the Act. We do not find any inf irmity in the appellate order. Hence, ground no. 3 raised by the Revenue is dismissed.
11. Thus, after evaluating the facts of the present case and also decision of the Coordinate Bench and the settled proposition of law, we are also of the view that the assessee is entitled for deduction claimed under section 80G of the Act towards CSR expenditure incurred by it.
12. Now the question for determination before us is as to whether Ld. PCIT could have invoked section 263 of the Act for denial of deduction claimed under section 80G of the Act in respect of donation classified as CSR. In this regard reliance is being placed upon the decision of Hon’ble Mumbai Tribunal in the case of Inter Gold (India) Pvt. Ltd. v. Pr. CIT (ITA No. 4400/Mum/2023) wherein it was held that the provisions of Section 263 of the Act cannot be invoked for denial of deduction claimed under Section 80G in respect of donations classified as CSR. The relevant extract of the order is reproduced below:
“11. After considering the aforesaid submissions and the reasons given by the Id. PCIT, we are unable to sustain the impugned order u/s.263 on this issue for the reason that, this issue has been duly enquired and examined by the Id. AO during the course of assessment proceedings and without finding any defect in such order or how the claim allowed by the Id. AO u/s.80G is unsustainable in law, he cannot cancel the assessment order. Assessee has also relied upon various Tribunal decisions directly on this issue which has also been incorporated in the impugned order, wherein it has been held that even if the money spent for CSR is disallowable but if the same has been paid to charitable organisation and donation is claimed u/s.80G, the same is allowable, because both operate separately. Thus, taking a contrary opinion does not mean that order of the Id. AO erroneous and prejudicial to the interest of the Revenue.
12. 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.SOG is allowed while computing the total income under Chapter VIA. There is no pre-condition that claim for deduction u/s.SQG 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 tlwt the assessee has filed complete details of donation and also filed the certif icate 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 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 specif ically 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-avis CSR can be restricted to contributions made to these Funds mentioned in Section 80G(2)(a)(iiihk) and (iiihl) only. It is an undisputed fact that the assessee has not claimed any deduction against the aforesaid clauses of 8OG(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 specif ic tax exemptions have been extended to CSR expenditure per se. The Finance Act, 2014 also clarif ies 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.”
12. 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 satisf ied. Titus, allowing the claim of deduction u/s. 80G by the Id. 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.”
13. Therefore after having gone through the decisions referred above and also keeping in view of the facts of the present case, we are also of the view that Ld. PCIT has wrongly invoked provisions of section 263 of the Act for denial of deduction claimed by the assessee under section 263 of the Act in respect of donation classified as CSR. Therefore we do not have substance in the impugned order and the same is thus stands quashed and the assessment order passed by the Ld. AO is restored and accordingly appeal of the assessee is allowed.
14. In the result, appeal filed by the assessee is allowed.
Order pronounced in the open court on 26.10.2025
