2024 (5) TMI 1542 - AT - Income Tax

Disallowance of deduction u/s 80G - donations forming part of Corporate Social Responsibility ( CSR ) - Revenue s only argument is that once the impugned expenditure is not allowable u/sec. 37 the same is also not exigible to sec. 80G deduction as well - HELD THAT - We find no substance in Revenue s instant sole substantive grievance as the Ld. CIT(A) s detailed discussion has considered a catena of case law of various judicial forums already accepting the very issue in assessee s favour and against the department. We thus adopt judicial consistency herein as well to uphold the Ld. CIT(A) s detailed discussion accepting the assessee s sec. 80G deduction claim. Revenue appeal dismissed.

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment are:

1. Whether the CIT(A) erred in allowing the assessee's claim for deduction under section 80G of the Income Tax Act, 1961, for donations amounting to Rs. 4,55,13,521/- that formed part of Corporate Social Responsibility (CSR) expenditure.

2. Whether the CIT(A) was correct in setting aside the matter back to the Assessing Officer (AO) for verification of the conditions necessary for the deduction under section 80G.

ISSUE-WISE DETAILED ANALYSIS

Issue 1: Deduction under Section 80G for CSR Expenditure

Relevant legal framework and precedents: The legal framework centers around section 80G of the Income Tax Act, which allows deductions for donations to certain funds and charitable institutions. The controversy arises from the interplay between CSR expenditures and deductions under section 80G, particularly given the restrictions in section 37 of the Act regarding CSR expenses.

Court's interpretation and reasoning: The Tribunal noted that the CIT(A) had allowed the deduction under section 80G by relying on precedents, including the decision of ITAT Bangalore in the case of Allegi Services (India) Pvt Ltd vs ACIT. The Tribunal emphasized that deductions under section 80G are considered at the stage of computing "Total Taxable Income," separate from business income computations under sections 30 to 36.

Key evidence and findings: The CIT(A) found that the donations made by the assessee were to institutions registered under section 80G(5) and that all requisite conditions for the deduction were satisfied. The Tribunal upheld this finding, noting the CIT(A)'s reliance on various judicial decisions that supported the assessee's position.

Application of law to facts: The Tribunal agreed with the CIT(A) that CSR expenditures could qualify for deductions under section 80G, provided the donations meet the necessary conditions. The Tribunal found no merit in the Revenue's argument that disallowance under section 37 automatically precludes section 80G deductions.

Treatment of competing arguments: The Revenue's argument was that CSR expenditures disallowed under section 37 cannot qualify for section 80G deductions. The Tribunal rejected this, emphasizing judicial consistency and the distinct nature of deductions under section 80G.

Conclusions: The Tribunal concluded that the CIT(A) correctly allowed the deduction under section 80G, subject to verification by the AO.

Issue 2: Remanding the Matter for Verification

Relevant legal framework and precedents: The Tribunal considered the procedural aspect of remanding the matter for verification, which is a common practice when factual determinations are necessary.

Court's interpretation and reasoning: The Tribunal upheld the CIT(A)'s decision to remand the matter to the AO for verification of the conditions necessary for the deduction under section 80G. The Tribunal found this approach reasonable and consistent with judicial practice.

Key evidence and findings: The Tribunal noted that the CIT(A) directed the AO to verify whether the conditions for section 80G deduction were satisfied, allowing the assessee to furnish relevant details.

Application of law to facts: The Tribunal found the remand appropriate, ensuring that the AO verifies compliance with section 80G requirements.

Treatment of competing arguments: The Tribunal did not find any substantial argument from the Revenue against the remand for verification.

Conclusions: The Tribunal agreed with the CIT(A)'s decision to remand the issue for verification, ensuring proper application of section 80G.

SIGNIFICANT HOLDINGS

The Tribunal upheld the CIT(A)'s decision allowing the deduction under section 80G for CSR expenditures, subject to verification by the AO. The Tribunal emphasized judicial consistency and the distinct nature of deductions under section 80G compared to disallowances under section 37. The Tribunal's decision reinforces the principle that CSR expenditures can qualify for section 80G deductions if they meet the necessary conditions, despite being disallowed under section 37 for business income purposes. The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s detailed discussion and reliance on precedents.

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