The Mumbai Bench of Income Tax Appellate Tribunal ( ITAT ) has held that the deduction under Section 80G of the Income Tax Act, 1961 is allowable on the expenditure in respect of corporate social responsibility ( CSR ).
Alubound Dacs India Private Limited, the appellant/assessee company is in the business of manufacturing, processing, trading, and supplying aluminium composite panel sheets for interior and exterior applications. It filed its return of income, declaring total income, and it was processed, where the total income was computed at Rs. 26,29,86,460/- after making the addition or disallowance.
The assessee filed a rectification application, which has not been disposed of to date. The assessee’s case was selected for scrutiny, and notices under sections 143(2) and 142(1) were duly issued and served upon the assessee. The Assessing Officer passed the assessment order where the AO made a disallowance under Section 80G, which is 50% of the total donation paid by the assessee towards CSR. In an appeal before the first appellate authority, the addition was upheld by the CIT (A).
The assessee contended that the CIT (A) has not adjudicated the addition to the income assessed despite a specific ground raised by the assessee and has also challenged the disallowance made under Section 80G of the Income Tax Act.
The assessee contended that there has been an express bar in claiming the said expenses under section 37(1) of the Act and also on sub-clauses (iiihk) and (iiihl) of Section 80G(2)(a) of the Act about Swatch Bharat Kosh and Clean Ganga Fund, where donations made under CSR are not allowable deductions. The test of voluntariness is irrelevant in claiming deduction under § 80G of the Act, where there are no criteria specified by the Act. The assessee relied on a catena of decisions where the donation towards CSR has been allowed under section 80G.
The department contended that donations to CSR expenses are not voluntary and are a compliance to be made by the assessee as per Section 135 of the Companies Act, 2013. Any payment has to be voluntary to be termed a ‘donation’.
The two-member bench of Kavitha Rajagopal (Judicial Member) and Om Prakash Kant (Accountant Member) has observed that the amendment brought about by the Finance Act, 2015, to Section 80G of the Act, which inserted the subclauses (iiihk) and (iiihl) to be the exception for qualifying a donation for claiming under Section 80G of the Income Tax Act, could also be an evidencing factor to substantiate that CSR expenditures that fall under the nature specified in Sections 30 to 36 of the Income Tax Act are allowable deductions under Section 80G.
The tribunal held that the assessee is entitled to the deduction claimed under § 80G of the Act towards the CSR expenditure incurred by it. The tribunal directed the A.O. to allow the claim of the assessee, subject to the condition that the assessee has satisfied the other requirements warranted under section 80G of the Income Tax Act.
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