In a recent case, the Raipur Bench of the Income Tax Appellate Tribunal ( ITAT ) held that “Corporate Social Responsibility” ( CSR ) expenses are eligible for deduction under section 80G of the Income Tax Act and restored the matter to the file of Commissioner of Income Tax ( Appeals ).
ABIS Export India Pvt. Ltd, the assessee company is engaged in the business of manufacturing and trading poultry feeds, cattle feed, pet feed, aqua feed soya value-added products and poultry equipment, etc., had filed its return of income for 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 under section 143(2) of the Act.
The Assessing Officer during the assessment proceedings observed that the assessee company had claimed deduction of “Corporate Social Responsibility” ( CSR ) expenses and donation under section 80G of the Act. The assessee company claimed that a contribution need not be voluntary to be eligible for deduction under section 80G of the Act, therefore, its claim of deduction of CSR expenses under the aforesaid statutory provision was in order.
The A.O viewed 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 was allowed as a tax deduction, it would result into subsidizing the CSR contribution by around one-third due to reduced tax expenses.
The AO observed that as CSR was an application of income, therefore, the same could not be said to have been incurred wholly and exclusively to carry on business as envisaged in Section 37 of the Act. On appeal, the CIT (Appeals) upheld the disallowance of the assessee’s claim for deduction of CSR expenses under section 80G of the Act.
Mrs. Dimple Warlyani, Authorized Representative ( ‘AR’) for the assessee company at the threshold submitted that the CIT (Appeals) had failed to consider the reply filed by the assessee company, therefore, his order suffered from a serious infirmity. The AO has erred in not appreciating that the prescribed form for filing of re-computation has not been made available till the date of passing the order. In the absence of the form, the assessee could not apply for total income and the AO had made additions to the total income along with the initiation of penalty proceedings for underreporting of income. The penalty initiated by the A.O. is unjustified, unwarranted and uncalled for.
It was evident that the assessee company had uploaded its reply/submissions dated 19.01.2024 on the e-portal of the CIT(Appeals) pursuant to the notice of hearing that was issued by the latter on 18.01.2024. As the rar/zip pdfs that were uploaded by the assessee company were damaged, therefore, the CIT(Appeals) vide his letter dated 22.01.2024 directed the assessee company to upload simple PDF format files so that further necessary action could be taken, Page 14 of APB. In compliance, the assessee company had on 28.01.2024 (response due date till 29.01.2014) once again uploaded the PDF file of its earlier reply dated 19.01.2024 (supra), Page 15 of APB.
On a perusal of the reply 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 under Section 80G of the Act.
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, the two member bench of Ravish Sood, Judicial Member and Arun Khodpia, Accountant Member restored the matter 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 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 under section 80G of the Act.
Mrs. Dimple Warlyani appeared for the assessee and Shri Satya Prakash Sharma appeared for the revenue.
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