Summary: A recent Mumbai Income Tax Appellate Tribunal ruling in the case of Dalal & Broacha Stock Broking (P.) Ltd. clarified the deductibility of Corporate Social Responsibility (CSR) donations under Section 80G of the Income Tax Act. The tribunal held that while CSR expenses are not deductible as business expenditure under Section 37(1), donations made as part of CSR to institutions registered under Section 80G are eligible for deduction. This decision upheld the Assessing Officer’s initial allowance of the deduction, quashing the Principal Commissioner of Income Tax’s revisionary order which argued that mandatory CSR spending lacked the “voluntary” element essential for a donation. The tribunal emphasized that Section 37(1) and Section 80G operate independently, with no specific bar in Section 80G for CSR-mandated donations, except for contributions to the Swachh Bharat Kosh or Clean Ganga Fund. This stance aligns with previous judicial decisions and CBDT Circular No. 1/2015, which explicitly states that CSR expenditure can be deductible under other provisions like Section 80G if conditions are met.
Deductibility of CSR Donations under Section 80G
1.Facts
In Dalal & Broacha Stock Broking (P.) Ltd., the assessee, a stock broking and share trading company, incurred Corporate Social Responsibility (CSR) expenses in line with section 135 of the Companies Act, 2013.
- During Assessment Year 2020–21, the assessee:
- Debited CSR expenses in its books.
- Suo motu disallowed them under section 37(1) while computing business income (consistent with the law that CSR expenses are not deductible as business expenditure).
- Nevertheless, claimed deduction under section 80G for 50% of the donations made to various charitable trusts and institutions registered under section 80G.
- The case was picked up for limited scrutiny specifically on large deductions under section 80G.
- The Assessing Officer:
- Issued notice.
- Examined the details of donations.
- Disallowed the deduction only for one donee (Urvashi Foundation) but allowed the claim under section 80G for the rest.
Later, the Principal Commissioner of Income Tax (PCIT) invoked revision under section 263 on the premise that:
- CSR expenditure was mandatory.
- Such spending was not “voluntary,” hence not eligible for deduction under section 80G.
- The AO’s order was “erroneous and prejudicial to the interest of the revenue.”
2. Law as It Is
The relevant legal position can be summarized as follows:
- Section 37(1) (as amended by Finance (No.2) Act, 2014) prohibits treating CSR expenditure as a business deduction.
- Explanation 2 to section 37(1) clarifies that any CSR expense under section 135 is not deemed to be expenditure incurred for business purposes.
- Section 80G, which governs deduction of donations to approved charitable institutions:
- No provision bars deduction for donations forming part of CSR unless such donations fall within specific exclusions—namely Swachh Bharat Kosh or Clean Ganga Fund.
- CBDT Circular No. 1/2015 (dated 21 January 2015) expressly states that while CSR expenditure is not allowable under section 37(1), it can be deductible under other provisions, including section 80G, if conditions are met.
3. Contentions of the Assessee & Revenue
Assessee’s Contention
- CSR donations are donations in nature, irrespective of the statutory mandate.
- Section 80G does not impose any requirement that donations be “voluntary,” only that they be contributions to eligible institutions.
- The donations were made to approved charitable trusts, properly documented, and through verifiable banking channels.
- AO conducted due inquiry and exercised a judicial view—hence the assessment could not be considered erroneous.
Revenue’s Contention
- CSR expenditure arises due to statutory obligation, lacking the element of voluntariness essential for a “donation.”
- Allowing deduction under section 80G would defeat the legislative intent of disallowing CSR as deductible expenditure.
- The assessment order did not discuss this issue adequately, rendering it erroneous and prejudicial to revenue.
4. Conclusion and Basis of Conclusion
Conclusion by the Tribunal
- The AO had examined the claim in detail. He requested and reviewed the donation records, disallowed a portion, and allowed the rest. This demonstrates due application of mind.
- There is no statutory bar in section 80G on allowing deduction merely because the donation arose from a CSR obligation.
- Section 37(1) and section 80G are independent provisions:
- Section 37(1) disallows CSR as a business deduction.
- Section 80G allows deduction for donations satisfying its specific criteria.
- The mere difference of opinion by the PCIT does not render the assessment erroneous.
- Therefore, the revisionary order under section 263 was quashed, and the AO’s order restored.
Basis
- Judicial consistency across prior decisions: Gabriel India Ltd., Axis Securities Ltd., Sharda Cropchem Ltd., Vimal Coal (P.) Ltd.
- CBDT Circular No. 1/2015 and MCA FAQ explicitly clarify the scope of section 37(1) and 80G.
- No express statutory prohibition in section 80G for CSR donations.
- The principle of expressio unius est exclusio alterius—since Parliament chose to exclude only Swachh Bharat Kosh and Clean Ganga Fund, other eligible donations remain deductible.
Citations of Relevant Case Laws
i. American Express (India) Pvt. Ltd. v. Principal Commissioner of Income-tax
[2024] 166 taxmann.com 91 (Delhi – Trib.) / [2024] 208 ITD 564 (Delhi – Trib.)
ii. Advik Hi-Tech (P.) Ltd. v. Deputy Commissioner of Income-tax
[2024] 168 taxmann.com 587 (Pune – Trib.)
iii. Phillips Carbon Black Ltd. v. Deputy Commissioner of Income-tax
[2025] 175 taxmann.com 352 (Kolkata – Trib.)
iv. Gabriel India Ltd. v. Deputy Commissioner of Income-tax
[2025] 173 taxmann.com 219 (Mumbai – Trib.) / [2025] 212 ITD 468 (Mumbai – Trib.)
v. Vimal Coal (P.) Ltd. v. Deputy Commissioner of Income-tax
[2025] 175 taxmann.com 694 (Ahmedabad – Trib.)
vi. Axis Securities Ltd. v. Principal Commissioner of Income-tax
[2025] 175 taxmann.com 982 (Mumbai – Trib.)
vii. Dalal and Broacha Stock Broking (P.) Ltd. v. Principal Commissioner of Income-tax
[2025] 175 taxmann.com 984 (Mumbai – Trib.)
viii. ACIT v. Sharda Cropchem Ltd.
ITA Nos. 6163/Mum/2024 and 6164/Mum/2024 (Mumbai ITAT)
ix. Alubond Dacs India Private Limited v. DCIT
ITA No. 3663/Mum/2023 (Mumbai ITAT)
x. Dosti Realty Limited v. Assistant Commissioner of Income-tax
ITA No. 5897/Mum/2024 (Mumbai ITAT)
Illustration of Application
Example
Assume ABC Pvt. Ltd., a large manufacturing company, is obligated to spend ₹50 lakhs on CSR. It donates ₹30 lakhs to a trust registered under section 80G.
- ABC disallows the ₹50 lakhs under section 37(1) in its computation of business income.
- ABC then claims a deduction of 50% of ₹30 lakhs (i.e., ₹15 lakhs) under section 80G.
- The claim is allowable if:
- The trust is approved under section 80G(5).
- The payment is made through banking channels.
- It is not a donation to Swachh Bharat Kosh or Clean Ganga Fund.
The AO must examine and verify these conditions. Once satisfied, the deduction is correctly allowed. A subsequent difference of opinion by the Commissioner will not justify revision under section 263.
Key Takeaways
CSR expenditure is not allowable under section 37(1) as a business deduction.
However, donations forming part of CSR are allowable under section 80G, provided:
- Donations are made to institutions registered under section 80G.
- They do not fall under excluded categories.
CBDT Circulars and judicial precedents consistently support this position.
Mere disagreement with the AO’s decision does not render the assessment “erroneous” under section 263.
Taxpayers should maintain clear records of donations, payment channels, and eligibility certificates to withstand scrutiny.
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