Income Tax: ITAT Allows Section 80G Deduction on CSR Expense
The current appeal has been filed by the ACG Pam Pharma Technologies Pvt. Ltd. (assessee) before the Income Tax Appellate Tribunal (ITAT), Mumbai. The appeal was filed because the company was not satisfied with the order passed by the Principal Commissioner of Income Tax (PCIT) on March 27, 2025, under Section 263 of the Income Tax Act for the Assessment Year 2021-22.
Section 263 allows the PCIT (a senior tax officer) to amend an assessment order if they feel that the original tax order made by the Assessing Officer (AO) was incorrect and resulted in a loss to the government; they can step in and revise it.
Background of Case
- ACG Pam Pharma had made a donation of Rs. 24,20,000 to Axis Foundation, a charitable organisation.
- The company had indicated this donation in its books as a CSR (Corporate Social Responsibility) expense under Section 135 of the Companies Act, 2013.
- The company suo moto disallowed this expense under Section 37 while computing its business income (because CSR expenses are not allowed as business deductions).
- However, in the income tax return, the company claimed a deduction under Section 80G, which allows deductions for donations to eligible charitable institutions.
- This deduction was disclosed clearly in their computation and tax audit report and was allowed by the Assessing Officer (AO) in the assessment order dated September 24, 2022.
What Did PCIT Do and Why?
Later, the PCIT examined the case and invoked Section 263, stating that:
- The donation was a CSR expense and not voluntary, and therefore not eligible for deduction under Section 80G.
- Additionally, the issue of 80G deduction on CSR expense was not discussed in the original assessment order.
- Therefore, according to PCIT, the order of the Assessing Officer was incorrect and harmful to the interest of the Income Tax Department.
Tribunal’s Key Questions to Answer:
The ITAT had to decide two important issues:
- Can donations made as CSR be claimed as a deduction under Section 80G?
- Was it right for the PCIT to revise the assessment order under Section 263 in this case?
Assessee’s Argument
The company, through its representative (AR), argued:
- CSR law does not tell the company where or to whom to donate. The choice is voluntary.
- There is no condition in Section 80G saying that the donation must not be CSR-related.
- They relied on multiple previous decisions, including Sharda Cropchem Ltd., Blue Dart Express Ltd., and Maharashtra Industrial Development Corporation.
- They also cited a CBDT Circular (No. 1/2015), which clarified that CSR expenses can be allowed under other sections like Section 80G, just not under Section 37 (which is for business deductions).
- A Ministry of Corporate Affairs (MCA) FAQ also said that donations like the Prime Minister’s Relief Fund, rural development, etc., already get tax benefits even if classified under CSR.
What Did the Tribunal Say?
1. CSR Donations Can Qualify for 80G:
- ITAT said the donation was made to an eligible institution under Section 80G, so it qualifies for deduction.
- Just because it’s a CSR expense doesn’t make it ineligible.
- CBDT’s circular clearly allows such deductions under sections other than 37 if conditions are met.
- Parliament had specifically excluded only two cases under 80G (donations to Swachh Bharat Kosh and Clean Ganga Fund). So, other CSR donations are allowed.
2. Section 263 Cannot Be Used Here:
- ITAT said that the AO had already reviewed and accepted the 80G deduction during the assessment.
- PCIT cannot just say the AO’s decision was wrong because they disagree with it.
- For Section 263 to be applied, there must be a clear legal error and not just a difference in opinion.
- Past judgments, including Inter Gold (India) Pvt. Ltd., support this view.
Tribunal’s Decision:
The ITAT concluded that the donation to the Axis Foundation, even though marked as CSR, was eligible for deduction under Section 80G. The AO’s decision was proper, and the PCIT had wrongly used Section 263. Hence, the PCIT’s order was quashed, and the original assessment order was restored.