Judicial Analysis: Applicability of Section 50C Deeming Fiction on Depreciable Assets and Section 80G Deduction for CSR Expenses

The interpretation of deeming fictions within the Income Tax Act, 1961, often leads to complex litigation, particularly when provisions meant for Capital Gains are applied to Business Profits. A recent ruling by the Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) in the case of Jewelex India Private Limited Vs DCIT has provided significant clarity on two contentious issues: the eligibility of Corporate Social Responsibility (CSR) expenditure for deduction under Section 80G, and the applicability of Section 50C valuation rules when calculating the Written Down Value (WDV) of a block of assets.

This comprehensive analysis delves into the Tribunal's order, exploring the statutory interplay between Section 43(6), Section 50C, and Section 37(1) of the Act.

Part I: The Controversy Surrounding CSR and Section 80G

The first major issue adjudicated in this appeal involved the disallowance of deductions claimed under Section 80G of the Income Tax Act, 1961. The dispute arose when the Assessing Officer (AO) disallowed a claim of Rs. 4,90,18,859/-. This amount represented 50% of the donations made to eligible trusts and institutions, which were recorded as CSR expenditure in the assessee's books of account to comply with the Companies Act, 2013.

The Revenue’s Standpoint

The Revenue's primary argument hinged on the nature of CSR expenses. The AO contended that:

  1. CSR expenses are mandatory under the Companies Act, 2013.
  2. Explanation 2 to Section 37(1) of the Income Tax Act, 1961, explicitly prohibits claiming CSR expenditure as a business deduction.
  3. Since the payment is statutory and mandatory, it lacks the element of "voluntariness" required for a donation.
  4. Consequently, if an expense is barred under Section 37(1), it cannot bypass this restriction by claiming it under Section 80G.

The Assessee’s Defense

The assessee countered that the prohibition under Section 37(1) is specific to business expenditure. There is no corresponding amendment or restriction within Section 80G itself. If a donation is made to an institution that holds a valid registration under Section 80G, the donor is entitled to the deduction, regardless of whether the payment was classified as CSR in the corporate books.

Tribunal’s Observation and Ruling

The ITAT Mumbai ruled in favor of the assessee, noting that this legal question is no longer res integra (an untouched matter) but has been settled by numerous coordinate benches.

The Tribunal relied heavily on the precedent set in Alubond Dacs India (P.) Ltd. (2024) and Deputy Commissioner of Income-tax vs. Gabriel India Ltd. [2025]. The rationale is that the legislature, while inserting Explanation 2 to Section 37(1) via the Finance (No. 2) Act, 2014, did not introduce a parallel exclusion in Section 80G.

The Tribunal cited the following extract from the Alubond Dacs India (P.) Ltd. decision: