No Blanket Ban on CSR Deduction Under 80G: ITAT & Revised 14A Claim Without Audit Backing Rightly Denied: ITAT

Case: Gujarat State Financial Services Ltd. v. Deputy Commissioner of Income-tax

ITAT: Ahmedabad

ITA No.: 1226/AHD/2024

Assessment Year: 2020-21

Date of Order: 9th May, 2025

Brief Facts:

• The assessee, a government undertaking, made a donation of ₹3.57 crore to the Mukhyamantri Shree Swachchta Nidhi Gujarat as part of its CSR activity, and claimed a deduction of 50% under Section 80G of the Income-tax Act.

• Although the donation was disallowed under Section 37 (CSR not being a business expenditure), the assessee claimed deduction under Section 80G, considering the fund eligible.

• Consequently, the Assessing Officer and the Commissioner (Appeals) disallowed the claim, holding that donations under CSR were not eligible for deduction under Section 80G.

• In addition, the assessee had suo moto disallowed ₹14.31 crore under Section 14A, which it later revised to ₹98,872 during assessment proceedings.

• However, the AO and CIT(A) rejected this revision on the grounds that no revised audit report or proper rationale was submitted.

Observations of the Court:

1. On Deduction under Section 80G (CSR Contribution):

• The Tribunal noted that Section 80G(2)(a) (iiihk) and (iiihl) restrict deductions only to CSR donations made specifically to Swachh Bharat Kosh and Clean Ganga Fund.

• Since the donation in question was made to Mukhyamantri Shree Swachchta Nidhi, Gujarat, which is not excluded under the section, the claim was held to be allowable.

• It relied on earlier rulings, especially Gujarat State Fertilizers & Chemicals Ltd. v. ACIT, affirming that CSR expenses and 80G deductions operate in different legal domains.

• The Tribunal held that merely because it was a CSR expense does not render it ineligible if the fund qualifies independently under Section 80G.
  

2. On Disallowance under Section 14A:

   • The assessee initially disallowed ₹14.31 crore under Section 14A but attempted to revise this figure to ₹98,872 without a revised audit certificate or clear computation logic.

   • The Tribunal agreed with the lower authorities that the revised claim lacked justification, particularly given the absence of any basis for selective expense allocation and strategic investments made with management involvement.

   • The original disallowance was therefore upheld as valid, since the assessee’s audit report reflected that amount and no valid revised documentation was furnished.

Hence, the ITAT allowed the appeal in part, ruling in favour of the assessee for the deduction under Section 80G regarding the CSR contribution to Mukhyamantri Shree Swachchta Nidhi, Gujarat. However, it dismissed the assessee’s revised claim under Section 14A, citing lack of rationale and supporting evidence.