CSR contributions, if compliant with section 80G requirements, do not lose qualification for deductions despite being statutorily mandated.

PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER:

This appeal has been filed by the Assessee against the order passed by the Ld. Principal Commissioner of Income Tax-3, (in short “Ld. PCIT”), Ahmedabad vide order dated 30.03.2025 passed for A.Y. 2020-21.

2. The assessee has taken the following grounds of appeal:

“Order passed u/s 263 of the Act is bad in law and without jurisdiction:

1. erred in passing the order u/s 263 of Act without providing an Opportunity of being heard on the issue for which assessment is set aside;

2. erred in setting aside the assessment completed u/s 143(3) r.w.s. 144B of the Act by the Faceless assessing officer as erroneous and prejudicial to the interest of revenue without appreciating that such an action can be taken only by PCIT having jurisdiction under Faceless regime;

3. erred in setting aside the assessment completed u/s. 143(3) rrw.s 144B of the Act for a debatable issue of allowability of deduction under section 80G on donations made as a part of CSR expenditure, which is outside the purview of revision proceedings under section 263 of the Act;

4. failed to appreciate that the assessment order u/s 143(3) r.w.s. 144B of the Act is neither erroneous nor prejudicial to the interest of the revenue as the same was duly passed basis requisites documents available with the AO and as supported by judicial precedents; and Disallowance of deduction u/s 80G:

5. erred in directing disallowance of deduction u/s 800 on donations made as a part of CSR expenditure of Rs. 17.50,000/- without appreciating that the claim of deduction fulfils all prescribed conditions;

The Appellant craves leave to add, amend, delete, rectify, substitute, modify, or otherwise, all or any of the aforesaid grounds or add a new ground(s) at any time before or during the hearing of the above appeal.”

3. The brief facts of the case are that the assessee-company had originally filed its return of income on 06.02.2021 declaring a total income of ₹14,16,80,730/-, and the case was selected for complete scrutiny under CASS. The assessment was completed under section 143(3) read with section 144B of the Act, accepting the return of income filed by the assessee, without any variation. On subsequent verification of records, the Principal Commissioner of Income-Tax (Principal CIT) noticed two significant issues in the assessment order which rendered it erroneous and prejudicial to the interest of the Revenue. Firstly, it was observed that the assessee had opted for taxation under section 115BAA of the Act and computed tax at the concessional rate of 22%, which is permissible only if certain specified deductions, including those under Chapter VIA, are foregone by the assessee. However, the assessee had claimed a deduction of ₹17,50,000/- under section 80G of the Act on account of donations forming part of its CSR expenditure. The PCIT noted that CSR expenditure, being a statutory obligation under section 135 of the Companies Act , 2013, cannot be considered voluntary in nature and hence does not qualify as a “donation” under section 80G of the Act. Therefore, the deduction claimed by the assessee u/s 80G of the Act was not allowable under the Act. The Principal CIT further observed that the legislative intent behind CSR provisions was to impose a mandatory social responsibility on corporations, whereas section 80G of the Act covers voluntary contributions made without legal compulsion. Allowing deduction for CSR spending under section 80G of the Act would, therefore, defeat the purpose of the CSR legislation by effectively shifting the burden to the exchequer through tax benefits. Secondly, the PCIT held that the Assessing Officer failed to make any inquiry or verification on this issue during the original assessment proceedings. The AO neither raised