Donation for CSR is Eligible for S.80G Deduction if Not Claimed as Business Expense Under S.37: ITAT Mumbai - 2025-01-17

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ITAT Mumbai Upholds Section 80G Deduction on CSR Donations, Quashes Revision Order

Mumbai, India – In a significant ruling, the Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has held that a company is entitled to claim a deduction under Section 80G of the Income Tax Act, 1961, for donations made as part of its mandatory Corporate Social Responsibility (CSR) obligations. The bench, comprising Accountant Member Shri Amarjit Singh and Judicial Member Shri Raj Kumar Chauhan, set aside a revisionary order by the Principal Commissioner of Income Tax (PCIT) that sought to disallow the claim.

The Tribunal ruled that as long as the CSR expenditure is not claimed as a business expense under Section 37(1), there is no bar on claiming a deduction for the same amount under Section 80G if it qualifies as a donation to an eligible institution.

Background of the Case

The case involved Millennium Developers Pvt. Ltd. for the Assessment Year 2017-18. The company had incurred CSR expenditure of ₹1.39 crore by donating to two registered entities: Gondia Education Society and The Indian Council for Mental Health.

In its income tax return, Millennium Developers did not claim this amount as a business expense, adhering to Explanation 2 of Section 37(1) which explicitly disallows CSR expenditure as a deduction against business profits. However, the company claimed a deduction of ₹50.86 lakh under Section 80G for these donations. The Assessing Officer (AO) examined the claim, verified the donation receipts and bank statements, and accepted the return.

Subsequently, the PCIT initiated revision proceedings under Section 263 of the Act, deeming the AO's order "erroneous and prejudicial to the interest of the revenue." The PCIT argued that CSR spending is an "application of income" and allowing an 80G deduction would indirectly defeat the legislative intent of disallowing CSR as a business expense.

Arguments Presented

Appellant's Arguments (Millennium Developers):

- The assessee contended that the AO had conducted proper inquiries before allowing the deduction, and therefore, the order was not erroneous.

- It was argued that there is no provision in the Income Tax Act that prohibits claiming an 80G deduction for a donation that also fulfills a company's CSR obligations.

- The company clarified it had not claimed a double benefit, having already disallowed the entire CSR amount as a business expense under Section 37(1).

Respondent's Arguments (Revenue Department):

- The Revenue, represented by the PCIT, maintained that the AO failed to properly apply the law.

- The core argument was that the explanatory notes to the Finance Act, 2014, clarified that CSR is an application of income and not a business expense. Allowing a deduction under a different section would subsidize the expenditure, contrary to the government's objective.

Tribunal's Analysis and Ruling

The ITAT conducted a detailed analysis of the AO's actions and the legal position on the matter. The Tribunal found that the AO had made specific inquiries about the deductions claimed under Chapter VI-A and had verified the submissions, including donation receipts and bank statements. This established that the AO's order was not passed without application of mind, a key prerequisite for invoking Section 263.

Citing the judgment of the Bombay High Court in CIT vs. Gabriel India Ltd. , the Tribunal reiterated that an order cannot be termed "erroneous" merely because the Commissioner holds a different view.

On the substantive legal question, the Tribunal relied on several coordinate bench rulings, including Blue Cross Laboratories Pvt. Ltd. vs. PCIT . The consistent view in these precedents is that the bar under Section 37(1) for CSR expenses does not extend to other sections of the Act.

The ITAT observed:

"We are of the considered opinion that the Ld. PCIT was not justified in invoking revision power u/s. 263 of the Act on the ground that the Ld. AO has failed to properly examine the issue before allowing benefit u/s. 80G of the Act... AO has rightly considered the claim of deduction u/s 80G on the expenditure which was part of CSR expenditure and has also examined the issue wherein the assessee has not claimed CSR expenditure."

Final Decision and Implications

The Tribunal concluded that the AO's order was neither erroneous nor prejudicial to the interest of the revenue. It held that the inquiry conducted by the AO was sufficient and the legal view taken was a plausible one. Accordingly, the ITAT allowed the appeal filed by Millennium Developers and quashed the PCIT's order under Section 263.

This judgment reinforces the legal position that donations made to eligible institutions under Section 80G can be claimed as a deduction, even if they are also counted towards fulfilling a company's mandatory CSR obligations, provided they are not simultaneously claimed as a business expenditure.