CSR Expenditure Is Mandatory, Does Not Justify Disallowance Of Section 80G Deduction: ITAT
The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has held that expenditures under corporate social responsibility (CSR) are mandatory and does not justify disallowance of these expenditures under Section 80G of the Income Tax Act if other conditions of Section 80G are fulfilled. The bench of Anubhav Sharma (Judicial Member) and M. Balaganesh (Accountant Member) has observed that...
The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has held that expenditures under corporate social responsibility (CSR) are mandatory and does not justify disallowance of these expenditures under Section 80G of the Income Tax Act if other conditions of Section 80G are fulfilled.
The bench of Anubhav Sharma (Judicial Member) and M. Balaganesh (Accountant Member) has observed that the voluntary nature of donation is by nature the fact that it is not on the basis of any reciprocal promise of donee. The CSR expenditures are also without any reciprocal commitment from the beneficiary, which is philanthropic in nature. The Income Tax Act permits deduction of donations as per Section 80G, even though the assessee is not gaining any benefit from any reciprocity from the donee. Similar is the case with CSR expenditure.
The appellant or assessee is in the business of rendering data processing services and exporting. The appellant filed a return of income under Section 139(1), declaring income. Assessment was completed by the assessing officer under Section 143(3) of R.W.S. 144B, assessing the income of the appellant, after two disallowances.
The donations made as part of CSR expenditure were suo-motu disallowed by the appellant under Section 37(1). However, the assessing officer disallowed the entire deduction claimed by the appellant on the ground that donations forming part of CSR expenditure are not allowable as deductions under Section 80G.
The CIT(A) observed that donations to the extent of Rs. 1,19,87,840 were not paid as part of CSR expenses; however, the CIT(A) confirmed the disallowance on the ground that it was made beyond March 31, 2020. Similarly, a donation of Rs. 12,89,400 made to Uththaan was disallowed by the CIT (A) on the ground that the payment was made beyond the end of the financial year without prejudice to the eligibility of CSR expenditure.
The assessee contended that it suo-motu disallowed the expenditure incurred as part of CSR activities in accordance with the provisions of Section 37(1). However, for the purpose of claiming deduction under Section 80G, the donations made as part of CSR expenditure were considered. It was submitted that the law in this regard is now quite settled. The disallowance of deductions claimed under Section 80G will result in double disallowance, which is not provided for by the Legislature.
The tribunal held that as CSR expenditure is an application of the income of the assessee under the Income Tax Act, that means it continues to form part of the total income of the assessee. Section 80G(1) provides that in computing the total income of an assessee, there shall be deducted, in accordance with the provisions of this section, any sum paid by the assessee in the previous year as a donation. Section 80G(2) lists the sums on which deductions shall be allowed to the assessee. Section 80G falls under Chapter VIA, which comes into play only after the gross total income has been computed by applying the computation provisions under various heads of income, including Explanation 2 to Section 37(1). Thus, there is no correlation between suo-moto disallowance in Section 37(1) and the claim of deduction under Section 80G.
Counsel For Appellant: Rohit Jain
Counsel For Respondent: Sandeep Kr. Mishra
Case Title: Interglobe Technology Quotient Private Limited Versus ACIT
Case No.: ITA No. 95/DEL/2024