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TMI Blog2024 (10) TMI 1648X X X X Extracts X X X X X X X X Extracts X X X X ..... tory requirement of the Companies Act 2013 and consequently not eligible for deduction under section 80G of the Act." 3. Briefly stated, the facts of the case are that the assessee is a company engaged in the business of manufacturing and sales of automotive component. For the AY 2021-22, the assessee e-filed its return of income on 07.03.2022 declaring total income at Rs. 68,66,62,760/- and book profit under MAT at Rs. 70,23,06,208/-. The case was selected for scrutiny through CASS. Statutory notice(s) were issued and served upon the assessee which were duly responded by the assessee. During the assessment proceedings, the Ld. Assessing Officer ("AO") observed that the assessee has incurred expenses amounting to Rs. 1,28,66,103/- on account of Corporate Social Responsibility ("CSR") in line with the guidelines issued under the Companies Act, 2013. On this payment, the assessee was found to have claimed deduction of Rs. 64,32,502/- u/s 80G of the Income Tax Act, 1961 (the "Act"). During the assessment proceedings, the assessee made the following submissions on the issue of deduction claimed u/s 80G of the Act which are recorded in para 3.4 of the assessment or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 135 of the CA 2013. Contributions to the said Kosh and Fund are CSR activities included in Schedule VII to the CA 2013. The disallowance for deduction under section 80G vis-à-vis CSR can be restricted only to contributions to these Funds under CSR. It is a well-established rule of interpretation that one has to 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 under section 80G(2)(a). Since the legislature provides for specific exceptions in section 80G(2)(a)(iii)(h)(k) and (iii)(h) (I) of the ITA, then it is the implied intent of the legislature to permit a deduction under section 80G in respect of CSR contributions made to funds and organizations referred to in all other subclauses of section 80G. f) The Ministry of Corporate Affairs ('MCA') has issued Frequently Asked Questions (FAQ) through General circular no. 01/2016 dated January 12, 2016 (FAQ No. 6) has clarified that as follows: Question No. 6. What tax benefits can be availed under CSR? Answer: No specific tax exemptions have been extended to CSR expenditure per se The Finance Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tarily by a person and that too without any consideration as the donation is a gift. The voluntary act on the part of donor is thus an essential element to treat the amount paid as donation. 3.7 In the case under consideration, the amount has not been paid by the Assessee to the eligible entity specified in Section 80G of the Act on a voluntary basis. But the same has been paid by it as the Assessee was mandatorily required to spend such an amount for specified activities as per the provisions of Section 135 of the Companies Act, 2013. The expression "shall ensure" used in Section 135(5) of the Companies Act 2013 clearly implies that there is a mandate to spend 2% of average net profits of the preceding three years on CSR activity. Thus the required-to-spend amount is perceived by the legislature to be mandatory in nature. So when the Assessee had paid the amount to an eligible entity under Section 80G of the Act, such payment was not made on a voluntary basis but it was to fulfill a mandatory requirement of law on account of CSR spend for activities benefiting the society. 3.8 The Assessee could also have very well made payment to an entity not covered by Section 80G or it c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that 13.2 CSR expenditure being an application of income is not incurred wholly and exclusively for the purposes of carrying of business As the application of income is not allowed as deduction for the purposes of computing taxable income of a company amount spent on CSR cannot be allowed as deduction for computing the taxable income of the company. Moreover, the objective of CSR is to share burden of the Government in providing social services by companies having net worth/turnover/profit above a threshold if such expenses are allowed as tax deduction, this would result in subsidizing of around one-third of such expenses by the Government by way of tax expenditure." Accordingly, it emerges that CSR expenses are not allowable expenses except those which is of the nature described in section 30 to section 36 of the income-tax Act shall be allowed as deduction under those sections subject to fulfillment of conditions, if any, specified therein. Further it is the intention of the statute to deny such expenses as tax deduction as this would result in subsidizing of around one-third of such expenses by the Government by way of tax expenditure. In other words, CSR expenditure shou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entions of the assessee and by referring to the Explanatory Notes to the provisions of the Finance (No. 2) Act, 2014 read with Explanatory Memorandum to the Finance ( No. 2) Bill, 2014 the Ld. CIT (A) observed that the CSR expenses are mandatory for the companies specified as per the Companies Law. The CSR expenses cannot partake character of donation because the donation is often a voluntary and personal decision, whereas, CSR is a strategic decision made by the company to manage its social and environmental impact as per the requirement of the Companies Act. There is no explicit provision in the Companies Act that the payment to a charitable institution shall also qualify for the fulfillment of the CSR responsibility. For the aforesaid reasons, the Ld. CIT (A) confirmed the addition of Rs. 64.32.502/- made by the Ld. AO The relevant findings and observations of the Ld. CIT (A) reads as under : "4.2.3 The appellant contention is that the CSR expenses can be claimed as deduction u/s 800 of the Act. Section 80G states that any sum paid by the assessee has to be in nature of donations: Therefore, the important factor is that the amount is to be paid as donation for the eligibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certainty on this issue, it is proposed to clarify that for the purposes of section 37(1) any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to have been incurred for the purpose of business and, hence, shall not be allowed as deduction under section 37. However, the CSR expenditure which is of the nature described in section 30 to section 36 of the Act shall be allowed deduction under those sections subject to fulfillment of conditions, if any, specified therein." Further, there is no explicit provision in the Companies Act that the payment to a charitable institution shall also qualify for the fulfillment of the CSR responsibility. Therefore, the form of expenses under CSR cannot be changed in order to claim deduction. 4.2.4 Considering the above discussion, I am of the considered opinion that the CSR expenses incurred by the appellant as per the mandates of the Companies Act cannot be claimed as deduction u/s 80G of the Act. Therefore, the disallowance of Rs. 64,32,502/- made by the AO is hereby confirmed." 5. Dissatisfied, the assessee is in app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ispute, the Appellant is eligible for deduction under section 80G of the Act. The institution to whom the Donations are made are duly registered under section 80G(5) of the Act * The CSR expenditure is not allowed only for the purpose of section 37 for computing business income. If such expenditure is otherwise allowable as deduction under other provisions of the Act, the same cannot be disturbed. * The donations/expenditure made by the Appellant is towards women empowerment, education, environmental research etc. and forms part of CSR expenditure as per Schedule VII of the Companies Act, 2013. * The legislature has restricted the benefit only in two specific cases being 'Swachh Bharat Kosh' ('SBK') and 'Clean Ganga Fund' ('CGF') as per subclause (iiihk) and (iiihl) of section 80G(2)(a) of the Act, thereby implying that CSR contribution to other eligible institution qualifies for deduction under section 80G of the Act. The Appellant has made CSR contribution to funds other than SBK and CGF, thus, claim under section 80G of the Act shall be allowed. * The said claim, as discussed above, is supported by the Explanatory Memorandum to Finance Bill 2014 with restriction plac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayments 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. 17. We therefore do not agree with arguments advanced by Ld. Sr.DR. 18. In present facts of case, Ld.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, w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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