Donations by Company Remain Voluntary Despite Statutory Mandate: ITAT Grants S. 80G Deduction on CSR Expenditure [Read Order]

The Income TaxAppellate Tribunal (ITAT), Delhi, has ruled that donations made by a company to meet its Corporate Social Responsibility (CSR) obligations qualify for deduction under Section 80G of the Income Tax Act, holding that the statutory mandate under the Companies Act does not negate the "voluntary" nature of such contributions.

Cosmo First Ltd. appealed against the assessment order for the Assessment Year 2021-22, wherein the Revenue had denied the deduction. The Assessing Officer (AO) and the Dispute Resolution Panel (DRP) had contended that since the expenditure was incurred to comply with a statutory requirement under Section 135 of the Companies Act, it lacked the essential characteristic of a "voluntary donation."

The Tribunal, comprising Judicial Member C.N. Prasad and Accountant Member M. Balaganesh, noted that this issue was already settled in the assessee's own case for the preceding assessment year. Relying on the coordinate bench decision in Interglobe Technology Quotient Pvt. Ltd. vs. ACIT, the Tribunal observed that the legislative intent behind inserting Explanation 2 to Section 37(1) was to treat CSR expenditure as an "application of income" rather than business expenditure.

The Bench reasoned that since CSR expenditure is treated as an application of income, it forms part of the total income, thereby making it eligible for the deduction under Chapter VI-A of the Act. Addressing the Revenue's argument on the lack of "voluntariness," the Tribunal held that a donation is voluntary when it is made without any reciprocal promise or benefit. CSR donations, being philanthropic without reciprocal commitment, satisfy this condition.

Consequently, the Tribunal allowed the claim for deduction under Section 80G. Regarding other grounds, the Tribunal restored the issue of enhanced deduction under Section 80-IA to the AO for verification of additional evidence based on the Supreme Court ruling in Jindal Steel and Power Ltd.

On Transfer Pricing adjustments for notional interest on receivables, the Tribunal directed the AO/TPO to grant working capital adjustments in line with the Delhi High Court decision in Kusum Healthcare. Issues regarding incorrect computation of income and pending rectification petitions were also remanded to the AO for fresh consideration.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates