2024 (8) TMI 540 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - as argued AO has not duly recorded his satisfaction with regard to the claim of expenditure in relation to the exempt income which does not form part of total income - HELD THAT - As in Assessee s own case 2023 (1) TMI 1401 - ITAT DELHI as held hold that the AO has not recorded any objective satisfaction in not accepting suo moto disallowance made by the assessee. Thus, we direct the AO to accept the suo moto disallowance made by the AO in respect of disallowance u/r 8D(2)(iii) read with section 14A of the Act. Also the assessee succeeds in as much as it has been held in the case of Vireet Investments Pvt. Ltd. 2017 (6) TMI 1124 - ITAT DELHI held for disallowance u/s 14A r.w.r.8D, only those investment should be considered which has not yielded exempt income. Decided in favour of assessee. Deduction claimed under chapter VIA on account of donation made and claimed u/s 80G - HELD THAT - Section 80G(2)(a) allows deduction for 'any sums paid by the assessee in the previous year as donations'. Thus, the deduction allowable is for sums paid as donation. Donations paid to the said Kosh and Fund are not allowable u/s 80G(2)(a)(iiihk) and (iiihl) as explained above. What is not allowable is however amounts spent by the assessee in pursuance of CSR in pursuance of section 135 of the Companies Act 2013. Contributions to the said Kosh and Fund are CSR activities included in Schedule VII to the Companies Act 2013, The disallowance for deduction u/s 80G vis-a-vis CSR can be restricted only to contributions to these Funds under CSR. It is a well-established rule of interpretation that one must look merely at what is stated in the statute; there is no scope for intendment in law. So only contributions to these two funds will not qualify for deduction u/s 80G(2)(a) of the Act. No error or infirmity in the order of the CIT(A) in directing the A.O. to allow the deduction claimed u/s 80G of the Act. Decided against revenue.

Summary

Issues Involved:
1. Deletion of disallowance under Section 14A of the Income Tax Act for Assessment Years 2017-18, 2018-19, and 2020-21.
2. Deletion of disallowance under Section 80G for Assessment Year 2020-21.

Detailed Analysis:

1. Deletion of Disallowance under Section 14A:

The Revenue challenged the orders of the CIT(A) that deleted disallowances made under Section 14A of the Income Tax Act for Assessment Years 2017-18, 2018-19, and 2020-21. The primary contention was whether the Assessing Officer (AO) had duly recorded satisfaction regarding the claim of expenditure related to exempt income, which does not form part of the total income.

The AO observed that the assessee had made investments in bonds and mutual funds, earning exempt income. The assessee had made a suo-moto disallowance of expenses related to this exempt income but did not provide a satisfactory basis for the allocation of expenses. Consequently, the AO computed the disallowance under Section 14A read with Rule 8D of the Income Tax Rules, 1962.

The CIT(A) deleted these disallowances, relying on the decision of the ITAT in the assessee's own case for the previous assessment year, where it was held that the AO had not recorded proper satisfaction in rejecting the assessee's suo-moto disallowance. The ITAT reiterated that the AO must record satisfaction that the assessee's disallowance was not correct before applying Rule 8D.

Upon review, the Tribunal found no change in circumstances or law that would warrant a different conclusion. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO had not recorded any objective satisfaction regarding the inadequacy of the assessee's disallowance. Thus, the appeals by the Revenue on this ground were dismissed.

2. Deletion of Disallowance under Section 80G:

For Assessment Year 2020-21, the Revenue also challenged the CIT(A)'s order deleting the disallowance of Rs. 72,46,141/- claimed under Section 80G for donations made by the assessee. The AO had disallowed the claim on the basis that the donations were part of the Corporate Social Responsibility (CSR) activities mandated by Section 135 of the Companies Act, 2013, and thus lacked the voluntary character necessary for a deduction under Section 80G.

The CIT(A) disagreed, stating that there is no correlation between Section 37(1) and Section 80G. The CIT(A) pointed out that Section 80G specifically mentions certain contributions that do not qualify for deduction, but the donations made by the assessee did not fall under these exclusions. The CIT(A) concluded that the legislative intent was clear that apart from specified exclusions, other donations do qualify for deduction under Section 80G.

The Tribunal agreed with the CIT(A), noting that only contributions to specific funds mentioned in Section 80G(2)(a)(iiihk) and (iiihl) are excluded from deductions under CSR activities. Therefore, the donations made by the assessee to a trust registered under Section 12AA/80G were eligible for deduction. The Tribunal found no error in the CIT(A)'s order and dismissed the Revenue's appeal on this ground.

Conclusion:

The Tribunal upheld the CIT(A)'s orders, dismissing the Revenue's appeals for all three assessment years. The disallowances under Section 14A were deleted due to the AO's failure to record proper satisfaction, and the disallowance under Section 80G was deleted as the donations qualified for deduction despite being part of CSR activities.