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TMI Blog2024 (9) TMI 284X X X X Extracts X X X X X X X X Extracts X X X X ..... essee in its book disallowed the said expenditure. The aforesaid expenditure included some donations which were eligible for deduction u/s. 80G of the Act. The assessee claimed benefit of said deduction on the donations made under CSR. The ld. Counsel referred to page no. 19 of paper book, wherein the details of donations claimed under Chapter VIA of the Act are given along with the receipts of donation. He further pointed that during the course of assessment proceedings, the Assessing Officer (AO) had issued notice u/s. 142(1) of the Act. One of the points raise by him vide aforesaid notice was large deductions claimed under Chapter VIA. The assessee vide its reply dated 29.03.2021 inter alia gave details of deduction claimed u/s. 80G of the Act. Thus, the issue was examined by AO. He further submitted that there are catena of orders by the Tribunal wherein the expenditure incurred towards CSR was disallowed but if any part of the said expenditure was eligible for deduction u/s. 80G of the Act, the same was allowed. He referred to one such decisions rendered in the case of JMS Mining P Ltd. Vs. PCIT 130 taxmann.com 118 (Kol. Trib.) 4. Per contra, Shri Kanv Bali representing the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d out whether the issue/fault on the basis of which the Ld. PCIT has interfered with the order of the A.O dated 03.12.2018 was erroneous or not i.e. whether the AO had erroneously allowed the claim of the assessee under Chapter VIA in respect of CSR expenditure amounting to Rs. 67,50,000/- i.e. [50% of Rs. 1,35,00,000/-] u/s 80G of the Act. This action of AO, according to Ld. PCIT, is erroneous since as per Section 37 of the Act, there is express prohibition to allow any amount of CSR expenditure by virtue of Explanation 2 to Section 37 of the Act and so irrespective of the fact that the assessee had made the CSR expenses as donation to any Fund or Institution (donee) which enjoys approval of PCIT/CIT u/s. 80G of the Act, still the AO could not have allowed the claim u/s. 80G of the Act. Therefore, the Ld. PCIT was of the view that the claim of the assessee for deduction of the CSR expenses to the tune of Rs. 67,50,000/- [50% of Rs. 1,35,00,000/-] should have been disallowed by the AO and added back to the total income of the assessee. Further according to Ld. PCIT the A.O has passed the assessment order without making enquiries or verification which should have been made in the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g aside the reply given by the assessee and his finding that the A.O has not verified/enquired into the issue smacks of arbitrariness and non-application of mind making the impugned order bad in law. 17. Coming next to the legality/correctness of the deduction allowed by the AO in respect of CSR/donation u/s. 80G of the Act, first of all, we agree with the Ld. CITDR that CSR expenses which are required to be mandatorily incurred by the assessee Company as per Section 135 of the Companies Act are not entitled to deduction u/s 37(1) of the Act for A.Y 2015-16 by virtue of the fetter placed by Explanation 2 to Section 37(1) of the Act which was inserted by the Finance Act vide no. 2.2014. The relevant provisions of Explanation 2 to Section 37(1) of the Act read as follows: "Explanation 2. -For the removal of doubts, it is hereby declared that for the purposes of sub-section (1), any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 (18 of 2013)27 shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession" From a plain reading ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) which reads as under: Section 80G : Deduction in respect of donation to certain funds, charitable institution, etc. ..... (1) In computing the total income of an assessee, there shall be deducted in accordance with and subject to the provision of this section (i) (ii) ...... (2) The sum referred to in sub-section (i) should be the following namely - (a) Any sums paid by the assessee in the previous year as donations to - (i) ..... (ii) ...... "(iiihk). The Swachh Bharat Kosh, set up by the Central Government, other than the sum spent by the assessee in pursuance of Corporate Social Responsibility under subsection (5) of Section 135 of the Companies Act, 2013 (18 of 2013); or (iiihl). The Clean Ganga Fund, set up by the Central Government, where such assessee is a resident and such sum is other than the sum spent by the assessee in pursuance of Corporate Social Responsibility under Sub-section (5) of Section 135 of the Companies Act, 2013) (18 of 2013)." (iv). Any other fund or any institution to which section applies; or (3) ...................... (4) ................... (5) This Section applies to donations to any institution or fund referred to in Sub- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 80G of the Act is not allowable, which can be illustrated by giving certain examples (infra). However, in a case scenario, wherein the assessee expends the mandatory expenditure and gives donation to these two projects i.e. over and above the mandatory CSR expenditure u/s. 135 of Companies Act, that sum donated to Swach Bharat Kosh & Clean Ganga Fund will be eligible for 100% deduction u/s. 80G of the Act [refer section 80G (1)(i) and subject to section 80G (4)]. However, such a restriction in respect of expenditure made by an assessee to any other fund or institution as referred to in sub clause (iv) of clause (a) of sub-section 2 of section 80G of the Act had not been placed by the Legislature. And if the Parliament desired, it could have been made such kind of restriction or any restriction like in the case of donation to Swach Bharat Kosh & Clean Ganga Fund. So the assertion of Ld. PCIT that AO could not have allowed deduction u/s 80G of the Act to an assessee on the CSR expenditure/donation to an institution u/s 80G(2)(a)(iv) which is enjoying certificate 80G(5)(vi) of the Act, is erroneous and therefore cannot be accepted. For this, we rely on the interpretation maxim "Expr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed and added back in terms of Explanation 2 to Section 37(1) of the Act. In terms of Section 135(5) of the Act read with Section 80G(iiihk) the donation of Rs. l crores made to Swach Bharat Kosh is not eligible for deduction u/s 80G of the Act. The company can claim deduction of fifty percent of the donation of Rs. 1 crores paid to any other registered charitable trust u/s 80G(2)(iv) read with Section 80G(1)(ii) of the Act. Situation 4 : The company has contributed Rs. 1 crore to Prime Minister's National Relief Fund and Rs. 1 crore to any other charitable trust registered u/s 80G(5) of the Act. Tax Treatment: The entire CSR expenditure of Rs. 2 crores is to be disallowed and added back in terms of Explanation 2 to Section 37(1) of the Act. The company can claim deduction for hundred percent of the donation of Rs. 1 crores paid to Prime Minister's National Relief Fund u/s 80G(2)(iiia) read with Section 80G(1)(i) of the Act. The company claim deduction to the extent of fifty percent of the donation of Rs. 1 crores paid to any other registered charitable trust u/s 80G(2)(iv) read with Section 80G(1)(ii) of the Act. 23. As discussed supra, we concur with the conte ..... X X X X Extracts X X X X X X X X Extracts X X X X
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