In a notable ruling by the Income Tax Appellate Tribunal (ITAT) Delhi, the case of Interglobe Technology Quotient Private Limited (ITA No. 95/Del/2024) clarified the application of Section 80G deductions in the context of Corporate Social Responsibility (CSR) expenditures. Here’s a breakdown of the ruling and key points to understand.

Background of the Case

The appeal involved two main grounds:

1. Disallowance of Section 80G Deduction: The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the disallowance of a deduction of ₹1,37,94,870 under Section 80G. This amount represented 50% of eligible donations made by Interglobe during the relevant financial year.

2. CSR-Related Donations: The CIT(A) also confirmed disallowance of ₹78,00,950 (out of total donations aggregating to ₹1,56,01,900), arguing that this expenditure, marked as CSR, did not qualify as a donation under Section 80G.

CSR Expenditure and Section 80G Deduction: ITAT Delhi Ruling Explained

In a notable ruling by the Income Tax Appellate Tribunal (ITAT) Delhi, the case of Interglobe Technology Quotient Private Limited (ITA No. 95/Del/2024) clarified the application of Section 80G deductions in the context of Corporate Social Responsibility (CSR) expenditures. Here’s a breakdown of the ruling and key points to understand.

Key Observations and Rulings by ITAT

1. CSR Expenditure and Section 37(1):

   • ITAT noted that the appellant had already suo-motu disallowed CSR donations under Section 37(1), as CSR is not considered a deductible expense for calculating "Income from Business or Profession".

2. Assessing Officer's Disallowance:

   • The Assessing Officer (AO) denied the full deduction claimed under Section 80G, citing that CSR expenses do not qualify for deductions under this section.

3. Legislative Intent:

   • The ITAT emphasized that the legislature’s intent is clear—expenditures falling under Sections 30 to 36 are not affected by Explanation 2 to Section 37(1). If conditions under Sections 30 to 36 are met, the expenses are allowable for calculating business income.

4. Section 80G and Total Taxable Income:

   • Deductions under Section 80G are considered while calculating “Total Taxable Income.” Even if CSR payments are ineligible under Section 37(1), Section 80G deductions apply when the criteria are met, independent of business income calculations.

5. Impact of Disallowance on Business Income:

   • Disallowing CSR expenses under Section 37(1) raises business income. Yet, Chapter VIA deductions, including Section 80G, can be claimed while determining “Total Taxable Income,” assuming the donations meet the necessary requirements.

6. Double Disallowance Not Intended by Law:

   • ITAT highlighted that denying deductions under both Section 37(1) and Section 80G for CSR donations leads to double disallowance, which contradicts legislative intent. Therefore, the appellant’s claim under Section 80G is allowed.

Key Takeaways for Taxpayers and Corporates

• CSR vs. Deductible Donations: While CSR expenses are generally disallowed as business expenses under Section 37(1), they may still qualify for deductions under Section 80G if they meet its criteria.
• Section 80G Claims on CSR: Corporates making CSR contributions should consider Section 80G as a viable route for tax benefits, avoiding double disallowance.
• Legislative Clarity: This ruling clarifies that Section 80G deductions apply at the "Total Taxable Income" stage, distinct from business income calculations, provided donation conditions are satisfied.

Conclusion

The ITAT Delhi ruling affirms that CSR contributions can qualify for Section 80G deductions without conflicting with Section 37(1) restrictions. This decision benefits corporations that contribute donations as part of their CSR but seek relief under Section 80G, ensuring fair tax treatment and upholding legislative intent.