9911796707🚨 Important Update for Our Users
We are transitioning to our new and improved portal - www.taxtmi.com - for a better experience.
Follow us:
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2025 (5) TMI 790 - AT - Income TaxDonation claimed as deduction u/s 80G - expenditure relating to CSR activities suo moto disallowed while computing the income under the head business profit - HELD THAT - Tribunal in the case of PCIT vs. Gujarat State Fertilizers Chemicals Limited 2024 (12) TMI 1052 - ITAT AHMEDABAD has held that the donation u/s 80G the CSR expenses and the business expenses u/s 37 of the Act operate under different arena and that there was no bar in claiming deduction u/s 80G of the Act in respect of CSR contribution if the fund to which donation made was eligible for deduction u/s 80G of the Act. Further it has been held by the other Tribunals as well that the assessee was entitled to claim deduction towards amount spent on CSR under Section 80G of the Act. Considering the provision of section 80G of the Act as well the decisions of the co-ordinate Benches of the Tribunal on this issue we hold that the assessee was eligible for claim of deduction under Section 80G of the Act in respect of donation made to Mukhyamantri Shree Swachchta Nidhi Gujarat as donation to this fund in respect of CSR activities was not specifically debarred under the provisions of the Act. Accordingly the ground taken by the assessee is allowed. Disallowance u/s 14A r.w.r 8D - expenditure incurred in relation to exempt income - HELD THAT - Directors remunerations and fees along with employees cost was also required to be proportionately allocated towards earning of exempt income. The assessee had also not explained as to on what basis the disallowance in respect of earning of exempt income was made in the preceding year in which the investment in shares was made for the first time. The amount of deduction inadmissible u/s 14A of the Act in respect of expenditure incurred in relation to income which does not form part of total income was certified by the Auditor at Rs. 14, 31, 36, 774/- in Form No.3CA. The assessee did not furnish any revised certificate from the Auditor in Form No.3CA in respect of the revised claim as made in the course of assessment. In the absence of any such revised certificate from the Auditor the claim of the assessee was rightly rejected by the AO. The revised claim for disallowance u/s 14A of the Act as made by the assessee in the course of assessment is found to be neither based on any rationale nor supported by a revised audit report from the Auditor. Therefore the action of the AO in rejecting the revised claim for deduction u/s 14A of the Act and the decision of the CIT(A) on this issue is upheld. The ground taken by the assessee is dismissed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal in this appeal are:
2. ISSUE-WISE DETAILED ANALYSIS Deduction under Section 80G of the Income Tax Act, 1961 Legal framework and precedents: Section 80G of the Act allows deduction for donations made to certain funds and charitable institutions. However, Section 80G(2)(a)(iiihk) and (iiihl) specifically restrict deductions for donations made pursuant to CSR obligations to the Swachh Bharat Kosh and Clean Ganga Fund, both established by the Central Government. The interplay between CSR expenditure under the Companies Act and deduction under Section 80G has been subject to judicial scrutiny, with several Tribunal decisions clarifying that CSR expenditure per se is not barred from deduction under Section 80G unless specifically excluded. Court's interpretation and reasoning: The Tribunal examined the statutory provisions and noted that the only explicit bar to deduction under Section 80G in respect of CSR donations is limited to the two specified funds. The donation to Mukhyamantri Shree Swachchta Nidhi Gujarat, a state-level fund for sanitation, is not expressly disallowed under the statute. The Tribunal relied on coordinate Bench decisions, including PCIT vs. Gujarat State Fertilizers & Chemicals Limited and others, which held that CSR expenditure and Section 80G deductions operate in different legal domains and that donations to eligible funds under Section 80G are deductible even if they form part of CSR activities. Key evidence and findings: The assessee had contributed Rs. 3.57 crores to the Mukhyamantri Shree Swachchta Nidhi Gujarat and claimed 50% deduction under Section 80G. The Assessing Officer disallowed this on the ground that CSR expenditure is not eligible for deduction under Section 80G, except for donations to the two specified funds. The assessee's counsel cited multiple Tribunal decisions supporting the claim. Application of law to facts: Since the donation was not to the Swachh Bharat Kosh or Clean Ganga Fund, the statutory bar did not apply. The Tribunal held that the disallowance was erroneous and allowed the deduction under Section 80G. Treatment of competing arguments: The Revenue contended that CSR expenditure should not be allowed as deduction under Section 80G to avoid defeating the purpose of CSR provisions. The Tribunal rejected this, emphasizing the specific statutory exclusions and consistent judicial precedents allowing such deductions. Conclusion: The assessee's claim for deduction under Section 80G in respect of donation to Mukhyamantri Shree Swachchta Nidhi Gujarat was held to be valid and allowable. Disallowance under Section 14A of the Income Tax Act, 1961 Legal framework and precedents: Section 14A mandates disallowance of expenditure incurred in relation to income that does not form part of total income, such as exempt dividend income under Section 10(34). Rule 8D prescribes the method for computing such disallowance. The Supreme Court decision in Goetze (India) Limited vs. CIT clarified that claims for reduction in disallowance under Section 14A should be made by filing a revised return and cannot be entertained at the assessment stage. Court's interpretation and reasoning: The Tribunal noted that the assessee had suo moto disallowed Rs. 14.31 crores under Section 14A in its return. During assessment, the Assessing Officer proposed a much larger disallowance but ultimately accepted the assessee's suo moto disallowance after considering explanations. The assessee sought to reduce the disallowance drastically to Rs. 98,872/- based on a reworked computation applying arbitrary percentages to various expenses and alternatively to Rs. 1,09,000/- by applying the ratio of equity investment to total assets on administrative expenses. The Tribunal observed that the Assessing Officer did not make any fresh disallowance but accepted the assessee's original disallowance. The Tribunal further noted that the revised claim for reduction was unsupported by any revised audit certificate in Form No.3CA, which is mandatory for such claims. The assessee failed to explain the basis for the low percentage allocations or why significant expenses such as finance costs and employee benefits were excluded from the disallowance calculation. Key evidence and findings: The auditor's certificate initially certified disallowance at Rs. 14.31 crores. The assessee's revised claim lacked any revised audit certificate. The Tribunal found that the investment in shares was strategic and involved top management, implying significant expenses should be allocated to exempt income earning activities. Application of law to facts: The Tribunal applied the statutory provisions and judicial precedents to hold that the Assessing Officer's acceptance of the suo moto disallowance was valid. The reduction claimed by the assessee without revised audit evidence was not permissible. The Tribunal also held that the disallowance cannot be arbitrarily reduced without proper justification and compliance with procedural requirements. Treatment of competing arguments: The assessee argued that the Supreme Court decision in Goetze was binding only on the Assessing Officer and not on appellate authorities, and that the disallowance should be restricted based on the ratio of investments to assets. The Revenue contended that the Assessing Officer's acceptance of the original disallowance was correct and that the revised claim was not supported by evidence. The Tribunal sided with the Revenue, emphasizing procedural compliance and the need for audit certification. Conclusion: The Tribunal upheld the disallowance of Rs. 14.31 crores under Section 14A as made suo moto by the assessee and rejected the claim for reduction to Rs. 98,872/- or Rs. 1,09,000/- in absence of a revised audit certificate and proper rationale. 3. SIGNIFICANT HOLDINGS "It is evident that the restriction on deductibility of donation made pursuant to CSR obligation is expressly provided under Section 80G(2)(a)(iiihk)/(iiihl) of the Act in respect of donation made to Swachh Bharat Kosh and Clean Ganga Fund, set up by the Central Government. Apart from the donation to these two funds, there is no restriction in respect of donation made to any other fund." "The donation under Section 80G, the CSR expenses and the business expenses under Section 37 of the Act operate under different arena and that there was no bar in claiming deduction under Section 80G of the Act in respect of CSR contribution, if the fund to which donation made was eligible for deduction under Section 80G of the Act." "The Assessing Officer has categorically recorded in the assessment order that the working of disallowance under Section 14A read with Rule 8D suo moto made by the assessee was acceptable and no further disallowance was warranted on this issue." "The revised claim for disallowance under Section 14A of the Act as made by the assessee in the course of assessment is found to be neither based on any rationale nor supported by a revised audit report from the Auditor. Therefore, the action of the Assessing Officer in rejecting the revised claim for deduction u/s 14A of the Act and the decision of the Ld. CIT(A) on this issue, is upheld." Core principles established include:
Final determinations:
|
