CSR Donations Eligible for S. 80G Deduction: ITAT Remands TDS Disallowance on Expense Provisions for Verification

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has remanded the issue of disallowance of expense provisions for alleged non-deduction of tax at source (TDS) to the Assessing Officer for fresh verification, while also affirming that donations forming part of Corporate Social Responsibility (CSR) expenditure may qualify for deduction under Section 80G of the Income Tax Act if statutory conditions are satisfied. The bench of Sandeep Singh Karhail ( Judicial Member) and Vikram Singh Yadav (Accountant Member) has observed that disallowance under Section 37 does not automatically bar deduction under Chapter VI-A. Denying deduction under Section 80G merely because the payment forms part of CSR obligations would effectively result in double disallowance. The assessee company, engaged in providing shipping agency services primarily to its parent entity abroad, filed its return of income declaring total income of ₹14.38 crore. The case was selected for scrutiny and statutory notices were issued during the assessment proceedings. During examination of the return, the Assessing Officer (AO) noticed that the assessee had claimed deductions relating to certain provisions for expenses that had earlier been disallowed under Section 40(a)(i) and Section 40(a)(ia) in the preceding assessment year due to non-deduction of TDS. The assessee claimed that the tax had subsequently been deducted and deposited during the relevant year and therefore the previously disallowed amount should now be allowed as deduction. However, the AO rejected the claim and denied deductions of ₹2.26 crore and ₹2.81 lakh, holding that the assessee had failed to deduct TDS at the prescribed rate. The AO also relied on Section 206AA, stating that since the Permanent Account Numbers (PAN) of payees were not available, tax ought to have been deducted at the higher rate of 20 percent. The assessee submitted that it follows a consistent accounting policy of creating provisions for expenses on a monthly basis and reversing them on the first day of the subsequent month. According to the assessee, the provisions were created on an estimated basis when the identity of the payees was not known. Out of abundant caution, the assessee had already made suo motu disallowance of 30 percent of the provision under Section 40(a)(ia) and the entire provision under Section 40(a)(i) in the earlier year. In the subsequent year, when the provisions were reversed and tax was deducted on the actual payments, the assessee claimed deduction of the previously disallowed amount. The company argued that denying the deduction again would lead to double disallowance of the same expenditure. Tribunal’s Findings on TDS Issue The Tribunal noted that Section 206AA applies where tax is deductible but the payee fails to furnish a PAN. In the present case, however, the assessee’s contention was that the provisions were created at a time when the payees themselves had not been identified. The bench observed that the crucial factor for allowing deduction was whether tax was actually deducted and deposited when payments were eventually made. Since the details of TDS deduction had not been examined by the lower authorities, the Tribunal held that the matter required verification. Accordingly, the ITAT set aside the order on this issue and restored the matter to the Assessing Officer for fresh adjudication after verifying the details of TDS deduction under Chapter XVII-B of the Income Tax Act. Another dispute concerned the allowability of deduction under Section 80G in respect of CSR expenditure. During the relevant year, the assessee incurred ₹23.67 lakh on CSR activities. While computing its income, it voluntarily disallowed the amount under Section 37(1) because CSR expenditure is not treated as business expenditure under the Act. However, it claimed 50 percent of the amount (₹11.83 lakh) as deduction under Section 80G. The Assessing Officer disallowed the claim on the ground that CSR expenditure is incurred to meet statutory obligations under Section 135 of the Companies Act, 2013, and therefore cannot be regarded as voluntary donations eligible for deduction. The Tribunal rejected the Revenue’s contention and observed that although CSR expenditure is not deductible as business expenditure under Section 37(1), there is no prohibition in the Act against claiming deduction under Section 80G if the payment qualifies as a donation to an eligible institution. However, the Tribunal directed the Assessing Officer to verify whether the statutory conditions prescribed under Section 80G are satisfied before granting the deduction. The ITAT partly allowed the Revenue’s appeal for statistical purposes by remanding the TDS-related disallowance issue for fresh verification, while upholding the principle that CSR-related donations may qualify for deduction under Section 80G subject to fulfilment of statutory requirements. Case Details Case Title: ACIT Versus Maersk Line India Pvt. Ltd. Citation: JURISHOUR-238-ITA-2026(MUM) Case No.: ITA no._6166/Mum./2025 Date: 05/03/2026 Counsel For Appellant: Manish Kant, CA Counsel For Respondent: Virabhadra Mahajan, (Sr. DR) Click Here To Read Order Read More: Energy-Efficient Street Lighting Project Integral to Road Infrastructure: ITAT Allows Deduction

CSR Donations Eligible for S. 80G Deduction: ITAT Remands TDS Disallowance on Expense Provisions for Verification

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