Call Deduction u/s 80G of Income Tax Act allowable on CSR Expenditure : ITAT
Corporate Social Responsibility (CSR) expenses refer to the expenses that a company incurs to conduct activities that benefit society and the environment. These activities can include various activities, such as environmental sustainability programs, philanthropy, community engagement, and ethical business practices.
Income tax act provides various benefits in taxes for such activities where overall society or environment is benefited from it. Section 37 of Income Tax Act states that any business expenditure, excluding capital expenditure and the individual’s personal expenses, that is spent or set out solely and entirely for the business’s operations shall be applicable for deduction. Keeping this in mind CSR expenses are not deductible under Section 37 of the Income Tax Act, as clarified by the Central Board of Direct Taxes (CBDT). However, if a CSR expenditure qualifies under other sections like Section 80G, the company can still avail the deduction under that section. The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) had to decided whether such CSR expenses are liable for deduction under section 80G.
Issues involved:
The assessee engaged in research and development field claimed deductions for expenditures made under CSR activities stating the expenses are made to eligible entities. Whereas, AO stated that sums paid need to be a donation for the purpose of being eligible for deduction under the said section.
Facts of the case explained:
Assessee Synergia Lifesciences Pvt. Ltd. is a private limited company and is engaged in the business of manufacturing, selling, and in any way dealing and conducting research and development activities in fermentation and life science products using biotechnology. They declared a total income of Rs.90,80,08,580 in return of income and later it revised to Rs.90,25,23,300. Out of certain expenses the assessee has claimed an amount of Rs.54,85,278, as a donation under section 80G of the Act, claiming a deduction to the extent of 50% of the donation. As per the assessee, there is no restriction imposed on claiming deduction under section 80G of the Act, even if the expenses have been incurred for the purpose of CSR. The assessee suo moto disallowed CSR expenses under section 37(1) of the Act, however, claimed deduction under section 80G of the Act.
However, Assessing officer did not agree with the submissions of the assessee and held that under section 80G the „sums paid‟ need to be „donation’ for the purpose of being eligible for deduction under the said section. It was further held that the amount paid by the assessee should be voluntary to become eligible for deduction under section 80G of the Act. However, in the present case, the same was paid by the assessee as a mandatory requirement as per section 135 of the Companies Act, 2013.
Upon appeal by assessee, Hon’ble Bench reiterated the fact that the only grievance of the assessee is against the denial of deduction under section 80G of the Act in respect of CSR expenditure. In the present case, it is undisputed that the assessee has not claimed the CSR expenditure under section 37(1) of the Act, and its claim is only restricted to section 80G of the Act. Further, it was submitted that the CSR expenditure in the present case is for the purpose of education, medical, etc. He referred to the details of donation and payment receipts, forming part of the paper book, to support the submission that the CSR expenditure incurred is covered under the ambit of Section 80G of the Income Tax Act. Lower authorities had erred in interpreting the nature of payments as mentioned in provisions of section 80G.
Conclusion:
The bench held that the claim for deduction under section 80G of the Act in respect of CSR expenses cannot be denied. The assessee was also directed to file all the details for the purpose of claiming deduction under section 80G of the Act. Bench further directed that if the conditions as laid down in section 80G are found to be satisfied then deduction be granted to the assessee to that extent.
About Author:
CA Chinmay Shirish Agate
Chinmay Agate is a Practicing Chartered Accountant having 4+ years of experience and expertise in the field of Direct Taxation and Auditing compliances. In the past, he worked in various CA firms and comes with wide industry experience from services, retail to manufacturing to trading where he has handled various complex assignments. He has keen interest in Forex and Derivative knowledge as well as fundamental analysis.