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2024 (12) TMI 457 - AT - Income TaxDeduction u/s 80G - expenses incurred on account of Corporate Social Responsibility ( CSR ) - payments forming part of CSR do not form part of the profit and loss account for computing Income under the head, Income from Business and Profession - HELD THAT - As decided in M/s Ratna Sagar Pvt. Ltd 2024 (8) TMI 1496 - ITAT DELHI 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 u/s 80G of the Act. 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. 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. There is no allegation of Revenue that other conditions of Section 80G are not fulfilled. We set aside the orders of the authorities below and accordingly decide the issue in dispute in favour of the assessee.
Issues:
1. Disallowance of deduction claimed under section 80G of the Income-tax Act. 2. Denial of deduction under section 80G related to eligible payments. 3. Interpretation of the legislative intent regarding disallowance of deduction under section 80G for CSR contributions. 4. Application of judicial precedents in determining the allowability of deduction under section 80G. 5. Initiation of penalty proceedings under section 270A of the Act. 6. Consideration of documents and explanations filed by the Appellant. Analysis: Issue 1: Disallowance of deduction claimed under section 80G The Appellant challenged the disallowance of the deduction claimed under section 80G of the Act for expenses incurred on Corporate Social Responsibility (CSR) activities. The Ld. CIT(A) upheld the disallowance, citing that the expenditure lacked the element of charity as it was obligatory under Section 135 of the Companies Act, 2013. The Ld. CIT(A) referred to a Supreme Court judgment emphasizing strict interpretation of exemption statutes in favor of revenue. The Appellant argued that the disallowance was unjustified and voluntary donations should qualify for deduction under section 80G. The Tribunal considered similar cases and held that CSR expenditure does not preclude the claim of deduction under section 80G, as long as the statutory conditions are met. Issue 2: Denial of deduction under section 80G for eligible payments The Assessment Centre/ Appeal Centre denied the deduction under section 80G for eligible payments, contending that CSR contributions were not allowable. The Tribunal, based on previous decisions, found that there was no legal restriction in Section 37 of the Act towards deductions under Chapter VI-A, which includes section 80G. It was established that the denial of deduction for CSR contributions was limited to specific funds mentioned in the Act and should not extend to other eligible donations. Issue 3: Interpretation of legislative intent for disallowance of deduction under section 80G The Tribunal analyzed the legislative intent behind disallowing CSR expenditure under section 37(1) of the Act, emphasizing that CSR expenses are not considered business expenditures. However, the Tribunal reasoned that CSR expenses, being an application of income, should still qualify for deduction under section 80G. The Tribunal highlighted that CSR expenses forming part of the total income should not be disallowed under section 80G, as there is no correlation between disallowance under section 37(1) and claiming deduction under section 80G. Issue 4: Application of judicial precedents on deduction under section 80G The Appellant relied on various ITAT decisions to support their claim for deduction under section 80G. The Tribunal considered these precedents and found that the issue in dispute was similar to cases where deductions for CSR expenditure were allowed under section 80G. The Tribunal followed the ratio of these decisions and allowed the grounds raised by the Appellant in the appeal. Issue 5: Initiation of penalty proceedings under section 270A The Assessment Centre initiated penalty proceedings against the Assessee under section 270A of the Act. The Tribunal did not find merit in the initiation of penalty proceedings based on the facts and circumstances of the case. The Tribunal did not delve into further details regarding the penalty proceedings. Issue 6: Consideration of documents and explanations filed by the Appellant The Appellant argued that the documents and explanations submitted were not properly considered and judicially interpreted by the authorities below. The Tribunal acknowledged this argument and observed that the material on record had been wrongly ignored. However, the Tribunal did not provide detailed analysis on how these documents and explanations should have been interpreted differently. In conclusion, the Tribunal allowed the Assessee's appeal, setting aside the orders of the authorities below and deciding the issues in dispute in favor of the Assessee based on the interpretation of relevant legal provisions and judicial precedents.
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