2024 (8) TMI 1496 - AT - Income Tax

Disallowance of 80G claim - Addition being 50% donation paid to Saint Francies Home (Regd.) Society, Pathankot out of CSR funds - HELD THAT - Identical issue has been decided in Interglobe Technology Quotient Private Limited 2024 (6) TMI 8 - ITAT DELHI legislative intent and the rationale of disallowance of CSR expenditure referred to in section 135 of the Companies Act, that such expenditure is application of income and not incurred for the purposes of business. We are of considered view that this in itself justifies the grant of deduction u/s 80G. As CSR expenditure is application of 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) of the Act provides that in computing the total income of an assessee, there shall be deducted, in accordance with the provisions of this section, such sum paid by the assessee in the previous year as a donation. Further, section 80G(2) lists down the sums on which deduction shall be allowed to the assessee. Section 80G falls in 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 the Explanation 2 to section 37(1) of the Act. Thus, there is no correlation between suo-moto disallowance in section 37(1) and claim of deduction under section 80G. As with regard to the reasoning that CSR expenditure are not voluntary but mandatory in nature due to penal consequences, we are of considered view that voluntary nature of donation is by nature of fact that it is not on the basis of any reciprocal promise of donee. The CSR expenditures are also without any reciprocal commitment from beneficiary being philanthropic in nature. The Act permits deduction of donations as per Section 80G of the Act, even though, assessee is not gaining any benefit out of any reciprocity from donee. Similar is the case of CSR expenditure. Thus the reasoning of learned Tax Authority, the CSR expenditure is mandatory, does not justify disallowance of these expenditures u/s 80G, if other conditions of section 80G are fulfilled. Assessee appeal allowed.

Summary

Issues:
Disallowance of 80G claim for donation made out of CSR funds.

Analysis:
The appeal was filed against the disallowance of a deduction claimed under section 80G of the Income Tax Act for a donation made to a trust out of Corporate Social Responsibility (CSR) funds. The Assessing Officer denied the deduction stating that CSR expenditure is not allowable under the Act. The Commissioner of Income Tax (Appeals) upheld the AO's decision. The appellant contended that the issue was covered by ITAT decisions in similar cases. The ITAT referred to previous judgments and legislative provisions to support its decision. The ITAT noted that CSR expenses are not voluntary but mandatory due to penal consequences, yet they are philanthropic in nature without reciprocal commitment from the beneficiary. The ITAT held that the legislative intent behind disallowing CSR expenditure as a business deduction did not preclude claiming a deduction under section 80G. The ITAT found the issue in dispute to be identical to a previous case and ruled in favor of the appellant, deleting the addition sustained by the CIT(A) and allowing the appeal.

The ITAT emphasized that the legislative intent behind disallowing CSR expenditure as a business deduction did not affect the eligibility for a deduction under section 80G. The ITAT highlighted that the application of income for CSR purposes does not preclude claiming a deduction under section 80G, as CSR expenses are philanthropic in nature and do not involve reciprocal commitments from beneficiaries. The ITAT clarified that the voluntary nature of donations under section 80G is not based on reciprocal promises from the donee, similar to CSR expenditures. The ITAT found no justification for disallowing CSR expenditures under section 80G if all conditions of the provision are met, as there was no allegation that the conditions were not fulfilled in this case.

In conclusion, the ITAT allowed the appeal, deleting the addition sustained by the CIT(A) and ruling in favor of the appellant. The ITAT based its decision on the legislative provisions, previous judgments, and the nature of CSR expenditures and donations under section 80G. The ITAT found the issue to be identical to a previous case and followed the binding precedent to grant the deduction claimed by the appellant.