Seamec Limited Vs DCIT (ITAT Mumbai)
CSR donation deduction under section 80G cannot be denied merely because CSR expense is disallowed u/s 37(1) – Mumbai ITAT quashes revision u/s 263
In a significant ruling, the Mumbai ITAT held that CSR expenditure, though disallowable as business expenditure u/s 37(1), can still qualify for deduction u/s 80G if the statutory conditions of section 80G are satisfied. The Tribunal accordingly quashed the revision order u/s 263 passed by the PCIT against the assessee.
The assessee had incurred CSR expenditure of ₹3.50 lakh by way of donations to charitable institutions and had voluntarily disallowed the same u/s 37(1) while computing business income. However, it claimed eligible deduction of 50% under section 80G while computing total taxable income. The PCIT invoked revisionary jurisdiction u/s 263 holding that CSR payments are mandatory in nature and therefore cannot be treated as “voluntary donations” eligible for deduction u/s 80G.
The PCIT relied heavily on Explanation 2 to section 37(1), CBDT Circular No. 1/2015 and the concept that allowing deduction u/s 80G would indirectly defeat the legislative intent behind disallowance of CSR expenses. It was argued that CSR obligations under section 135 of the Companies Act are statutory mandates and lack the essential element of voluntariness normally associated with donations.
Rejecting the PCIT’s stand, the ITAT observed that the issue is already covered by multiple coordinate bench decisions consistently holding that there is no statutory bar against claiming deduction u/s 80G merely because the expenditure also forms part of CSR obligations. The Tribunal relied upon several decisions including Mahansaria Enterprises Pvt. Ltd., Axis Securities Ltd., Abhay Ispat (India) Pvt. Ltd., ACG Pam Pharma Technologies Pvt. Ltd., and Gallagher Insurance Brokers Pvt. Ltd..
The Tribunal reiterated the distinction between deductions claimed while computing business income under sections 30 to 37 and deductions allowable under Chapter VI-A while computing total taxable income. It observed that once CSR expenditure is already disallowed u/s 37(1), allowing eligible deduction u/s 80G does not amount to double deduction or violation of legislative intent.
The Bench also referred to the Bangalore Tribunal ruling in Allegis Services (India) Pvt. Ltd., wherein it was held that denial of section 80G benefit merely because the payment forms part of CSR would effectively result in double disallowance, which was never intended by the Legislature.
Importantly, the ITAT held that where the AO’s view is supported by existing coordinate bench decisions, the assessment order cannot be treated as “erroneous and prejudicial to the interests of Revenue” merely because the department has challenged such decisions before the High Court. Since no stay had been granted against those Tribunal rulings, they continued to hold the field.
Accordingly, the Tribunal held that the PCIT wrongly exercised revisionary powers u/s 263 and restored the original assessment order allowing deduction u/s 80G in respect of eligible CSR donations.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
