The Income Tax Appellate Tribunal, Ahmedabad, has clarified that donations made by companies as part of their Corporate Social Responsibility (CSR) obligations under the Companies Act, 2013, remain eligible for deduction under Section 80G of the Income Tax Act, provided the recipient institution is duly approved under Section 80G(5). This ruling resolves a recurring conflict between statutory compliance and tax incentives, affirming that the character of a payment as CSR does not automatically negate its eligibility as a charitable donation.
Background & Facts
The Dispute
The appellant, Lonsen Kiri Chemical Industries Ltd., incurred CSR expenditure of Rs. 2,20,22,029 during Assessment Year 2020-21, as mandated under Section 135 of the Companies Act, 2013. The company voluntarily disallowed this entire amount as a business expense under Section 37(1) of the Income Tax Act, 2013. Separately, the company made donations aggregating to Rs. 1,40,00,000 to charitable institutions approved under Section 80G(5) of the Income Tax Act. Of this, it claimed a deduction of Rs. 70,00,000 under Section 80G. The Assessing Officer disallowed the entire Rs. 70,00,000 deduction, asserting that CSR payments, being statutory obligations, cannot be treated as voluntary donations. The Commissioner of Income Tax (Appeals) upheld this view.
Key Facts
The assessee filed its return for A.Y. 2020-21 declaring total income of Rs. 220,10,14,750
CSR expenditure incurred: Rs. 2,20,22,029 (fully disallowed under Section 37(1))
Donations made to Section 80G-approved institutions: Rs. 1,40,00,000
Deduction claimed under Section 80G: Rs. 70,00,000
Donations were made through proper banking channels
All donee institutions were duly registered under Section 80G(5)
No claim was made for deduction under both Section 37(1) and Section 80G for the same amount
Procedural History
31.07.2020: Due date for filing return of income for A.Y. 2020-21
15.11.2020: Assessment proceedings initiated under Section 143(3)
10.12.2021: Notice under Section 142(1) issued for clarification on CSR donations
28.02.2022: Assessee submitted detailed submissions and proof of donations to approved institutions
15.06.2022: Assessment order passed by Assessing Officer disallowing Rs. 70,00,000 under Section 80G
18.07.2022: Penalty proceedings initiated under Section 270A
10.12.2025: Order of Ld. CIT(A) confirming disallowance and upholding penalty initiation as premature
22.01.2026: Appeal filed before ITAT Ahmedabad (ITA No. 506/Ahd/2026)
02.04.2026: Hearing concluded
23.04.2026: Judgment pronounced
Relief Sought
The appellant sought: (1) reversal of the disallowance of Rs. 70,00,000 under Section 80G; (2) deletion of penalty proceedings under Section 270A; and (3) confirmation that CSR donations to approved institutions qualify for deduction under Section 80G.
The Legal Issue
Can a donation made to an institution approved under Section 80G(5) of the Income Tax Act be denied deduction merely because the payment was made as part of a statutory CSR obligation under Section 135 of the Companies Act, 2013, and has already been disallowed as a business expense under Section 37(1)?
Arguments Presented
For the Appellant
The appellant relied on two binding precedents from the Ahmedabad Tribunal: Patel Infrastructure Ltd. v. PCIT (Central), Surat (ITA No. 787/Ahd/2025, dated 28.07.2025) and Deputy Commissioner of Income-tax v. Amneal Pharmaceuticals (P.) Ltd. (2026) 184 taxmann.com 414 (Ahmedabad - Trib., dated 12.03.2026). It argued that Section 80G operates independently of Section 37(1) and that the legislative intent behind Explanation 2 to Section 37(1) is to prevent double deduction of CSR expenditure as both a business expense and a charitable donation - not to bar charitable deduction altogether. The appellant emphasized that the donations were made to approved institutions, through banking channels, and no claim was made under both sections for the same amount.
For the Respondent
The Revenue contended that CSR payments are not voluntary donations but statutory obligations, and therefore do not meet the essential condition of "voluntariness" implied under Section 80G. It relied on CBDT Circular No. 01/2015 and the Memorandum to the Finance (No. 2) Act, 2014, to argue that allowing Section 80G deduction for CSR payments would result in a double benefit - disallowance under Section 37(1) and deduction under Section 80G - thereby defeating legislative intent.
The Court's Analysis
The Tribunal observed that the issue had been authoritatively settled by coordinate benches of the Ahmedabad Tribunal in two recent decisions. It emphasized that Section 80G is a provision under Chapter VI-A of the Income Tax Act, which provides for specific deductions independent of the computation of business income under Sections 28 to 43D. The Tribunal held that Explanation 2 to Section 37(1) only restricts the allowance of CSR expenditure as a business deduction and does not override or modify the conditions for deduction under Section 80G.
"The fact that the payment is made to comply with a statutory obligation under Section 135 of the Companies Act, 2013, does not alter the nature of the payment as a donation for the purposes of Section 80G, provided the donee is approved and the payment meets all conditions laid down in Section 80G(5)."
The Tribunal further noted that the Revenue had failed to identify any statutory provision that excludes CSR donations from Section 80G eligibility. It distinguished the present case from situations where the same amount is claimed twice - here, the CSR amount was fully disallowed under Section 37(1), and only a portion of the donation was claimed under Section 80G. The Tribunal held that the Assessing Officer and CIT(A) erred in law by conflating the statutory regimes of corporate governance and income tax incentives.
The Verdict
The appeal of the assessee is allowed. The disallowance of Rs. 70,00,000 under Section 80G is set aside. The penalty proceedings under Section 270A are dropped as the disallowance was not justified. The assessee is entitled to claim the full deduction of Rs. 70,00,000 under Section 80G for A.Y. 2020-21. The order of the CIT(A) dated 10.12.2025 is quashed. The case is remanded to the Assessing Officer to give effect to this order within 4 weeks.
What This Means For Similar Cases
CSR Donations Are Not Automatically Excluded from Section 80G
Practitioners may now confidently claim Section 80G deductions for CSR donations to approved institutions, provided the donation meets all conditions under Section 80G(5)
The mere fact that a payment is made under statutory CSR obligation does not disqualify it from charitable deduction
Tax planning for corporates must now treat CSR and charitable giving as distinct but overlapping compliance areas
Double Disallowance Argument Rejected
The Revenue’s argument that Section 37(1) disallowance negates Section 80G eligibility is legally unsustainable
No provision in the Income Tax Act prohibits claiming Section 80G deduction for amounts already disallowed under Section 37(1)
Tax officers must assess Section 80G claims on their own merits, irrespective of CSR treatment under the Companies Act
Documentation Remains Critical
Maintain clear records showing: (a) approval status of donee under Section 80G(5), (b) payment through banking channels, (c) separate accounting of CSR and charitable donations
Avoid any overlap in accounting entries to prevent inadvertent double claims
File Form 58 and obtain receipts from donees as mandatory compliance
