ACIT Vs Sharda Cropchem Limited (ITAT Mumbai)
In ACIT vs. Sharda Cropchem Ltd. (ITA No. 6164/Mum/2024), the Mumbai bench of the Income Tax Appellate Tribunal (ITAT) ruled on the allowability of Corporate Social Responsibility (CSR) expenditure as deductions under Section 80G of the Income Tax Act for Assessment Year (AY) 2015-16. The tribunal observed that while Explanation 2 to Section 37(1), inserted by the Finance (No.2) Act, 2014, explicitly disallows CSR expenses as “business expenditure” for computing business income, this restriction does not extend to deductions claimed under Chapter VI-A, including Section 80G.
The Assessing Officer (AO) had disallowed Sharda Cropchem’s claim of deductions for donations made to charitable institutions, holding that such CSR contributions were mandatory under Section 135 of the Companies Act, 2013 and therefore lacked voluntariness—a key requirement for donations to qualify under Section 80G, as per PVG Raju v. CIT (1967). However, the ITAT disagreed, noting that except for specific exclusions under Section 80G(2)(a)(iiihk) and (iiihl)—namely contributions to Swachh Bharat Kosh and Clean Ganga Fund—there is no legislative bar preventing CSR-related donations from being considered under Section 80G.
The tribunal cited Alubound Dacs India Pvt. Ltd. v. DCIT (ITA No. 3663/Mum/2023) and Allegis Services (India) Pvt. Ltd. v. ACIT (ITA No. 1693/Bang/2019) as precedents where similar CSR-related deductions were allowed. Both rulings held that CSR expenses disallowed under Section 37(1) could still qualify under other provisions, provided conditions stipulated therein are met. Importantly, donations claimed under Section 80G are assessed while computing total taxable income under Chapter VI-A and not business income under Chapter IV-D. Thus, the restrictions of Explanation 2 to Section 37(1) do not apply at this stage.
The ITAT highlighted that the Finance Act, 2015 specifically barred deductions for CSR contributions to Swachh Bharat Kosh and Clean Ganga Fund under Section 80G. The absence of similar prohibitions for other funds indicates a legislative intent to allow such deductions where conditions under Section 80G are satisfied.
In Allegis Services, the Bangalore bench emphasized that disallowing CSR donations under both Section 37(1) and Section 80G would amount to a “double disallowance,” contrary to legislative intent. Similarly, in Alubound Dacs, the tribunal held that the test of voluntariness is not relevant under Section 80G unless explicitly stated by law.
Applying these principles, the ITAT in Sharda Cropchem held that contributions made to eligible institutions, barring those under the two specific exclusions, are deductible under Section 80G. The tribunal directed the AO to allow the deduction after verifying compliance with other requirements under Section 80G.
Separately, the tribunal also ruled on product registration expenditure of over ₹81 crore, which the AO had treated as capital expenditure but was allowed as revenue expenditure by the CIT(A). Applying its earlier ruling for AY 2018-19, the ITAT upheld the CIT(A)’s decision for AY 2016-17 as well.
Consequently, the ITAT dismissed both revenue appeals, affirming that CSR donations (except barred ones) are deductible under Section 80G and that product registration expenses qualify as revenue expenditure. The order was pronounced on January 21, 2025.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
