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TMI Blog2024 (6) TMI 1134X X X X Extracts X X X X X X X X Extracts X X X X ..... any, it transpires that it had relied upon certain judicial pronouncements wherein it was held that the CSR expenses are eligible for deduction u/s. 80G of the Act. As the CIT(Appeals) had failed to consider both the aforesaid reply uploaded by the assessee company and also the judicial pronouncements that were pressed into service in support of its aforesaid claim, therefore, in our considered view, the matter in all fairness requires to be restored to the file of the CIT(Appeals) for fresh adjudication. CIT(Appeals) is directed to redecide the appeal after considering the reply of the assessee company along with the judicial pronouncements that it had pressed into service in support of its aforesaid claim, i.e. CSR expenses are eligible for deduction u/s. 80G of the Act. Appeal of the assessee company is allowed for statistical purposes. X X X X Extracts X X X X X X X X Extracts X X X X ..... or A.Y.2020-21 on 05.02.2021, declaring an income of Rs. 180,24,05,350/-. Thereafter, the assessee company revised its return of income on 08.02.2021 declaring the same income as was originally returned. Subsequently, the case of the assessee company was selected for scrutiny assessment u/s. 143(2) of the Act. 3. The A.O. during the course of the assessment proceedings observed that the assessee company had claimed deduction of "Corporate Social Responsibility" (CSR) expenses and donation u/s. 80G of the Act. On being queried, it was the claim of the assessee company that as a contribution need not be voluntarily to be eligible for deduction u/s. 80G of the Act, therefore, its claim of deduction of CSR expenses under the aforesaid statutory provision was in order. However, the aforesaid claim of the assessee did not find favor with the A.O. The A.O was of the view that as the "Explanation-2" to Section 37(1) of the Act was inserted vide the Finance (No.2) Act, 2014 to disallow any CSR expenditure referred to in Section 135 of the Companies Act, 2013 while computing the income under the head "Profits and gains of business or profession", therefore, in case CSR w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be considered as CSR. According to Rule 2(1)(d) "Corporate Social Responsibility (CSR)" means the activities undertaken by a Company in pursuance of its statutory obligation laid down in section 135 of the Act in accordance with the provisions contained in these rules, but shall not include the following, namely:- 1. activities undertaken in pursuance of normal course of business of the company: Provided that any company engaged in research and development activity of new vaccine, drugs and medical devices in their normal course of business may undertake research and development activity of new vaccine, drugs and medical devices related to COVID-19 for financial years 2020-21, 2021-22, 2022-23 subject to the conditions that such research and development activities shall be carried out in collaboration with any of the institutes or organizations mentioned in item (ix) of Schedule VII to the Act; b) details of such activity shall be disclosed separately in the Annual report on CSR included in the Board's Report; 2. any activity undertaken by the company outside India except for training of Indian sports personnel representing any State or Union territory at nati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e between the two is that CSR expenditure can be made in kind while 80G expenditure cannot be lade in kind. This reinforces the watertight distinctions between 80G donations and spending under section 135 for csr activities. Further CSR funds can no longer be contributed to the corpus funds. The provision relating to contribution to corpus as admissible CSR expenditure has been amended and the contribution to corpus of any entity is not an admissible CSR expenditure w.e.f. 22nd January, 2021. This brings out clarity on legislative intent on what constitutes CSR expenditure and makes it different from 80G donations which are made to corpus funds of the charitable trusts. Non-compliance of CSR provisions has been notified as a civil wrong w.e.f. 22nd January, 2021. The said non-compliance is a civil wrong and shall attract the following penalties: 1. Company: Twice the unspent amount required to be transferred to any fund included in Schedule VII of the Act or Unspent CSR Account, as the case may be, or one crore rupees, whichever is less. 2. Every Officer in Default :1/10th of the unspent amount required to be transferred to any fund included in Schedule VII of the Act or Un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntly from voluntary donations eligible for 80G deduction. I concur with the AO's stance that the insertion of Explanation 2 to Section 37(1) of the Income Tax Act (ITA) in 2014 explicitly disallows CSR expenditures while computing income under the head "Profits and gains of business or profession." The legislative intent, as explained in the Explanatory Memorandum to the Finance (No.2) Bill, 2014, emphasizes that CSR expenditure is an application of income and should not be considered incurred wholly and exclusively for the purpose of carrying on business, as required by Section 37 of the ITA. The distinction between CSR expenses, which are obligatory and represent a charge on profit, and 80G donations, which are voluntary and only come into play after profits are determined, is crucial. In light of these considerations, I find merit in the AO's decision to disallow the 50% of 80G deduction of Rs. 2,31,00,000/- i.e. Rs. 1,15,50,000. The nature of CSR expenses, being a statutory obligation with specific accounting and compliance requirements, distinguishes it from the realm of 80G donations. Therefore, the addition on this issue made by the AO is upheld. On p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appeals) had wrongly observed that the assessee company had adopted a negligent and evasive attitude and in the course of proceedings before him failed to provide a single piece of evidence in support of its claim. Carrying her contention further, the Ld. AR submitted that the assessee company pursuant to the notice of the CIT(Appeals), dated 18.01.2024 (fixing the response due date till 25.01.2024) had uploaded its reply dated 19.01.2024 on the e-portal of the CIT(Appeals), Page 1 to 9 of APB. The Ld. AR submitted that the assessee was, thereafter, in receipt of a letter/notice dated 22.01.2024 from the CIT(Appeals), NFAC, Delhi (fixing the response due date till 29.01.2024) wherein, it was brought to its notice that the attachments, i.e rar/zip pdfs that were earlier uploaded along with its reply were damaged and, thus, was called upon to attach simple PDF format files for further necessary action, Page 13-14 of APB. The Ld. A.R submitted that the assessee company in compliance with the aforesaid letter/notice dated 22.01.2024, had once again uploaded its earlier reply on 28.01.2024, Page 15 of APB. The Ld. AR submitted that the CIT(Appeals) while disposing of the appeal had fail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tting the same again for your kind perusal. We have checked the same and the files are ok as of now. If still you are unable to open the same, pls. let us know how to submit the same with you." On a perusal of the reply dated 19.01.2024 (supra) filed by the assessee company, it transpires that it had relied upon certain judicial pronouncements wherein it was held that the CSR expenses are eligible for deduction u/s. 80G of the Act. 12. As the CIT(Appeals) had failed to consider both the aforesaid reply dated 19.01.2024 uploaded by the assessee company and also the judicial pronouncements that were pressed into service in support of its aforesaid claim, therefore, in our considered view, the matter in all fairness requires to be restored to the file of the CIT(Appeals) for fresh adjudication. The CIT(Appeals) is directed to redecide the appeal after considering the reply of the assessee company dated 19.01.2024 (supra) along with the judicial pronouncements that it had pressed into service in support of its aforesaid claim, i.e. CSR expenses are eligible for deduction u/s. 80G of the Act. Needless to say, the CIT(Appeals) shall in the course of the set-aside proceedings affor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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