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Income Tax Appellate Tribunal, MUMBAI BENCH “G”, MUMBAI
Before: SHRI NARENDER KUMAR CHOUDHRY & SHRI GAGAN GOYAL
PER GAGAN GOYAL, A.M: This appeal by assessee is directed against the order of Principal Commissioner of Income Tax, Mumbai-4 (for short “PCIT”), Delhi dated 30.03.2023 u/s. 263 of the Income Tax Act, 1961 (in short ‘the Act’) for A.Y. 2018-19. The assessee has raised the following grounds of appeal:-
1. Ground No. 1: Order passed under section 263 of the Income-tax Act, 1961 ('the Act') is bad in law and invalid
1 On the facts and circumstances of the case and in law, the Ld. PCIT erred in passing order dated 30 March 2023 under section 263 of the Act ('impugned order') setting aside the assessment order dated 17 March 2021 passed under section 143(3) r.w.s 143(3A) and 143(3B) of the Act ('the assessment order') by the Additional / Joint / Deputy / Assistant Commissioner of Income Tax / Income-tax officer, National e-Assessment Centre ('the Ld. NeAC') on the alleged ground that the assessment order was erroneous in so far as it was prejudicial to the interests of the revenue.
1.2 The Appellant prays that the impugned order be quashed as being bad in law.
2. Ground No. 2: Non-granting of deduction under section 80G of the Act
2.1 On the facts and circumstances of the case and in law, the Ld. PCIT erred in holding that the assessment order was erroneous and prejudicial to the interest of the revenue on the alleged ground that claim for deduction under section 80G in respect of CSR expenses of INR 1, 88, 69,677/- was allowed by the Ld. NeAC without making enquiries warranted under facts and circumstances of the case and provisions of law.
2.2 The Appellant prays that the impugned order on this issue be set aside.
Ground No. 3: Other issues
3.1 On the facts and circumstances of the case and in law, the Ld. PCIT erred in relying on clause (a) to Explanation 2 of section 263(1) of the Act and the decisions of the Hon'ble Supreme Court in the case of Malabar Industrial Co. Limited v. CIT [2000] 243 ITR 83 (SC) and various other decisions in support of the impugned revision.
3.2 On the facts and circumstances of the case and in law, the Ld. PCIT erred in exercising the revision powers even after accepting that the Ld. NeAC had called for details from the Appellant.
3.3 On the facts and circumstances of the case and in law, the learned PCIT erred in exercising the revision powers without showing even prima facie how the claims of the Appellant with regard to deduction under section 80G of the Act in respect of CSR expenses, were not maintainable,
3.4 On the facts and circumstances of the case and in law, the learned PCIT erred in not following binding decisions of higher appellate authorities.
The brief facts of the case are that assessee company filed its return of income on 29-11-2018, declaring total income at Rs. 413,50,97,580/-. Case of the assessee was selected for COMPLETE SCRUTINY under CASS with a special emphasis on “Deduction from Total Income under Chapter VI-A”. Statutory notices for scrutiny were issued and served on the assessee. Assessment of the assessee was completed on returned income u/s. 143(3) r.w.s. 143(3A) and 143(3B) of the Act vide dated: 17.03.2021. There after a notice u/s. 263 of the Act was issued by the office of Ld. PCIT on 01.03.2022 to examine the issue of allowability of CSR expenditure u/s. 80G of the Act, copy of notice issued by the office of Ld. PCIT u/s. 263 of the Act is reproduced as under:
3. In response to the notice reproduced (supra), assessee submitted its response vide Pages No. 184 to 234 of the paper book. Ld. PCIT, considered the reply of the assessee but he found the same to be not satisfactory on the ground that “Failure of the AO to make the enquiries which were warranted under the facts and circumstances of the case and under the provisions of law have rendered the assessment order erroneous in so far as it is prejudicial to the interest of the Revenue.” In view of this Ld. PCIT passed an adverse order and set aside the assessment order and matter is restored to the file of AO for disallowing the claim of the assessee u/s. 80G of the Act on CSR Expenditure.
Assessee being aggrieved with this order of Ld. PCIT u/s. 263 of the Act preferred this appeal before us.
We have gone through the order of AO, Notice issued by the Ld. PCIT u/s. 263 of the Act, Order of Ld. PCIT u/s. 263 of the Act and submissions of the assessee. Before deciding the matter on its merits, we deem it fit to examine the matter on technical front also, i.e., whether Ld. PCIT rightly assumed the charge u/s. 263 of the Act or not. To examine this issue we are reproducing the notice issued by the AO u/s. 142(1) of the Act enquiring the very issue under consideration and response of the assessee thereon as under:
It is observed that Explanation 2 to section 37(1) of the Act says that any expenditure relatable to the discharge of CSR is not business expenditure and cannot be allowed as such. On this aspect, there is no contradiction of the fact submitted by the assessee that in compliance with this requirement, the assessee does not claim any deduction of such amount spent as CSR under any of the provisions between sections 30 and 36 of the Act, and suo moto disallowed the same by adding it back to the profit and loss account. It is only thereafter the business income of the assessee is computed in accordance with the principles laid down for computation of the profits and gains of Societe General Securities India Pvt Ltd. business or profession in sections 28 to 44DB of the Act. By this, the assessee seeks compliance with Explanation 2 of section 37 of the Act and, therefore, the revenue shall not have any grievance. Whether or not the assessee suo moto disallowed the amount spend towards the CSR while computing the business income is a verifiable fact.
After computing the business income, while computing the total income of the assessee, the assessee is invoking the benefit under Chapter VIA by claiming deduction of the sums under section 80G of the Act. According to the revenue, when once such sum went to satisfy the requirement of section 135 of the Companies Act, the benefit gets exhausted and such an amount is no more available for the purpose of claiming deduction under section 80G of the Act. There is no express provision to support the contention of Revenue. On the other hand, section 80G (2) (iiihk) and (iiihl) of the Act expressly provide that such sums donated for Swatch Bharath Kosh and Clean Ganga Fund shall be the amounts other than the sums spent by the assessee in pursuance of CSR, meaning thereby the donations made towards Swatch Bharath Kosh and Clean Ganga Fund spent as a part of CSR are not qualified for deduction under section 80G of the Act. Out of so many entries under section 80G(2) of the Act, only donations in respect of two entries are restricted if such payments were towards the discharge of the CSR. The Legislature could have put a similar embargo in respect of the other entries also, but such a restriction is conspicuously absent for other entries. The irresistible conclusion that would flow from it is that it is not the legislative intention to bar the payments covered by section 80G(2) of the Act which were made pursuant to the CSR, and other than covered by section 80G(2)(iiihk) and (iiihl) of the Act. As stated
Societe General Securities India Pvt Ltd. above, clue can be had from the restrictions by way of section 80G (2) (iiihk) and (iiihl) of the Act. Explanation 2 to section 37(1) of the Act which denies deduction for CSR expenses by way of business expenditure is applicable only to extent of computing 'business income' under Chapter IV-D of the Act and; it could not be extended or imported to CSR contributions which was otherwise eligible for deduction under Chapter VI-A of the Act.
Where the deduction under section 80G of the Act is also disallowed, since CSR qualifying donations are not 'voluntary contributions', it will be a double jeopardy in the case of assessee. Assessee cannot be denied the benefit of claim under Chapter VIA of the Act, which is considered for computing 'Total Taxable Income". If assessee is denied this benefit, merely because such payment forms part of CSR, it would lead to double disallowance, which is not the intention of Legislature at all. Legislature on this matter simply dealing with the computation of total income under chapter IVD pertaining to “Income under the head Business and Profession” and not at all dealt with the eligibility of assessee to claim deduction u/s. 80G of the Act, falling in chapter VIA of the Act. It is further observed that genuineness of the transactions and identity of the donees are also not under challenge. All the payments were made through proper banking channel and appropriate donation receipts were also produced before the lower authorities and before us also.
As discussed and observed (supra), there is no bar for the assessee to claim benefit u/s. 80G of the Act, falling in Chapter VIA of the Act, we found observations of the Ld. PCIT as untenable in law, in the result grounds raised by Societe General Securities India Pvt Ltd. the assessee are allowed and order of Ld. PCIT passed u/s. 263 of the Act is set- aside.
In the result, appeal of the assessee is allowed.