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2020 (5) TMI 187 - AT - Income TaxDeduction u/s 80G - Assessee company engaged in the business of BPO operations, software services and developing, designing and selling of IT infrastructure - HELD THAT - For claiming benefit under section 80G, deductions are considered at the stage of computing Total taxable income . Even if any payments under section 80G forms part of CSR payments( keeping in mind ineligible deduction expressly provided u/s.80G), the same would already stand excluded while computing, Income under the head, Income form Business and Profession . The effect of such disallowance would lead to increase in Business income. Thereafter benefit accruing to assessee under Chapter VIA for computing Total Taxable Income cannot be denied to assessee, subject to fulfillment of necessary conditions therein. AR submitted that all payments forming part of CSR does not form part of profit and loss account for computing Income under the head, Income from Business and Profession . It has been submitted that some payments forming part of CSR were claimed as deduction under section 80G of the Act, for computing Total taxable income , which has been disallowed by authorities below. In our view, assessee cannot be denied the benefit of claim under Chapter VI A, which is considered for computing Total Taxable Income . If assessee is denied this benefit, merely because such payment forms part of CSR, would lead to double disallowance, which is not the intention of Legislature. Authorities below have erred in denying claim of assessee under section 80G of the Act. We also note that authorities below have not verified nature of payments qualifying exemption under section 80G of the Act and quantum of eligibility as per section 80G(1). We are remitting the issue back to Ld.AO for verifying conditions necessary to claim deduction under section 80G - Assessee appeal allowed for statistical purposes.
Issues Involved:
1. Denial of deduction under Section 80G of the Income-tax Act. 2. Interpretation of CSR expenses and their eligibility for deduction under Section 80G. 3. Impact of Explanation 2 to Section 37(1) on CSR expenditure. 4. Verification of conditions necessary to claim deduction under Section 80G by the Assessing Officer. Issue 1: Denial of deduction under Section 80G of the Income-tax Act: The appellant contested the order passed by the Commissioner of Income-tax (Appeals) (CIT(A)), claiming it to be bad in law and seeking to set it aside. The Assessing Officer (AO) and CIT(A) had denied the deduction of ?90,81,516 claimed by the appellant under Section 80G of the Act. The appellant argued that no restriction is imposed on claiming deduction under Section 80G if the payment is made to eligible entities listed in the Act. The appellant also challenged the imposition of interest under Section 234C and the initiation of penalty proceedings under Section 271(1)(c) by the AO. Issue 2: Interpretation of CSR expenses and their eligibility for deduction under Section 80G: The dispute revolved around whether the amount claimed by the appellant under Section 80G was eligible for deduction, as the AO contended that the amount formed part of Corporate Social Responsibility (CSR) expenses. The CIT(A) upheld the disallowance, stating that the sum paid by the appellant was not voluntary, a crucial element for considering it as a donation. The appellant argued that the expenditure was towards CSR responsibility but should still be eligible for deduction under Section 80G as it was in the nature of a donation. Issue 3: Impact of Explanation 2 to Section 37(1) on CSR expenditure: The Finance (No.2) Act, 2014 inserted Explanation 2 to Section 37(1) of the Act, clarifying that any expenditure incurred by an assessee on CSR activities as per the Companies Act, 2013, would not be deemed as an expenditure for the purpose of business or profession. This clarification affected the treatment of CSR expenditure while computing income under the head 'Income from Business and Profession.' Issue 4: Verification of conditions necessary to claim deduction under Section 80G by the Assessing Officer: The Appellate Tribunal disagreed with the arguments presented by the Senior Departmental Representative (Sr.DR) and held that the authorities erred in denying the appellant's claim under Section 80G. The Tribunal noted that the authorities did not verify the nature of payments qualifying for exemption under Section 80G and the quantum of eligibility as per the Act. Consequently, the issue was remitted back to the AO for proper verification and granting of deduction to the extent of eligibility. In conclusion, the Appellate Tribunal allowed the appeal for statistical purposes, directing the AO to reexamine the eligibility of the appellant's claim under Section 80G of the Income-tax Act based on the necessary conditions. The decision emphasized the distinction between deductions under Sections 30 to 36 for business income and deductions under Section 80G for total taxable income, ensuring that the appellant receives the benefit of the claim under Chapter VI A without facing double disallowance.
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