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Income Tax Appellate Tribunal, G BENCH, MUMBAI
Per contra, Ld. Departmental Representative supported the order 8. dated 28/03/2023, passed by the PCIT. He submitted that in view of Explanation 2 to Section 37(1) of the Act CSR Expenses are not allowable as a deduction. In case, deduction under Section 80G of the Act is allowed in respect of CSR Expenses, which the Appellant is required to incurred mandatorily as per the provisions of the Companies Act, 2013, the same would amount to indirectly allowing deduction for CSR Expenses which is otherwise explicitly prohibited in terms of Explanation 2 to Section 37(1) of the Act. Therefore, the Assessing Officer erred in allowing the claim of deduction of INR 1,72,80,948/- under Section 80G of the Act. The Ld. Departmental Representative further submitted that merely obtaining basic details and placing the same on record does not amount to carry necessary enquiry/verification, and therefore, the PCIT was justified in invoking the provision of Explanation 2 to Section 263 of the Act.
We have given thoughtful considerations to rival contention and 9. perused the material on record.
(Assessment Year: 2018-19) The Assessment Order was passed on 22/01/2021 and at that time 10. the decision of Bangalore Bench of the Tribunal in the case of FNF India Pvt. Ltd. Vs. Assistant Commissioner of Income Tax: [2021] 133 taxmann.com 251 (Bangalore-Trib), dated 05/01/2021 (placed at page 99 to 103 of the paper-book) was available wherein it was held that an assessee was entitled to claim deduction under Section 80G of the Act in respect of CSR Expenses though the same were not allowable under Section 37(1) of the Act. Thus, the decision of the Assessing Officer cannot be treated as erroneous. Even if, for the sake of arguments, the contention of the Revenue is accepted, the view taken by the Assessing Officer would qualify as a plausible view and the PCIT is not empowered to substitute his opinion in place of the Assessing Officer to arrive to a contrary finding.
Further, on perusal of the Assessment Order we find that in the 11. present case also the case of the Assessee was selected for scrutiny on the issue of deduction under Chapter VIA of the Act. Specific query was raised on the Appellant during the assessment proceedings and in response thereto the Appellant provided relevant documents/details including the donation receipt of INR 3,45,61,896/- showing donation made by the Appellant to SBI Foundation as well as 80G deduction certificate. After taking into account all the details, documents and submissions of the Appellant, the Assessing Officer accepted Appellant’s claim of deduction of INR 1,72,80,948/- [3,45,61,896/- x 50%] under Section 80G of the Act. Therefore, relevant enquiry/verification was carried out by the Assessing Officer.
We find that in identical facts and circumstances, the Kolkata Bench 12. of the Tribunal had, in the case of JMS Mining Pvt. Ltd. (supra) – (Assessment Year: 2018-19) relied upon by the Ld. Authorised Representative for the Appellant, quashed the order of revision passed under Section 263 of the Act. The relevant extract of the decision of the Tribunal read as under: “14. We have heard both the parties and perused the records. Before we advert to the facts and law involved in this lis before us, let us revise the law governing the issue before us. The assessee has challenged in the first place, the very usurpation of jurisdiction by ld. Principal CIT to invoke his revisional powers enjoyed u/s 263 of the Act. Therefore, first we have to see whether the requisite jurisdiction necessary to assume revisional jurisdiction is existing in this case before the Pr. CIT rightfully exercises his revisional power. For that, we have to examine as to whether in the first place the order of the Assessing Officer found fault by the Principal CIT is erroneous as well as prejudicial to the interest of the Revenue. For that, let us take the guidance of judicial precedence laid down by the Hon'ble Apex Court in Malabar Industries Ltd. v. CIT [2000] 109 Taxman 66/243 ITR 83 (SC) wherein their Lordship have held that twin conditions needs to be satisfied before exercising revisional jurisdiction u/s 263 of the Act by the CIT. The twin conditions are that the order of the Assessing Officer must be erroneous and so far as prejudicial to the interest of the Revenue. In the following circumstances, the order of the AO can be held to be erroneous order, that is (i) if the Assessing Officer's order was passed on incorrect assumption of fact; or (ii) incorrect application of law; or (iii)Assessing Officer's order is in violation of the principle of natural justice; or (iv) if the order is passed by the Assessing Officer without application of mind; (v) if the AO has not investigated the issue before him; [because AO has to discharge dual role of an investigator as well as that of an adjudicator] then in aforesaid any event the order passed by the Assessing Officer can be termed as erroneous order. Coming next to the second limb, which is required to be examined as to whether the actions of the AO can be termed as prejudicial to the interest of Revenue. When this aspect is examined one has to understand what is prejudicial to the interest of the revenue. The Hon'ble Supreme Court in the case of Malabar Industries Co. Ltd. (supra) held that this phrase i.e. "prejudicial to the interest of the revenue'' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Their Lordship held that it has to be remembered that every loss of revenue as a (Assessment Year: 2018-19) consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue. When the Assessing Officer adopted one of the courses permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue "unless the view taken by the Assessing Officer is unsustainable in law".
Keeping the aforesaid judicial dictum in mind let us examine the legal issue raised by the assessee against the impugned action of the Ld. PCIT to exercise the revisional jurisdiction u/s 263 of the Act. So we have to see whether the Ld. PCIT was correct in finding fault with the order of the AO. For that we have to examine and find out whether the issue/fault on the basis of which the Ld. PCIT has interfered with the order of the A.O dated 3-12-2018 was erroneous or not i.e. whether the AO had erroneously allowed the claim of the assessee under Chapter VIA in respect of CSR expenditure amounting to Rs. 67,50,000/- i.e. [50% of Rs. 1,35,00,000/-] u/s 80G of the Act. This action of AO, according to Ld. PCIT, is erroneous since as per Section 37 of the Act, there is express prohibition to allow any amount of CSR expenditure by virtue of Explanation 2 to Section 37 of the Act and so irrespective of the fact that the assessee had made the CSR expenses as donation to any Fund or Institution (donee) which enjoys approval of PCIT/CIT u/s. 80G of the Act, still the AO could not have allowed the claim u/s. 80G of the Act. Therefore, the Ld. PCIT was of the view that the claim of the assessee for deduction of the CSR expenses to the tune of Rs. 67,50,000/- [50% of Rs. 1,35,00,000/-] should have been disallowed by the AO and added back to the total income of the assessee. Further according to Ld. PCIT the A.O has passed the assessment order without making enquiries or verification which should have been made in the facts of this case and thereby clause (a) of Explanation 2 to Section 263(1) is attracted in this case. Meaning that the order has been passed by the A.O. without making enquiries or verification and therefore he interfered with the assessment order and has set aside the same and directed AO to pass fresh assessment order taking note of the contents of show cause notice which he has reproduced in para 2 of his impugned order (supra).
(Assessment Year: 2018-19) 16. We find in this regard that the assessee pursuant to show cause notice (SCN) (supra) had duly replied to the Ld. PCIT which fact has been acknowledged by the Ld. PCIT in para 3 of the impugned order, wherein he says that in response to the SCN the assessee has submitted reply dated 24-3-2021 which has been found placed at page 10 to 16 of the PB. From a perusal of the same, we note that the assessee specifically brought to the notice of the Ld. PCIT that the AO had specifically raised question about assessee's claim of deduction of CSR expenses under Chapter VIA of the Act vide his notice u/s 142(1) of the act dated 1-8-2018 by preferring question no (v) and the ibid notice of AO was attached as annexure along with reply given by assessee on this issue for the perusal of Ld. PCIT. The aforesaid query no (v) raised u/s 142(1) of the Act by the A.O and the reply given by the assessee to the Assessing Officer has been already reproduced (supra). From a perusal of the same it is clear that the A.O had enquired about this specific claim of the assessee i.e. deduction of CSR expenses amounting to Rs. 1.35 crores under Chapter VIA and from the perusal of the reply of the assessee it is clear that the assessee has given explanation as to how the assessee had claimed such a deduction along with case laws (supra). Thereafter considering the same only the A.O has allowed the deduction claim and thereby allowed the claim of 50% of the claim u/s. 80G of the Act. In such a scenario, the Ld. PCIT's findings/allegation that the A.O has not made any enquiry/verification on this issue is factually incorrect. And therefore, his assertion that clause (a) of Explanation 2 to section 263 is attracted is clearly erroneous. From the query raised by the AO on this issue and the reply given by the assessee we are of the opinion that the A.O. has discharged his dual role of an investigator as well as an adjudicator. The Ld. PCIT's action of brushing aside the reply given by the assessee and his finding that the A.O has not verified/enquired into the issue smacks of arbitrariness and non-application of mind making the impugned order bad in law.
Coming next to the legality/correctness of the deduction allowed by the AO in respect of CSR/donation u/s. 80G of the Act, first of all, we agree with the Ld. CITDR that CSR expenses which are required to be mandatorily incurred by the assessee Company as per Section 135 of the Companies Act are not entitled to deduction u/s 37(1) of the Act for A.Y 2015-16 by virtue of the fetter placed by (Assessment Year: 2018-19) Explanation 2 to section 37(1) of the Act which was inserted by the Finance Act vide no. 2.2014. The relevant provisions of Explanation 2 to section 37(1) of the Act read as follows: "Explanation 2. -For the removal of doubts, it is hereby declared that for the purposes of sub-section (1), any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 (18 of 2013)27 shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession" From a plain reading of the above provision shows that, any expenditure incurred towards CSR activities as referred to in section 135 of the Companies Act, 2013 shall not be allowed as 'business expenditure' and shall be deemed to have not been incurred for purpose of business. The embargo created by this Explanation 2 inserted in section 37 of the Act by the Finance (No.2) Act, 2014 was to deny deduction for CSR expenses incurred by companies, as and by way of regular business expenditure while computing "Income under the head Business".
So, it can be clearly seen that this Explanation 2 to section 37(1) of the Act which denies deduction for CSR expenses by way of business expenditure is applicable only to the extent of computing 'Business Income' under Chapter IV-D of the Act. The said Explanation according to us cannot be extended or imported to CSR contributions which is otherwise eligible for deduction under any other provision or Chapter, to say donations made to charitable trusts registered u/s 80G of the Act for the reasons cited infra. 19. xx xx 20. xx xx 21. xx xx 22. xx xx 23. As discussed supra, we concur with the contention of the assessee that since Parliament intended certain restrictions to only CSR expenditure in respect of two donations included by an assessee as CSR expenditure i.e. [Swachh Bharat Kosh and Clean Ganga Fund] has impliedly not made any prohibition/restriction in respect of claim (Assessment Year: 2018-19) of CSR expenses in other cases if it is otherwise eligible under section 80G of the Act. In this context we find that the assessee has made donation of Rs. 1.25 crores on 20-1-2016 by RTGS dated 19-1-2016 through UCO Bank which is evident from page 18 of PB which is received by Shree Charity Trust which was 80G(5)(vi) certificate of the Department dated 15-1-2009 placed at page 17 of PB. The assessee has also made payment of Rs. 10 Lakhs to Pt. Jashraj Music Academy Trust which is found placed at page 22 & 23 and the approval u/s 80G (5)(vi) of the Act in respect of Pt. Jashraj Music Academy Trust is found placed at page 19 of PB dated 30-3-2012 given by Director of Income-tax (Exemption). Therefore, since the assessee satisfies the condition u/s. 80G of the Act of the donees, the assessee's claim for deduction of CSR expenses/contribution u/s 80G of the Act was allowed after enquiry by the AO. Thus we are of the opinion that the action of the AO allowing the claim u/s. 80G of the Act is a plausible view and is in line with the ratio of the decision of Tribunal cited (supra). Therefore we find that the Ld. PCIT has not been able to make out a case that on this issue raised by him, the AO's order is erroneous as well as prejudicial to the revenue. So the jurisdictional fact as well as law is absent for invoking revisional jurisdiction. Therefore, the usurpation of jurisdiction by Ld. PCIT u/s 263 of the Act is bad in law and therefore need to be quashed and we order accordingly.
In the result, the appeal of the assessee is allowed.” (Emphasis Supplied)
We are in agreement with the above decision of the Tribunal.
Respectfully following the above decision of the coordinate Bench of the Tribunal we hold that Assessment Order, dated 22/01/2021, whereby deduction under Section 80G of the Act was allowed in respect of CSR Expenses was not erroneous. Therefore, the PCIT did not have jurisdiction to invoke provisions of Section 263 of the Act as per the judgment of Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. (supra). Accordingly, the order, dated 28/03/2023, passed by the PCIT under Section 263 of the Act is set (Assessment Year: 2018-19) aside and the Assessment Order, dated 22/01/2021, passed under Section 143(3) of the Act is reinstated. Thus, Ground No. 1 and 2 raised by the Appellant are allowed.
In result, the present appeal preferred by the Assessee is allowed.
Order pronounced on 27.06.2023.