Deduction u/s 80G of Income Tax Act cannot be denied for Payment made for CSR Obligations: ITAT [Read Order]

The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) has held that a deduction under Section 80G of the Income Tax Act, 1961 cannot be denied solely on the ground that the contribution was made in discharge of Corporate Social Responsibility (CSR) obligations, provided the donation otherwise fulfils the statutory requirements of Section 80G of the Income Tax Act, 1961.

The assessee, a company engaged in the manufacture of plastic processing machinery, was subjected to assessment proceedings during which the Assessing Officer (AO) made a reference under Section 92CA(1) of the Income Tax Act to the TransferPricing Officer (TPO) for determination of the Arm’s Length Price (ALP) of international transactions reported in Form 3CEB.

Pursuant to the reference, the TPO passed an order under Section 92CA(3) proposing an upward adjustment of ₹45.19 lakh on account of outstanding receivables. The AO also proposed disallowance of deduction claimed under Section 80G amounting to ₹83.20 lakh in respect of donations made as part of the assessee’s CSR activities.

Appearing on behalf of the assessee, the Authorised Representative (AR) contended that although CSR expenditure is not allowable as a business deduction under Section 37(1) in view of Explanation 2 inserted by the Finance (No. 2) Act, 2014, there is no prohibition against claiming deduction under Section 80G where the payment qualifies as an eligible donation made to approved funds or institutions.

It was further submitted that Section 80G does not contain any blanket restriction on CSR-related contributions. The only exclusions specifically provided under the statute relate to contributions made to the Swachh Bharat Kosh and the Clean Ganga Fund.

The Departmental Representative (DR), however, argued that CSR expenditure is mandatory under Section 135 of the Companies Act and therefore lacks the essential characteristic of a voluntary donation. It was contended that Section 80G applies only to voluntary contributions and that CSR expenditure constitutes an application of income rather than an eligible donation.

After considering the rival submissions, the Bench comprising Dr. B.R.R. Kumar, Vice-President, and T.R. Senthil Kumar, Judicial Member, observed that the statutory scheme of Section 80G itself indicates that CSR contributions are not generally excluded from the benefit of deduction. The Tribunal noted "Section 80G specifically excludes CSR contributions only in respect of Swachh Bharat Kosh and Clean Ganga Fund, which indicates that other eligible CSR donations are not barred from claiming deduction under Section 80G of the Income Tax Act."

The Bench further found merit in the assessee’s contention that the AO had rejected the claim solely because the payments were made as part of CSR expenditure, without examining whether the recipient institutions were duly approved under Section 80G of the Income Tax Act or whether the other statutory conditions for claiming deduction had been satisfied.

Emphasising that the nature of CSR expenditure by itself cannot be a ground for disallowance, the Tribunal held that deduction under Section 80G of the Income Tax Act cannot be denied merely because the payment was made in fulfilment of CSR obligations, so long as the contribution otherwise qualifies under the provisions of Section 80G of the Income Tax Act.

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