ITAT Mumbai Allows CSR Deduction Under Section 80G

ACIT Vs Jamnagar Utilities and Power Pvt. Ltd. (ITAT Mumbai)

Income Tax Appellate Tribunal (ITAT) Mumbai has upheld the order of the Commissioner of Income Tax (Appeals) [CIT(A)] in the case of ACIT vs. Jamnagar Utilities and Power Pvt. Ltd., allowing deduction under Section 80G for Corporate Social Responsibility (CSR) donations. The Revenue had challenged the deduction, arguing that CSR expenses are a statutory obligation under the Companies Act, 2013, and not voluntary donations eligible for tax benefits.

The case originated from the reassessment of Jamnagar Utilities’ tax return for the Assessment Year 2016-17. The Assessing Officer (AO) had disallowed the company’s claim of Rs. 4.3 crore under Section 80G, reasoning that CSR expenses, being a mandatory requirement, do not qualify for voluntary deductions. However, CIT(A) ruled in favor of the assessee, citing multiple judicial precedents, including decisions by the Mumbai and Bangalore ITAT Benches. The tribunal noted that CSR expenditures are disallowed under Section 37(1) of the Income Tax Act but not explicitly barred under Section 80G, provided they meet the eligibility criteria.

Key judicial precedents cited included DCIT vs. Reliance Industries Ltd. (2023) and M/s. Naik Seafoods Pvt. Ltd. vs. Pr. CIT-2 (2021), both from ITAT Mumbai, which ruled that CSR contributions made to eligible charitable institutions qualify for deductions under Section 80G. The tribunal also referred to the Bangalore ITAT’s decision in FNF India (P.) Ltd. vs. ACIT (2021), which held that while CSR expenses are not deductible as business expenditure, they may still qualify as charitable donations under Section 80G.

ITAT Mumbai ultimately dismissed the Revenue’s appeal, affirming that there is no statutory restriction on CSR donations being eligible for deductions under Section 80G. The tribunal directed the AO to verify the nature and quantum of payments to ensure compliance with Section 80G requirements. With this ruling, ITAT Mumbai reinforced the principle that CSR contributions, if meeting prescribed conditions, can be deducted under Section 80G, despite their mandatory nature under the Companies Act.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

The captioned appeal by the Revenue and cross objection by the assessee are directed against order dated 23.02.2024 passed by the Ld. Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2016-17.

2. The grounds raised by the Revenue in  its appeal are reproduced as under:

“Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was right holding that the assessee shall be eligible for deduction u/s 80G without appreciating the fact that Corporate Social Responsibility (‘CSR) under mandatory requirement of the Companies Act, 2013”?

3. Briefly stated, facts of the case are that assessment u/s 143(3) of the Income-tax Act, 1961 (in short ‘the Act’) was completed on 27.12.2018 wherein the returned income filed by the assessee was accepted. Subsequently, the case was reopened by way of issue of notice  u/s  148  of  the  Act  dated  26.02.2021.  In  response,  the assessee    filed    return of income on 23.04.2021 declaring total income at Rs.598,63,34,620/-. In the reassessment completed u/s 147 r.w.s. 144B of the Act dated 24.03.2023, the Assessing Officer made disallowance of the deduction claimed u/s 80G of the Act amounting to Rs.4,30,00,000/- holding that the same was in the nature of corporate social responsibility (CSR) expenditure incurred by the assessee, which is not allowable.

4. On further appeal, the Ld. CIT(A) deleted the disallowance in view of various decisions of Co-ordinate Bench relied upon by him.

5. We have heard rival submission of the parties and perused the relevant material  on    In  the  case,  the  assessee  debited Rs.8,60,00,000/- on account of CSR, which was added back was while computing total income  for the  purpose  of  filing  return  of income. However,  the  assessee Claimed 50%  deduction i.e. Rs.4,30,00,000/- u/s 80G of the Act. According to the Assessing Officer CSR is statutory liability on the part of the assessee, which is to be incurred out of profit in compliance to the Companies Act, whereas section 80G of the Act deal with donation in the nature of the voluntary out of once own   violation. The CSR not being voluntary rather it was legal mandate on the part of the assessee, the Assessing Officer held the CSR expenditure out of purview of the section 80G of the Act and accordingly he disallowed the claim of deduction of the assessee of Rs.4,30,00,000/-. On further appeal, the Ld. CIT(A) allowed the claim of the assessee observing as under:

“I have carefully considered the assessment order and submission made by the appellant. The appellant has relied upon the following judicial decisions including the decisions of jurisdictional ITAT Mumbai where it has been held that payments towards donations made on account of corporate social responsibility, disallowed under section 37(1), are allowable as deductions under section 80G of the Act:

• • DCIT   Reliance  Industries  Ltd.  [2023]  I.T.A.  No.  2587  & 2588/ um/2022 (Mumbai ITAT)
  • M/s. Naik Seafoods Pvt. Ltd. Vs. Pr. CIT – 2 (ITA No 490/MUM/2021) (Mumbai ITAT)
  • FNF India (P.) Vs. ACIT [2021] (133 taxmann.com 251) (Bangalore ITAT)
  • Sling Media (P.) Vs. DCIT [2022] (194 ITD 1) (Banglore ITAT)
  • Infinera India (P.) Vs. JCIT [2022] (194 ITD 463) (Bangalore ITAT)
  • DCIT Vs. M/s. The Peerless General Finance & Investment & Co. Ltd (ITA No. 1469 & 1470/Kol/2019) (Kolkata ITAT)

Further, it is also observed from the contents of above decision of Hon’ble ITAT that the explanatory memorandum to Finance Act No. 2, 2014, introducing Explanation 2 to Section 37 (1) which prohibite  the allowability of CSR expenditure as business expenditure. The memorandum clearly states that CSR expenditure described in sections 30 to 36 of the Income-tax Act, 1961 shall be allowed. Legislators never intended to deny deductions for CSR expenditure outright; it is only not allowable under section 37(1). As the amendment in section 37(1) does not apply to section  30 to 36 of the Act, the same would not apply to section 80G of the Act. Thus, appellant shall be allow d to claim a deduction under section 80G of the Income Tax Act, 1961 to the extent of eligibility..

It is further viewed that jurisdictional Hon’ble Mumbai ITAT in the case of M/s. Reliance Industries Ltd.       V.DCIT[2023](ITA NO.2587 & 2588/MUM/2022) has followed the decision rendered by Mumbai ITAT in the case of Naik Sea foods P Ltd V.Pr. CIT-2(ITA NO.490/MUM/2021). In the case of Naik Sea foods P Ltd (supra), the co-ordinate bench has followed the decision rendered by Bangalore bench of Tribunal in the  ase of M/s FNF India P Ltd (ITA No. 1565/Bang/2019 dated 05-01-2021), which in turn followed the decision rendered in the case of Allegis Services (India) Pvt. Ltd. ACIT (ITA No. 1693/Bang/2019) and held that the assessee is eligible for deduction u/s 80G of the Act in respect of certain payments included in CSR Expenses. The relevant discussions made by the Tribunal are extracted below:-

“15. Considered the rival submissions and material placed on record, we observe from the record that Ld. Pr.CIT while examining the records of the assessment observed that the Assessing Officer has not Verified the expenses claimed by the assessee and allowed by the Assessing Officer ITA NO. 490/MUM/2021 (A.Y: 2016-17) M/s. Naik S afoods Pvt. Ltd., without making the proper verification and purchases which is 95% of the sale declared by the assessee and again Assessing Officer allowed the same without making proper verification. After considering the submissions of both the parties we observe from the record that with regard to section 80G _ deduction we observed that the Coordinate Bench of ITAT Bangalore Bench decided the issue of deduction u/s. 80G relating to donations which is part of Corporate Social Responsibility in the case of M/s.FNF India  Pvt.  Ltd., v. ACIT     (ITA. No. 1565/Bang/2019 dated 05.01.2021). The relevant findings of the Bangalore Bench are reproduced below: –

“9. After hearing both the parties, we find that similar issue came up for consideration before this Tribunal in ITA No.1693/Bang/2019 in the case of Allegis Services (India) Pvt. Ltd. v. ACIT. The Tribunal by its order dated 29.4.2020 held as under.-

“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 t e Head ‘Income form Business and Profession’. Further, clarifiation regarding impact of Explanation 2 to section 37(1) of the Income Tax Act int Explanatory Memorandum to The Finance (No.2) under:

*The existing provisions of section 37(1) of the Bill, 2014 is as 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 exising provisions of section 37 of the Income-tax Act. Therefore, in order to provide certainty on this issue, it is proposed to clarify 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 ultillment 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  respon  Section liability projects under following sections.

• • • Section 30  provides  deduction  on  repairs,  municipal  tax  and insurance premium
    • Section 31, provides deduction on repairs and insurance of plant, machinery and furniture Section 32 provides for depreciation on tangible assets like building, machinery, plant, furniture and also on intangible  assets  like  knowhow, patents,  trademarks,  licenses. Section ships.

• • • Section 34 states conditions for depreciation and development rebate.
    • Section 35 grant 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.

1. 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(I) (i)

2. Donations with 50% deduction are also available under Section 80G for all those sums that do not fall under section 80G(1)i). Jamnagar Utilities and Power Pvt. Ltd. 7 ITA No. 2117/MUM/2024 & CO 122/M/2024

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

1. 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 ate claimed while computing “Total Taxable income” in the hands of assessee. The point of claim under these provisions are different.

2. 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 “.

3. 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.

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

5. 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 Professionit has been submitted that some payments forming part of GSR were claimed as deduction under section 80G 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.

1. 1. On the basis of above discussion, in our view, authorities below have erred in

denying claim of assessee under section 80G of the Act. 77e 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.

1. 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 claim before Ld.AO. Ld.AO is then directed to grant deduction to the extent of eligibility. Accordingly grounds raised by assessee stands allowed for statistical purposes.

In view of the decision of jurisdictional Hon’ble Mumbai ITAT in the case of M/s. Reliance Industries Ltd. V.DCIT[2023](ITA NO .2587 & 2588/MUM/2022) and Naik Seafoods Pvt. Ltd. V.Pr.CIT-2[2021]) ITA No.490/MUM/2021, it is held that AO has erred in denying claim of the appellant under section 80G of the Act. It is also observed that assessing officer has not verified nature of payments qualifying exemption u/s.80G of the Act and quantum of eligibility as per section 80G(1) of the Act. Therefore, AO is directed to verify conditions necessary to claim deductión u/s.80G of the Act and grant deduction to the extent of eligibility. Accordingly, this ground stands allowed for statistical purposes.”

5.1  We find that the Ld. CIT(A) has followed the decision of the Co-ordinate Bench on the issue in dispute. Further, we find that the assessee has fulfilled all the conditions for deduction u/s 80G of the Act in respect of deduction claimed. We also note there is no specific bar in section 80G of the Act for claiming deduction in respect of CSR expenditure if an assessee otherwise fulfill all the requirement of section 80G of the Act. In view of the above, respectfully following the finding of the Co-ordinate Bench of ITAT on the issue in dispute referred by the Ld. CIT(A), we uphold the finding of the Ld. CIT(A) on the issue in dispute. The ground of appeal of the Revenue is accordingly dismissed.

6. The ground raised by the assessee being in support of order of the Ld. CIT(A) and since we have already upheld the finding of the  Ld. CIT(A) and dismissed the appeal of the Revenue, the ground raised by the assessee is rendered academic. Accordingly, we are not required to adjudicate upon the same.

7. In the result, both the appeal of the Revenue and the Cross-objection of the assessee are dismissed.

Order pronounced in the open Court on 24/07/2024.