Income Tax: ITAT Allows Section 80G Deduction on Eligible CSR Donations:

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has held that donations made as part of Corporate Social Responsibility (CSR) activities remain eligible for deduction under Section 80G of the Income Tax Act if the recipient institution satisfies the prescribed conditions. The Tribunal dismissed the Revenue’s appeal and upheld the relief granted to Ernst & Young Services Private Limited for AY 2020-21.

The dispute arose after the Assessing Officer completed assessment under Section 143(3) and made several additions, including disallowance of deduction claimed under Section 80G in respect of donations made through CSR expenditure. According to the Revenue, CSR spending is a mandatory obligation under the Companies Act, 2013 and therefore donations forming part of such expenditure could not qualify for deduction under Section 80G.

The Commissioner (Appeals) deleted the disallowance and accepted the assessee’s contention that while CSR expenditure is specifically disallowed as a business deduction under Section 37(1), there is no corresponding restriction under Section 80G for donations made to eligible institutions. Aggrieved by the relief granted, the Revenue carried the matter before the Tribunal.

Before the ITAT, the assessee relied on a series of decisions of the Delhi Tribunal which had consistently held that donations forming part of CSR expenditure are eligible for deduction under Section 80G if the statutory conditions are fulfilled.

The Tribunal observed that the Revenue had not disputed the eligibility of the recipient trusts under Section 80G. It further noted that the disallowance of CSR expenditure under Explanation 2 to Section 37(1) operates in a different field from deductions available under Chapter VI-A of the Act.

“The CSR expenditure is mandatory, but that does not justify disallowance of these expenditures under Section 80G if other conditions of Section 80G are fulfilled.”

The Bench explained that business expenditure is examined while computing income under the head “Profits and Gains of Business or Profession,” whereas deductions under Section 80G are claimed at the stage of computing total taxable income. Therefore, denial of deduction merely because the donation also forms part of CSR expenditure would amount to importing restrictions that do not exist in Section 80G.

The Tribunal also noted that Parliament itself carved out specific exceptions for donations made to the Swachh Bharat Kosh and Clean Ganga Fund by providing that such contributions would not qualify for deduction if claimed as CSR expenditure. According to the Bench, the absence of any similar restriction for other eligible donations demonstrates the legislative intent to allow deduction under Section 80G.

“Explanation 2 to Section 37 cannot be extended or imported to CSR contributions which are otherwise eligible for deduction under any other provision. Denial of such deduction would lead to double disallowance, which is not the intention of the Legislature.”

Apart from the CSR issue, the Tribunal also upheld the deletion of disallowances made under Section 43B relating to bonus payments, GST liability and employer’s contribution to provident fund after noting that the amounts had been paid before the due date for filing the return of income. It further observed that similar relief had already been granted in earlier appellate proceedings and had attained finality.

Thus, the ITAT dismissed the Revenue’s appeal and upheld the order of the Commissioner (Appeals), allowing Ernst & Young Services Private Limited to claim deduction under Section 80G in respect of eligible donations made as part of its CSR activities.