Ratna Sagar Pvt. Ltd. Vs ACIT (ITAT Delhi)
The Delhi ITAT allowed the assessee’s appeal for AY 2018-19 and deleted the disallowance of ₹12,50,000, representing 50% of a ₹25,00,000 donation paid to Saint Francis Home (Regd.) Society, Pathankot out of CSR funds and claimed as deduction under Section 80G of the Income-tax Act.
The Assessing Officer had denied the deduction on the ground that the payment constituted CSR expenditure and was therefore not allowable under the Act. The CIT(A) upheld the Assessing Officer’s action. Before the Tribunal, the assessee contended that the issue was covered by several ITAT decisions, including Interglobe Technology Quotient Private Limited, Honda Motorcycle and Scooter India Pvt. Ltd. vs. ACIT and Ericsson India Global Services (P) Ltd. vs. DCIT. The Revenue did not controvert the proposition advanced by the assessee, though it supported the orders of the lower authorities.
The ITAT found that an identical issue had been considered by the Delhi Tribunal’s coordinate bench in Interglobe Technology Quotient Private Limited. Following that decision, the Tribunal held that denial of CSR expenditure under Section 37(1) does not operate as an embargo on claiming deduction under Section 80G.
The Tribunal noted that qualifying companies under Section 135 of the Companies Act, 2013 are required to spend a prescribed percentage of profits on CSR activities. Such expenditure may be incurred directly on projects or through donations to institutions engaged in relevant activities.
The ITAT observed that Explanation 2 to Section 37(1), inserted by the Finance (No. 2) Act, 2014 and applicable from AY 2015-16, provides that expenditure incurred on CSR activities referred to in Section 135 of the Companies Act, 2013 shall not be deemed expenditure incurred for the purposes of business or profession and shall not be allowed as deduction under Section 37(1). The rationale stated in the Explanatory Memorandum was that CSR expenditure constitutes application of income and is not incurred wholly and exclusively for carrying on business.
The Tribunal held that this treatment itself justified consideration of deduction under Section 80G. Since CSR expenditure is treated as application of income, it continues to form part of the assessee’s total income. Section 80G falls under Chapter VI-A and applies after gross total income has been computed under the relevant heads, including after application of Explanation 2 to Section 37(1). Accordingly, the ITAT held that there is no correlation between disallowance under Section 37(1) and a claim for deduction under Section 80G.
The Tribunal also rejected the reasoning that CSR expenditure could not qualify merely on account of its mandatory nature. It observed that the voluntary character of a donation is linked to the absence of any reciprocal promise from the donee. CSR expenditure is likewise made without reciprocal commitment from the beneficiary and is philanthropic in nature. Therefore, the mandatory character of CSR expenditure does not justify denial of deduction under Section 80G where the other statutory conditions are fulfilled.
The ITAT further noted that there was no allegation by the Revenue that the other conditions of Section 80G had not been satisfied. Finding the facts identical to the coordinate bench precedent, the Tribunal deleted the addition sustained by the CIT(A), allowed the ground raised by the assessee and consequently allowed the appeal.
Cases Discussed:
