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2024 (7) TMI 1585 - AT - Income TaxDeduction u/s 80G - Corporate Social Responsibility ( CSR) under mandatory requirement of the Companies Act 2013 - HELD THAT - The assessee has fulfilled all the conditions for deduction u/s 80G in respect of deduction claimed. We also note there is no specific bar in section 80G for claiming deduction in respect of CSR expenditure if an assessee otherwise fulfill all the requirement of section 80G of the Act. In view of the cases Reliance Industries Ltd. 2023 (10) TMI 1313 - ITAT MUMBAI and Naik Seafoods Pvt. Ltd. 2021 (11) TMI 1168 - ITAT MUMBAI we uphold the finding of the Ld. CIT(A) on the issue in dispute. The ground of appeal of the Revenue is accordingly dismissed. 1. ISSUES PRESENTED and CONSIDERED The core legal question presented and considered in this judgment is whether the assessee is eligible for a deduction under Section 80G of the Income Tax Act, 1961, for expenditures incurred as part of Corporate Social Responsibility (CSR) obligations, which are mandated by the Companies Act, 2013. 2. ISSUE-WISE DETAILED ANALYSIS Relevant Legal Framework and Precedents The issue revolves around the interpretation of Section 80G of the Income Tax Act, 1961, which allows deductions for donations made to certain funds, charitable institutions, etc. The controversy arises because CSR expenditures are mandated by Section 135 of the Companies Act, 2013, and are not voluntary. The Finance (No. 2) Act, 2014, introduced Explanation 2 to Section 37(1) of the Income Tax Act, which explicitly disallows CSR expenditures as business expenses. Precedents considered include decisions from various ITAT benches, including:
Court's Interpretation and Reasoning The court interpreted that while CSR expenditures are not allowable as business expenses under Section 37(1), they can still qualify for deductions under Section 80G, provided they meet the requirements set forth in that section. The court noted that the legislative intent, as clarified in the explanatory memorandum to the Finance Act, was not to deny deductions for CSR expenditures outright, but rather to disallow them as business expenses. Key Evidence and Findings The court found that the assessee had claimed a deduction under Section 80G for 50% of the CSR expenditures, which were initially added back while computing the total income. The court noted that there is no specific bar in Section 80G against claiming deductions for CSR expenditures, as long as the conditions for the deduction are met. Application of Law to Facts Applying the law to the facts, the court upheld the CIT(A)'s decision to allow the deduction under Section 80G. The court found that the assessee had fulfilled all the conditions necessary for the deduction under Section 80G, and there was no specific prohibition against claiming such a deduction for CSR expenditures. Treatment of Competing Arguments The court considered the argument from the Revenue that CSR expenditures are a statutory obligation and not voluntary, and therefore should not qualify for a deduction under Section 80G, which is intended for voluntary donations. However, the court rejected this argument, reasoning that the legislative intent was not to deny deductions outright but to disallow them as business expenses under Section 37(1). Conclusions The court concluded that the assessee is eligible for the deduction under Section 80G for the CSR expenditures, as the conditions for the deduction were met and there was no specific prohibition against claiming such a deduction. 3. SIGNIFICANT HOLDINGS Preserve Verbatim Quotes of Crucial Legal Reasoning "The explanatory memorandum to Finance Act No. 2, 2014, introducing Explanation 2 to Section 37 (1) which prohibited the allowability of CSR expenditure as business expenditure. The memorandum clearly states that CSR expenditure described in sections 30 to 36 of the Income-tax Act, 1961 shall be allowed." Core Principles Established
Final Determinations on Each Issue The court upheld the CIT(A)'s decision to allow the deduction under Section 80G for the CSR expenditures, dismissing the Revenue's appeal and rendering the assessee's cross-objection academic.
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