Nyati Builders Private Limited Vs ACIT (ITAT Pune)
The Pune Bench of the Income Tax Appellate Tribunal (ITAT) adjudicated an appeal concerning the disallowance of deduction claimed under Section 80G of the Income-tax Act, 1961, in respect of amounts forming part of Corporate Social Responsibility (CSR) expenditure for Assessment Year (AY) 2018–19.
The assessee, a company engaged in real estate development and construction, filed its return declaring income under normal provisions and book profit under Section 115JB. During scrutiny assessment, the Assessing Officer (AO) noticed that the assessee had debited CSR expenditure in its profit and loss account, which was disallowed under Section 37. Out of the total CSR-related payments, the assessee had claimed deduction under Section 80G amounting to ₹56,68,900 in respect of donations aggregating to ₹1,13,37,800.
The AO held that deduction under Section 80G was not allowable since the expenditure was CSR in nature, being mandatory under the Companies Act, 2013, and allowing such deduction would amount to subsidising CSR expenditure, which was not intended by the legislature. Accordingly, the AO disallowed the Section 80G claim and completed the assessment by adding ₹56,68,900.
On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] upheld the general principle that CSR expenditure is not a “donation” as it lacks voluntariness and therefore does not qualify for deduction under Section 80G. The CIT(A) relied on the mandatory nature of CSR under Section 135 of the Companies Act, the Explanatory Notes to the Finance Act, 2014, and the legislative intent behind the insertion of Explanation 2 to Section 37, concluding that CSR expenditure is an application of income and not eligible for tax deduction.
