The New Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has held that once it is established that statutory liabilities covered by Section 43B, namely GST, bonus and employer’s contribution to PF, were paid on or before the due date for filing the return under Section 139(1), no disallowance can be made under Section 43B. It further held that where the earlier appellate order deleting the CPC’s disallowance had attained finality, the AO/CPC could not sustain the same disallowance again.
The Tribunal further held that Explanation 2 to Section 37(1), which denies deduction of CSR expenditure as business expenditure, is confined to computation of business income under Chapter IV-D and cannot be imported into Section 80G so as to deny deduction for donations otherwise eligible under Chapter VI-A. Except for the specific statutory exclusions such as Swachh Bharat Kosh and Clean Ganga Fund where claimed as CSR expenditure, donations made to eligible institutions under Section 80G remain deductible, and denial on the sole ground that they form part of CSR would amount to double disallowance not intended by the Legislature.
On Section 43B issue, the Division Bench comprising Yogesh Kumar U.S. (Judicial Member) and Manish Agarwal (Accountant Member) observed that the AO had merely repeated the disallowance earlier made by CPC under Section 143(1), even though the tax audit report itself recorded the relevant amounts of GST payable, bonus payable and employer’s contribution to provident fund as having been paid on or before the due date for furnishing the return under Section 139(1). The Tribunal further noted that the assessee had already challenged the CPC’s action through rectification proceedings under Section 154, and the CIT(A) had deleted the disallowance, against which no appeal had been preferred by the Revenue.
On the Section 80G issue, the Tribunal recorded that the CIT(A) had relied on decisions of the Delhi Tribunal holding that although CSR expenditure is disallowable under Explanation 2 to Section 37(1), there is no corresponding restriction in Section 80G where donations are otherwise made to eligible institutions fulfilling the conditions prescribed thereunder. The Tribunal noted that Section 80G falls in Chapter VI-A, which operates at the stage of computing total income, distinct from the computation of business income under Section 37(1), and also observed that the statute expressly carves out only specified CSR-related exclusions such as contributions to Swachh Bharat Kosh and Clean Ganga Fund claimed as CSR expenditure.
The Tribunal also observed that denial of deduction under Section 80G merely because the payment formed part of CSR would lead to double disallowance, which is not the intention of the Legislature. It respectfully followed coordinate bench decisions, including Honda Motorcycle and Scooter India Pvt Ltd vs ACIT [ITA No.1523/Del/2022] and Teradata India Pvt Ltd vs. DCIT [ITA 1248/Del/2022], in support of the proposition that Explanation 2 to Section 37 applies only for computation of business income and cannot be extended to deny deductions otherwise available under Chapter VI-A.
Briefly, the assessee, Ernst & Young Services Private Limited, had filed its return declaring total income of Rs. 28.87 crores, which was first processed under Section 143(1), and thereafter scrutiny assessment under Section 143(3) resulted in additions/disallowances on account of: (i) education cess of Rs. 27.95 lakhs, (ii) deduction under Section 80G of Rs. 18 lakhs claimed out of CSR expenditure, (iii) disallowance under Section 43B of Rs. 13.73 crores, and (iv) employee’s contribution to PF of Rs. 5.11 lakhs deposited after the due date. The CIT(A) deleting Section 43B disallowance relating to bonus, GST and employer’s PF contribution, and allowed deduction under Section 80G for donations made out of CSR expenditure, while confirming the disallowance concerning delayed deposit of employees’ PF contribution.
