2023 (10) TMI 1437 - AT - Income Tax

Deduction u/s 80G on CSR expenditure - lower authority held that a sum does not qualify as a donation at all - Donation made by the assessee out of the CSR obligations as per provision of section 135 of the Companies Act, 2013 can be considered for deduction under chapter VIA u/s. 80G or not? - amendment made in the section 37(1) restricting the deduction of CSR expenditure is applicable from assessment year 2015-16 and the year under consideration is A. Y. 2020-21. HELD THAT - Since the said trust is registered with the Income Tax Department and therefore contributions/ donations made to the said trust were considered eligible for deduction u/s 80G of the Income Tax Act by the assessee. As the deduction allowable to the assessee company u/s 80G of the Income Tax Act was computed at Rs 17,16,540/ and the same was claimed as deduction from the total income in accordance with the provisions of chapter VI of the Income Tax Act, as the payee was recognized to accept the donations which is eligible for deduction u/s. 80G of the Act. Whether the deduction restricted u/s. 37(1) for an expenditure while computing the income of the assessee is also restricted u/s. 80G - Under the Income Tax once the Gross total income is computed the assessee is allowed deduction under chapter VIA of the Act of the certain payments and section 80G comes under that Chapter. Thus, the deduction is allowed after the income is computed under chapter VIA. Thus, the point of disallowance u/s. 37(1) and donation is considered as deduction even if the same is disallowed while computing the total income of the assessee and the same is the case here. Thus, the point of disallowance and deduction are different. Thus, for claiming deduction u/s. 80G of the Act even if the payment is not considering while computing the income of the as per provision of section 37(1) in this case. The bench notes that section 80G(2)(iiihk) and (iiihl) specific excluded as it is evident from the extract of section 80G of the Act. Except for contribution u/s. 80G towards Bharat Kosh and Clean Ganga fund, all other payments are eligible for donation u/s. 80G as it clear from the provision of the Act. Therefore, we are of the considered view that the deduction cannot be denied to the assessee based on the provision of the Act. Similar view is taken by the coordinate bench in the case of First American (India) Private Limited 2020 (5) TMI 187 - ITAT BANGALORE wherein the coordinate bench held authorities below have erred in denying claim of assessee under section 80G of the Act. We also note that authorities below have not verified nature of payments qualifying exemption u/s 80G of the Act and quantum of eligibility as per section 80G(1). Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Legality of the NaFAC order.
2. Denial of deduction under Section 80G.
3. Judicial discipline and binding precedents.
4. Restrictions on claiming deduction under Section 80G.
5. Nature of payments under Section 80G.
6. CSR obligations and their linkage with Section 80G.
7. Relief from interest under Sections 234B & 234C.

Detailed Analysis:

1. Legality of the NaFAC Order:
The appellant argued that the order passed by the National Faceless Appeal Centre (NaFAC) was "bad in law" and should be set aside. The Tribunal reviewed the facts and submissions, confirming that the appellant's return of income was processed under Section 143(1) and later selected for complete scrutiny. The Assessing Officer (AO) disallowed the claim of deduction under Section 80G, and the NaFAC upheld this decision. The Tribunal found no procedural irregularities in the NaFAC's order, thus dismissing the appellant's claim on this ground.

2. Denial of Deduction under Section 80G:
The primary issue was whether the appellant, a closely held company, could claim a deduction under Section 80G for donations made as part of its Corporate Social Responsibility (CSR) obligations. The AO disallowed the deduction on the grounds that CSR expenses are mandatory and not voluntary, which is a requisite for donations under Section 80G. The Tribunal upheld this view, stating that CSR expenditures are not "voluntary" but "mandatory" and thus do not qualify as donations eligible for deduction under Section 80G.

3. Judicial Discipline and Binding Precedents:
The appellant contended that the NaFAC's order was contrary to binding precedents and did not distinguish or assign reasons for deviating from them. The Tribunal reviewed relevant case laws cited by the appellant, including judgments from various ITAT benches and the Supreme Court. However, it found that these precedents did not apply to the specific facts of the case, particularly the mandatory nature of CSR expenditures under the Companies Act, 2013.

4. Restrictions on Claiming Deduction under Section 80G:
The appellant argued that no restrictions were imposed under the Income Tax Act for claiming deductions under Section 80G when payments were made to eligible entities. The Tribunal clarified that while Section 80G allows for deductions on donations, the nature of CSR expenditures as mandatory obligations disqualifies them from being considered as voluntary donations.

5. Nature of Payments under Section 80G:
The Tribunal emphasized that for a payment to qualify as a donation under Section 80G, it must be voluntary. The mandatory nature of CSR expenditures under the Companies Act, 2013, means they cannot be considered voluntary donations, thus disqualifying them from deductions under Section 80G. The Tribunal cited the Andhra Pradesh High Court and the Supreme Court to support its interpretation of "donation."

6. CSR Obligations and Their Linkage with Section 80G:
The appellant argued that CSR obligations under the Companies Act have no linkage with Section 80G except as provided in specific clauses. The Tribunal acknowledged this but reiterated that the mandatory nature of CSR expenditures disqualifies them from being considered voluntary donations eligible for deduction under Section 80G. The Tribunal also noted that specific exclusions for CSR-related contributions to Swachh Bharat Kosh and Clean Ganga Fund further support this interpretation.

7. Relief from Interest under Sections 234B & 234C:
The appellant sought relief from interest under Sections 234B and 234C. The Tribunal did not find it necessary to adjudicate this issue separately, as the primary grounds for appeal were dismissed.

Conclusion:
The Tribunal upheld the AO's decision to disallow the deduction under Section 80G for CSR expenditures, confirming that such expenditures are mandatory and do not qualify as voluntary donations. The appeal was dismissed in its entirety.