The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has held that CSR expenditure disallowed under Explanation 2 to Section 37(1) of the Income Tax Act is not, for that reason alone, barred from being considered for deduction under Section 80G; the two provisions operate in distinct fields, and deduction under Section 80G is available if the donation satisfies the conditions of that section and does not fall within the expressly excluded categories.
Essentially, unless the donation falls within the specifically excluded CSR-linked funds under Section 80G, a donation otherwise eligible under Section 80G can still be claimed even if the underlying spend was part of CSR and already disallowed under Section 37(1) of the Income Tax Act, added the Tribunal.
The ITAT ruled that a donation does not cease to be eligible under Section 80G merely because it also satisfies the assessee’s CSR obligation under the Companies Act; the contention that such payment lacks voluntariness solely because it forms part of CSR was rejected as misconceived in law. Accordingly, the Tribunal deleted the disallowance made by the Assessing Officer.
The Division Bench comprising Pawan Singh (Judicial Member) and Girish Agrawal (Accountant Member) observed that the issue was “no longer res integra” and stood settled by a line of coordinate bench decisions. Reference was made to DCIT v. Gabriel India Ltd. [2025] 173 taxmann.com 219 (Mum). The Tribunal reiterated the principle emerging from earlier cases that Explanation 2 to Section 37(1) prohibits allowance of CSR expenditure as business expenditure, but there is no corresponding amendment in Section 80G denying deduction if the donation otherwise satisfies Section 80G conditions.
The Tribunal noted prior decisions holding that Section 37(1) and Section 80G are independent: Section 37 governs computation of business income under Sections 28–44DB, while Section 80G is a Chapter VI-A deduction from gross total income. The Tribunal also referred to the specific statutory exceptions in Section 80G for contributions to Swachh Bharat Kosh and Clean Ganga Fund in the nature of CSR expenditure, observing that disallowance vis-à-vis CSR under Section 80G is restricted to such expressly excluded funds.
The Tribunal recorded the reasoning from precedent that the objection based on lack of voluntariness is not legally tenable, because although CSR spending may be mandatory in quantum, the choice of recipient is not necessarily mandated, and Section 80G itself does not impose voluntariness as a condition. Applying these principles, the Tribunal found that there was no statutory bar to the assessee’s Section 80G claim, since the donations did not fall within the specified exceptions.
Briefly, the sole issue was the disallowance of deduction claimed under Section 80G in respect of donation made to the Prime Minister’s National Relief Fund (PMNRF), where the donation had been made out of CSR funds / CSR expenditure. The assessee filed its return declaring total income of Rs. 6.83 crores. The assessee had incurred CSR expenditure, and had suo motu disallowed that expenditure by adding it back while computing total income.
Out of that expenditure, the assessee claimed deduction under Section 80G for Rs. 22.94 lakhs in respect of donation to the Prime Minister’s Relief Fund, asserting that the fund was approved under Section 80G and eligible for 100% deduction. The Assessing Officer disallowed the Section 80G claim, and the CIT(A) confirmed the disallowance.
Appearances:
Akshay J. Shah, CA, for Assessee
Surendra Mohan, Sr. DR, for Revenue
