ITAT Hyderabad on Section 80G Deduction for CSR Spend and Refund of Excess DDT

1. Background of the Appeals

The Hyderabad Bench “B” of the Income Tax Appellate Tribunal decided two connected appeals, ITA-TP Nos. 341/Hyd/2023 and 342/Hyd/2023, by a consolidated order dated 19 June 2024 for Assessment Year 2018-19.

The appeals were filed by:

  • Deloitte Tax Services India Private Limited, and
  • Deloitte & Touche Assurance & Enterprise Risk Services India Private Limited

against orders dated 02 May 2023 passed by the CIT(A)-10, Hyderabad. The appeals were heard on 21 May 2024.

Two key issues arose:

  1. Whether donations made as part of Corporate Social Responsibility (CSR) expenditure could be allowed as deduction under Section 80G of the Income Tax Act 1961; and
  2. In ITA No. 342/Hyd/2023, whether refund of excess Dividend Distribution Tax (DDT) paid by mistake could be granted under Section 237.

2. Facts Relating to CSR Expenditure and Section 80G Claim

2.1 CSR donations and suo motu disallowance under Section 37

During Financial Year 2018-19, both assessees incurred CSR expenditure by way of donations in order to comply with Section 135 of the Companies Act 2013.

Recognising the impact of the proviso and Explanation 2 to Section 37(1) of the Income Tax Act, the assessees:

  • Treated CSR spend as not allowable as business expenditure;
  • Suo motu disallowed the CSR amounts in their computation of business income; and
  • Thereafter claimed these donations as deductions under Section 80G, on the footing that the donations were made to institutions qualifying under Section 80G(2) and that Chapter VI-A operated independently of Section 37.

The assessees argued that:

  • Section 37 only deals with allowability of business expenditure;
  • Section 80G is a separate, specific deduction provision under Chapter VI-A;
  • There is no general statutory bar that prevents a CSR donation—once disallowed under Section 37(1)—from being claimed under Section 80G, so long as the conditions prescribed in Section 80G(2) and Section 80G(5) are satisfied.

2.2 Rejection of the claim by the Assessing Officer and CIT(A)

Both the Assessing Officer and the CIT(A) rejected the claim. Their line of reasoning was broadly:

  • Donations forming part of CSR are not voluntary, as they arise from a statutory mandate under Section 135 of the Companies Act 2013;
  • For a payment to qualify under Section 80G, voluntariness is essential, which they considered absent in CSR payments;
  • By virtue of the proviso to Section 37(1) and Explanation 2, CSR-related expenditure is not to be considered as expenditure incurred for the purposes of business or profession;
  • Having already obtained the “benefit” of compliance with Section 135 of the Companies Act, the assessees, according to the Revenue, could not again seek a tax benefit by way of Section 80G deduction on the same outgo.

CIT(A) thus held that once an amount is recognised as CSR in fulfilment of Section 135, it could not be allowed again as deduction under Section 80G.

3. Assessee’s Arguments Before the Tribunal

3.1 Independence of Section 80G from Section 37

The learned Authorised Representative (AR) for the assessees emphasised that:

  • The assessees had not claimed CSR outlay as business expenditure under Sections 30 to 36;
  • The CSR sums were already added back in the computation of business income, thereby complying fully with Explanation 2 to Section 37(1);
  • The deduction sought was strictly under Chapter VI-A, specifically Section 80G, which is not overridden by Section 37(1);
  • Section 37 and Section 80G have distinct fields of operation—one dealing with computation of business profits, the other with specified deductions from gross total income.

3.2 Circulars and FAQs relied upon

The AR placed reliance on:

  • CBDT Circular No. 01/2015 dated 21 January 2015, which clarifies that CSR expenditure can still be eligible for deduction under Sections 30 to 36 if it falls within their ambit. According to the AR, the Circular does not impose any restriction on deduction of CSR donations under Section 80G;
  • FAQ No. 6 of General Circular No. 01/2016 dated 12 January 2016 issued by the Ministry of Corporate Affairs, to reinforce that tax treatment under the Income-tax Act depends on provisions of that Act and not on the Companies Act label alone.

3.3 Case law cited by the assessees

The assessees also relied on decisions of various Tribunal Benches that had already addressed the interplay between CSR and Section 80G, including: