M/S. BLUE CROSS LABORATORIES PVT. LTD.,MUMBAI vs. PCIT, MUMBAI-3 , MUMBAI

The present appeal filed by the assessee is directed against the order passed u/s 263 of the Income Tax Act, 1961 ([hereinafter “the Act”] by the Learned Principal Commissioner of Income-3 [hereinafter „the Ld. PCIT‟] dated 31.03.2023 for A.Y. 2018-19. 2. The grounds of appeal of the assessee as under:

On the facts and circumstances of the case and in law, Hon'ble Pr. CIT erred in invoking the provisions of section 263 of the Act and setting aside the assessment order passed u/s 143(3) of the Act as erroneous and prejudicial to the interest of the revenue and directing the AO to verify the contentions of the Appellant on disallowance of Corporate Social Responsibility (“CSR") expenditure in the return and to disallow the deduction u/s 80G on donations out of CSR expenditure.

The Appellant prays that it be held that the impugned order is neither erroneous nor prejudicial to the interests of the revenue. WITHOUT PREJUDICE TO GROUND NO. I:

Accordingly, a show cause notice dated 19.03.2021 was issued to the assessee. In response the assessee submitted that there was a typographical error for showing an amount of ₹50,376/- under the corporate social responsibility expenditure. The assessee has also explained that it has not claimed CSR expenditure u/s 37(1) of the Act as a deduction out of its income.

However, the Ld. PCIT observed that the AO has allowed deduction u/s 80G on the CSR expenditure incurred by the assessee, therefore, the assessment order passed u/s 143(3) dated 26.03.2021 is erroneous in so far as it is prejudicial to the interest of the revenue. The assessee has submitted that the AO had already examined the submission of the assessee and allowed the deduction u/s 80G of the IT Act. However, the Ld. PCIT has not agreed with the submission of the assessee and stated that the deduction u/s 80G on donations given as a part of CSR expenditure were not eligible for deduction. Therefore, the Ld. PCIT has set aside the issue to the AO to verify the contention of the assessee that CSR expenditure was already disallowed in the return of income and also directed to disallow the deduction u/s 80G of the Act, in respect of the donation claimed out of CSR expenditure.

During the course of appellate proceedings before us, the Ld. Counsel vehemently contented that during the course of assessment proceedings the AO has examined the issue of CSR expenditure and deduction u/s 80G claimed with respect to donations forming part of CSR expenditure and only thereafter deduction was allowed. The Ld. Counsel also submitted that the assessee is otherwise entitled for deduction u/s 80G in respect of donation made to eligible institutions/trusts when supported by the donation receipts. In this regard, the Ld. Counsel has filed paper book comprising details and copies of documents furnished before the AO during the course of assessment proceedings pertaining to claim of deduction u/s 80G of the IT Act and detail of CSR expenditure which was not claimed as deduction out of the income of the assessee.

On the other hand the Learned Departmental Representative (hereinafter „the Ld. DR‟) supported the order passed u/s 263 of the Act by the Ld. PCIT.

Heard both the sides and perused the materials on record. In the income tax return the assessee claimed deduction u/s 80G of the Act amounting to ₹1,51,88,545/- being 50% of ₹3,03,77,089/- which was part of CSR expenditure. In the paper book the Ld. Counsel has placed audited financial statements for P a g e | 6 AY 2018-19 M/s Blue Cross Laboratories Pvt. Ltd. Vs PCIT-3

The Ld. Counsel has also referred decision of ITAT Mumbai In the case of (B) Naik Sea Food Pvt. Ltd. v/s PCIT [ ITA No. 490/Mum/2020] on the proposition that expenditure incurred

The various submission filed by the assessee during the course of assessment proceedings in response to the notices issued by the AO particularly on the issue on which provisions of section 263 of the Act invoked by the Ld. PCIT as discussed supra demonstrate that the AO has considered the claim of deduction u/s 80G on the expenditure which was part of CSR expenditure and also examined the issue that the assessee has added back the CSR expenditure in its return of income. Therefore, we consider that the order passed by the Ld. PCIT u/s 263 is not justified. Therefore, we set aside the order passed u/s 263 of the Act and allow the grounds of appeal of the assessee.

In the result the appeal filed by the assessee is allowed.