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2023 (12) TMI 1090 - AT - Income TaxDeduction u/s. 80G - amount incurred for the purpose of Corporate Social Responsibility - DRP held that, as per section 80G(2) a deduction is admissible in respect of any sums, which is paid by the assessee in the previous year as donations to various bodies/institutions indicated in that section - HELD THAT - As per the Companies Act 2013, it is mandatory for certain specified companies to spend 2 percent of their average profits to CSR. CSR expenses incurred by companies are now specifically treated as for non business purposes and hence are disallowed for Income tax purposes. Finance Act 2014 mandated that CSR Expenditure shall not be allowed as Business Expenditure u/s 37 of Income Tax Act 1961. The Memorandum of Finance Bill 2014 had also clarified that this initiative is primarily to ensure that companies share the burden of providing social services and granting deduction for CSR expenditure would amount to the Government effectively bearing one third of that expenditure. This same Memorandum also added that if CSR expenditure is of the nature which is covered by specific deductions contained in Sections 30 to 36, the expenditure by virtue of being governed by a specific provision (of Income tax) shall be granted a deduction if the conditions prescribed are satisfied. No specific tax exemptions have been extended to CSR expenditure. The Finance Act, 2014 also clarifies that expenditure on CSR does not form part of business expenditure. Thus we hold that no deduction u/s. 80G is allowable on the amount incurred for the purpose of Corporate Social Responsibility.
Issues Involved:
1. Addition of INR 52,87,150 as rental income. 2. Rejection of deduction claim under section 80G of the Act - INR 63,89,992. 3. Charging of interest under section 234A and 234D of the Act. 4. Initiation of penalty proceedings under section 270A of the Act. Issue-Wise Summary: Addition of INR 52,87,150 as Rental Income: The assessee contested the addition of INR 52,87,150 to the taxable income, arguing it resulted in double taxation of rental income already offered to tax. The AO added INR 2,84,09,050 based on Form 26AS, but the assessee clarified that INR 2,64,25,750 was due to erroneous reporting in the e-TDS return, and INR 19,73,300 had already been offered to tax in the previous year. The DRP directed verification of the revised Form 26AS and prior year tax offerings. The tribunal upheld the DRP's direction for the AO to verify and give effect to the order. Rejection of Deduction Claim under Section 80G of the Act - INR 63,89,992: The assessee claimed a deduction of INR 63,89,992 for CSR contributions under section 80G. The AO and DRP rejected the claim, interpreting that CSR expenses, being mandatory under the Companies Act 2013, do not qualify as voluntary donations necessary for section 80G deductions. The DRP relied on the Supreme Court's ruling in PVG Raju, emphasizing that donations must be voluntary. The tribunal concurred, holding that CSR expenses do not qualify for section 80G deductions, as they fail the test of voluntariness. Charging of Interest under Section 234A and 234D of the Act: The assessee challenged the interest charged under sections 234A and 234D. The tribunal did not provide specific details on this issue in the summary but implicitly upheld the AO's decision by not overturning it. Initiation of Penalty Proceedings under Section 270A of the Act: The assessee disputed the initiation of penalty proceedings under section 270A for misreporting income. The tribunal did not provide specific details on this issue in the summary but implicitly upheld the AO's decision by not overturning it. Conclusion: The appeal was partly allowed, with the tribunal directing the AO to verify the rental income issue while upholding the rejection of the section 80G deduction claim for CSR contributions. Interest charges and penalty proceedings were implicitly upheld.
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