Corporate Social Responsibility expenditures can qualify for tax deductions under Section 80G provided they meet the statutory requirements.

PER VIKRAM SINGH YADAV, A.M :

This is an appeal filed by the assessee against the order of the Learned Principal Commissioner of Income Tax-Mumbai-3 [„Ld.PCIT‟], dated 28-03-2025 passed u/s. 263 of the Income Tax Act, 1961 („the Act‟), pertaining to Assessment Year (AY) 2020-21.

2. During the course of hearing, the Ld.AR taken us through the findings of the Ld.PCIT, which are contained at paragraph No. 7.2 and 7.3 of the impugned order and the contents thereof read as under:

“7.2 DEDUCTION OF RS. 11,50,000/- CLAIMED AS DEDUCTION U/S 80G OF THE ACT:

On perusal of the submission, it is observed that the assessee has paid Rs. 23,00,000/- as EdelGive Foundation on 31.7.2020 within the extended time limit as per the Taxation and Other Laws(Relaxation of Certain Provisions) Ordinance, 2020 on 31.3.2020 and the CBDT’s Notification No. 35 of 2020, wherein the date for making deduction in respect of certain payments for AY 2020-21 has been extended to 31.7.2020. Therefore, the assessee has claimed 50% of this amount, i,e Rs. 11,50,000/- (50% of Rs. 23,00,000/-)as deduction under section 80G of the Act for the AY 2020-21 in its Return of Income and in the computation of income.

Now the question arises as to whether this payment is a Corporate Social Responsibility expenditure or not. As per the statutory audit report for the FY 2020-21, this amount of Rs. 23,00,000/- has been claimed as Corporate Social Responsibility, as it has been paid in July 2020. However, the claim of deduction under section 80G has been made in FY 19-20 relevant to AY 2020-21 in the Income Tax Return and in the computation of Income. Further, as per note 2.51 to the statutory audit report for the FY 19-20, EdelGive Foundation is the CSR Arm of the Edelweiss Group. Therefore, any payment to the CSR Arm of the Edelweiss Group by its entities partake the character of Corporate Social Responsibility expenses.

Therefore, it is concluded that the amount of Rs. 23,00,000/- paid on 31.7.2020 to EdelGive Foundation is a Corporate Social Responsibility Expenses. Once it is a corporate social responsibility, the assessee cannot claim 50% of this amount as deduction under section 80G of the Act. It is a fact that some of the Hon’ble Tribunals have decided the allowability of CSR Expenses as a deduction u/s 80G in favour of the assessee. However, the department has not accepted the view of the tribunal and revenue has filed appeals before the Hon’ble High Courts.

If this view of the assessee to allow the CSR expenses as a deduction u/s 80G is allowed, then it would set a precedent for the future assessments and the revenue shall not able to able to present the case before the Hon’ble High Courts. The High Court of Madras in Venkatakrishna Rice Co. v. CIT [1987] 163 ITR 129 interpreting ’prejudicial to the interests of the revenue’. The High Court held, "In this context, it must be regarded as involving a conception of acts or orders which are subversive of the administration of revenue. There must be some grievous error in the Order passed by the ITO, which might set a bad trend or pattern for similar assessments, which on abroad reckoning, the Commissioner might think to be prejudicial to the interests of Revenue Administration". Therefore, the assessment order is erroneous in so far as it is prejudicial to the interest of the revenue and it is set aside to the AO on this issue with the following direction.

DIRECTION:

The AO is directed to disallow this amount of Rs. 11,50,000/- claimed as deduction under Section 80G , as the assessee has paid Rs. 23,00,000/- as CSR to EdelGive Foundation and claimed 50% of this amount as deduction u/s 80G of the Act in the computation of Income.

7.3 DEDUCTION OF RS. 15,77,192/- ON ACCOUNT OF CESS:

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