Major Win for Assessees: ITAT Confirms Deductibility of CSR Donations u/s 80G of Income Tax Act [Read Order]

The decision came in an appeal filed by ACG Pam Pharma Technologies Private Limited against a revisionary order by the Principal Commissioner of Income Tax (PCIT). The case began when the assesee made Rs.24,20,000 donation to Axis Foundation. This amount was recorded in the company's books as Corporate Social Responsibility (CSR) expenses under Section 135 of the Companies Act, 2013.

Initially the company disallowed this amount in its income calculation as per Section 37 of the Act. However, the assessee subsequently claimed a deduction for this donation under Section 80G of the Act in their income tax return. This claim was thoroughly disclosed in both the income computation and the tax audit report and it was ultimately examined and allowed by the Assessing Officer(AO) when the assessment order was issued on September 24, 2022.

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The assessee referred to previous orders from the Tribunal these included specific rulings concerning ShardaCropchem Ltd ( 2025), Blue Dart Express Ltd ( 2024) and Maharashtra Industrial Development Corporation(2025).

Later the Principal Commissioner of Income Tax (PCIT) invoked Section 263 of the Act, arguing the Section 80G of the Act for the CSR donation was erroneously allowed because CSR is not voluntary and the assessment order didn't discuss this issue.

While Section 135 of the Companies Act, 2013 sets the quantum of CSR expenses it doesn't dictate to whom or how the amount should be spent. The assessee has the discretion to choose how they spent their CSR funds.

The donations made to ACS Cares Foundation were voluntary as there was no reciprocal commitments. Section 80G of the Act does not require a donation to be voluntary in nature for a deduction to be claimed.

Furthermore, the CBDT's Circular clarifies that CSR expenditure eligible for deduction under other sections of the Income-tax Act will be allowed. The circular explicitly states that while CSR expenditure is generally not deductible under Section 37(1) of the Act because it's not incurred for business purposes any CSR expenditure that falls under the nature described in Sections 30 to 36 of the Income-tax Act shall be allowed as a deduction provided the conditions specified in those sections are met.

The Ministry of Corporate Affairs confirms that many CSR activities, while not inherently tax-exempt, are eligible for deductions under other sections of the Income-tax Act including Section 80G of the Act. This was reinforced by the ITAT Mumbai Bench's decision in ACIT v. Sharda Cropchem Limited which affirmed the eligibility of CSR donations for Section 80G deduction. The restriction found in Section 37(1) of the Act does not apply to other provisions. Parliament's specific exclusions for only Swachh Bharat Kosh and Clean Ganga Fund under Section 80G of the Act suggest that other qualifying CSR contributions are indeed deductible.

Following the precedent, the current decision also holds that the assessee is entitled to the deduction claimed under Section 80G of the act as CSR expenditure.

The Mumbai Tribunal has ruled that Section 263 of the Act cannot be used to deny an 80G of the Act deduction for CSR donations. This is because the Assessing Officer had already reviewed the matter and a differing opinion alone doesn't make the assessment order flawed.

Even if CSR funds are generally disallowed they are deductible under Section 80G of the Act if paid to a charitable organization as these sections operate independently.

After reviewing the submissions and legal precedents the ITAT sided with the assessee. The Tribunal concluded that there is no express bar in the Income Tax Act preventing the claim of a deduction for CSR expenditure other than the restriction as a general business expense. The ITAT emphasized that the conditions for the deduction focus on the organization's eligibility not the voluntary nature in the context of other statutory obligations.

The ITAT comprising Sandeep Gosain (Judicial Member) and Prabhash Shankar (Accountant Member) in its final order quashed the PCIT's revisionary directive and reinstated the original assessment order thereby upholding the assessee's claim for deduction for its CSR donation.

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