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Income Tax Appellate Tribunal, Mumbai “F” Bench, Mumbai.
Before: Shri B.R. Baskaran (AM) & Shri Rahul Chaudhary (JM)
The assessee has filed this appeal challenging the revision order dated 13.3.2023 passed by Principal Commissioner of Income tax-1 (PCIT), Mumbai and it relates to A.Y. 2018-19. The assessee is challenging the revision order passed by PCIT.
Facts relating to the case are stated in brief. The assessment in the hands of the assessee was completed by the Assessing Officer under section 143(3) read with section 144B of the I.T. Act on 22.4.2021. The Learned PCIT examined the record for the year under consideration and took the view that the assessment order passed by the AO is erroneous and prejudicial to the interests of the revenue, since the Assessing Officer has allowed the following claims made by the assessee without carrying out due enquiries and verifications :-
2 FDC Limited a) Deduction under section 35(2AB) of the Act : Rs. 32.60 crores b) Deduction claimed under section 35(1) of the Act : Rs. 1.41 crores c) Deduction claimed under section 80G of the Act : Rs. 26.72 lakhs Accordingly, he initiated revision proceedings under section 263 of the Act.
The view taken by Ld PCIT with regard to the above said three issues are summarized below:- (a) With regard to the deduction allowed under section 35(2AB) of the Act, the Assessing Officer has allowed the claim without obtaining Form No. 3CL.
(b) With regard to the deduction allowed under section 35(1)(i) of the Act, the said deduction was allowed by the AO without obtaining mandatory Form 3CM and Form 3CL issued by DSIR.
(c) With regard to the deduction allowed under section 80G of the Act, the claim has been made by the assessee in respect of the expenses incurred on Corporate Social Responsibility, which is disallowable under section 37(1) of the Act and hence deduction under section 80G should not have been allowed.
After hearing the assessee on the above said three issues, the learned PCIT held that the assessment order is erroneous and prejudicial to the interest of revenue. Accordingly, he set aside the assessment order and directed the Assessing Officer to reframe the assessment order de-novo after conducting necessary inquiries and verification as warranted in the facts of the case. Aggrieved by the order so passed by learned PCIT, the assessee has filed this appeal before the Tribunal.
We have heard rival contentions and perused the record. The scope of revision proceedings initiated under section 263 of the Act was examined by Hon'ble Bombay High Court, in the case of Grasim Industries Ltd. V CIT (321 ITR 92) by taking into account the law laid down by the Hon'ble Supreme Court. The relevant observations are extracted below:
3 FDC Limited
Section 263 of the Income-tax Act, 1961 empowers the Commissioner to call for and examine the record of any proceedings under the Act and, if he considers that any order passed therein, by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, to pass an order upon hearing the assessee and after an enquiry as is necessary, enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment. The key words that are used by section 263 are that the order must be considered by the Commissioner to be “erroneous in so far as it is prejudicial to the interests of the Revenue”. This provision has been interpreted by the Supreme Court in several judgments to which it is now necessary to turn. In Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83, the Supreme Court held that the provision “cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer” and “it is only when an order is erroneous that the section will be attracted”. The Supreme Court held that an incorrect assumption of fact or an incorrect application of law, will satisfy the requirement of the order being erroneous. An order passed in violation of the principles of natural justice or without application of mind, would be an order falling in that category. The expression “prejudicial to the interests of the Revenue”, the Supreme Court held, it is of wide import and is not confined to a loss of tax. What is prejudicial to the interest of the Revenue is explained in the judgment of the Supreme Court (headnote) : “The phrase ‘prejudicial to the interests of the Revenue’ has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer, cannot be treated as prejudicial to the interests of the Revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law.”
The principle which has been laid down in Malabar Industrial Co. Ltd. [2000] 243 ITR 83 (SC) has been followed and explained in a subsequent judgment of the Supreme Court in CIT v. Max India Ltd. [2007] 295 ITR 282.”
The principles laid down by the courts are that the Learned CIT cannot invoke his powers of revision under section 263 if the Assessing Officer has conducted enquiries and applied his mind and has taken a possible view of the matter. If there was any enquiry and a possible view is taken, it would not give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has a different opinion in the matter. The consideration of the Commissioner as to whether an order is erroneous in so 4 FDC Limited far it is prejudicial to the interests of Revenue must be based on materials on record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. It is also settled proposition that if an issue is debatable one, then the same will also be outside the scope of revision proceedings.
We shall now examine the facts prevailing in this case by applying above said legal principles. We notice that the AO has issued notice u/s 142(1) of the Act and called for details relating to the deductions claimed u/s 35(2AB) and 35(1) of the Act. The copy of notice is placed at page 88 of the paper book and on a perusal of the same, we notice that the AO has asked the break-up details of various expenses, which are eligible for deduction under above cited two sections.
With regard to the deduction allowed u/s 35(2AB) of the Act, the case of the Ld PCIT is that the same has been allowed without obtaining approval in Form 3CL. The Ld A.R submitted that the above said Form 3CL has to be furnished by the prescribed authority directly to the Principal Chief Commissioner of Income tax or Chief Commissioner of Income tax and the assessee cannot furnish the same. Accordingly, it was contended that the assessee cannot be found fault with if the Form 3CL was not given by the prescribed authority.
However, on a perusal of Rule 6(7A)(b) would show that the said rule prescribes certain condition, which inter alia, includes quantification of Expenditure eligible for deduction u/s 35(2AB) of the Act in Form 3CL. Even though it is not the responsibility of the assessee to furnish above said form, yet it is the requirement prescribed in Rule 6(7A), which should have been examined by the AO before allowing deduction u/s 35(2AB) of the Act. We
5 FDC Limited noticed earlier that the assessing officer had asked the assessee through the notice issued u/s 142(1) of the Act about the break-up details of expenses only and did not mention about Form 3CL. Even though the above said form has to be furnished by the prescribed authority directly to the PCCIT/CCIT, yet it is the responsibility of the AO to verify as to whether the requirement of Rule 6(7A) has been satisfied or not, before allowing the claim u/s 35(2AB) of the Act. Admittedly, the AO has not examined the same.
The Ld A.R placed his reliance on the decision rendered by Hon’ble Gujarat High Court in the case of Sun Pharmaceutical industries Ltd (85 taxmann.com 80)(Guj.)(HC) and certain other decisions in order to contend that the assessee cannot be penalized if the prescribed authority did not send Form 3CL to the revenue. However, we notice that the above said decisions have been rendered for the years prior to the amendment of Rule 6(7A)(b) of the Act, which now requires examination of Form 3CL before allowing deduction u/s 35(2AB) of the Act. Hence, we are of the view that the above said decisions cannot be taken support of for the year under consideration.
The Ld A.R also contended that the above said amendment has been made only in the Rules and not in the substantive provisions and hence, the said amendment in the Rules cannot disentitle the assessee from claiming deduction for want of Form 3CL. We notice that the provisions of sec.35(2AB)(3) of the Act was amended with effect from 1.4.2016 by Finance Act, 2015, wherein it is stated that the assessee should fulfill such conditions with regard to maintenance of accounts and audit thereof and furnishing of reports in such manner as may be prescribed. We notice Rule 6(7A) was amended w.e.f 1.7.2016, i.e., after the amendment made in Sec. 35(2AB)(3) of the Act. Further, Form 3CL is one of the forms prescribed in Rule 6(7A)(b) of the Rules for quantifying scientific research expenditure by the prescribed authority. Since the rules prescribe for examination of the above said form, it is the duty of the AO to verify the same before allowing the deduction u/s 6 FDC Limited 35(2AB) of the Act. Admittedly, the AO has not examined this aspect, even though it is not a fault upon the assessee.
Hence, we agree with the view taken by Ld PCIT on this issue that the AO has not carried out due enquiries or verification with regard to this issue. Accordingly, we uphold the order passed by Ld PCIT on this issue.
With regard to the deduction allowed u/s 35(1)(i) of the Act, it is the view of the Ld PCIT that the said deduction was allowed by the AO without obtaining mandatory Form 3CM and Form 3CL issued by DSIR. The Ld A.R drew our attention to the provisions of sec.35 of the Act and submitted that the above said Form 3CM and 3CL are applicable to the deduction claimed u/s 35(2AB) of the Act only, i.e., the above said forms are not required for allowing deduction u/s 35(1)(i) of the Act. On a perusal of the relevant provisions, we find that the above said submissions of Ld A.R to be correct, meaning thereby, the Ld PCIT has misdirected himself on this issue. Accordingly, we set aside the order passed by Ld PCIT on this issue.
With regard to the deduction allowed under section 80G of the Act, the view of Ld PCIT is that the said claim has been made by the assessee in respect of the expenses incurred on Corporate Social Responsibility (CSR), which is disallowable under section 37(1) of the Act and hence deduction under section 80G should not have been allowed. We notice that, in the following cases, it has been held that the disallowance of CSR expenses are required to be made u/s 37(1) of the Act, but there is no statutory bar in claiming the deduction u/s 80G of the Act if the said expenses are otherwise allowable as deduction under that section:- (a) Allegis Services (India) Pvt Ltd vs. ACIT (ITA No.1693/Bang/ 2019)(Bang.)( Trib.)
(b) JMS Mining (P) Ltd vs. PCIT (130 taxmann.com 118) (c) First American (India) P Ltd vs. ACIT (ITA No. 1762/Bang/ 2019)(Bang)(Trib.)
7 FDC Limited Thus, the view taken by Ld PCIT on this issue is a debatable one, meaning thereby, the action of the AO in allowing deduction u/s 80G results in a possible view. Accordingly, the Ld PCIT was not justified in initiating revision proceedings on this issue. Accordingly, we set aside his order on this issue.
In the result, the appeal of the assessee is partly allowed. Pronounced in the open court on 02.08.2023.