Tax tribunals allow deductions for donations part of CSR spend

Delhi and Mumbai benches of ITAT recently allowed a deduction under section 80-G of the I-T Act to two corporate entities for donations made by them, even though such donations were part of their CSR expenses.

During assessment, I-T officials had denied the deduction on the ground that donations, which are part of CSR expenses, are not voluntary in nature but are a compliance to be made under the Companies Act. Donations can only be voluntary in nature, was the stand taken by I-T officials.

Under section 135 of the Companies Act read with the rules, companies having a net worth of Rs 500 crore or more, or turnover of Rs 1,000 crore or more, or net profit of Rs 5 crore or more have to comply with the CSR provisions. These companies have to spend at least 2% of their average net profit for the immediately preceding three fiscals on CSR activities.

Nabin Ballodia, tax partner at BDO-India, states, “Tribunals are now increasingly allowing the deduction under section 80G. The reason for the allowance is that there is no embargo under section 80G to disallow the expenditure.”