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Facts
The assessee, Fortrea Scientific Private Limited, filed its return of income for AY 2020-21. The Principal CIT initiated revision proceedings under Section 263, challenging the allowance of CSR expenses as a deduction under Section 80G by the Assessing Officer (AO).
Held
The Tribunal held that the AO's order allowing the CSR expenditure as a deduction under Section 80G was not erroneous nor prejudicial to the interest of the revenue. The Tribunal relied on various decisions of coordinate benches supporting the allowability of such deductions.
Key Issues
Whether the Principal CIT was justified in invoking Section 263 powers to revise an assessment order allowing CSR expenditure as a deduction under Section 80G when the AO had taken a plausible view after verification.
Sections Cited
263, 143(3), 144B, 80G, 37(1), 135, 41, 143(2), 142(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
Before: MS. KAVITHA RAJAGOPAL, HON’BLE & SHRI OMKARESHWAR CHIDARA, HON’BLE
Assessee by : Shri Pranay Gandhi, A/R Revenue by : Shri Vivek Perampurna, CIT D/R सुनवाई की तारीख/Date of Hearing : 16/07/2025 घोषणा की तारीख /Date of Pronouncement: 31/10/2025 आदेश/O R D E R PER KAVITHA RAJAGOPAL, JM:
This appeal has been filed by the assessee challenging the order of the ld. Pr. CIT – 3, Mumbai [hereinafter the ‘ld. Pr. CIT’] passed u/s 263 of the Income-tax Act, 1961 [hereinafter the ‘Act’] relevant to Assessment Year 2020-21. 2. The assessee has raised the following grounds of appeal:-
“Based on the facts and circumstances of the case and in law, Fortrea Scientific Private Limited (hereinafter referred to as the "Appellant"), respectfully craves leave to prefer an appeal against the order passed by the Learned Principle Commissioner of Income- tax-3 ['PCIT'] under section 263 dated 15 March 2025 of the Income-tax Act, 1961 (the "Act') on the following grounds which are without prejudice to each other: On the facts and in the circumstances of the case and in law, the Hon'ble PCIT has: Validity of revision proceedings 1. erred in holding that the assessment order dated 22 September 2022 passed under section 143(3) read with Section 144B of the Income Tax Act, 1961 (the Act) is erroneous and prejudicial to the interests of the 2. erred in initiating revisionary proceedings under Section 263 of the Act without appreciating that requisite details in relation to corporate social responsibility ("CSR') expenses were already submitted with the learned Assessing Officer during the course of Assessment Proceedings and basis that the learned Assessing Officer had already taken one possible view in the matters. Disallowance of deduction under Section 80G of the Act of Rs 30,79,318 3. erred in directing AO to disallow Rs 30,79,318 without appreciating the fact that the amount represents deduction under Section 80G of the Act claimed by Appellant in respect of expenses towards CSR of Rs 61,58,635 (50% of Rs 61,58,635 being Rs 30,79,318 was claimed as deduction). 4. erred in not appreciating that Appellant had suo-motto disallowed CR expenses of Rs 61,58,635 under Section 37(1) of the Act while computing its total income for the year. 5. erred in not appreciating the fact that the provisions of Section 80G [in clauses (iihk) and (iiihl)] specifically provide for disallowance of deduction only in respect of certain specific CR contributions, viz. Swachh Bharat Kosh and Clean Ganga Fund, and thereby deduction is allowable under section 80G of the Act in respect of other eligible CR contributions.”
3. Briefly stated, the assessee is an Indian Company registered under the Companies Act and is engaged in providing IT enabled Business Process Outsourcing services, delivering knowledge-based services in global drug safety data management, clinical data management, biostatistics and medical writing to its holding Company and third parties. The assessee had filed its return of income dated 29/01/2021 declaring total income at Rs. 28,39,61,510/- and had claimed a refund of Rs. 2,41,96,210/-.
3.1. Assessee’s case was selected for complete scrutiny assessment on the following issues:- i. Claim of Any other amount allowable as Deduction in Schedule BP ii. Taxability of business liability written off u/s 41 or any other section
The ld. AO issued notice u/s 143(2) and 142(1) of the Act which were duly issued and served upon the assessee. The ld. AO then passed the assessment order dated 29/09/2022 u/s 143(3) r.w.s. 144B of the Act determining total income at Rs. 28,71,41,879/- after making an addition of Rs. 31,80,369/- towards disallowance of assets claimed as deduction by the assessee.
4.1. The ld. Pr. CIT invoked the revisionary jurisdiction u/s 263 of the Act on the ground that the assessee has claimed CSR expense to the extent of Rs. 61,58,635/- and had debited the same to the total income in its computation of income out of which Rs. 30,79,318/- which is 50% of the said amount has been deducted u/s 80G of the Act as CSR expenditure which was paid as donation by the assessee company and the same was said to be allowed by the ld. AO in the assessment order. The ld. Pr. CIT held the same to erroneous insofar as it is prejudicial to the interest of the revenue thereby invoking the revisionary jurisdiction u/s 263 of the Act.
Aggrieved, the assessee is in appeal before us challenging the impugned order on the above mentioned grounds.
We have heard rival submissions and perused the material available on record.
The ld. AR of the assessee commenced his arguments stating that the issues in hand has already been covered by various decisions of the Co-ordinate Benches in favour of the assessee wherein it has been held that the expenditure incurred towards CSR activities are allowable deduction u/s 80G of the Act and when the ld. AO has made a detailed verification of the same during the course of the assessment proceedings and had allowed the deduction by taking one of the plausible views, then the assessment order will not be qualified to be erroneous insofar as it is prejudicial to the interest of the revenue as per the revisionary provision u/s 263 of the Act. The ld. AR relied on a catena of decisions in support of the same.
7.1. The ld. DR, on the other hand, controverted the said fact and stated that CSR expenses are not voluntary in nature and are mandatory as per the provisions of Section 135 of the Companies Act making it a statutory obligation on the part of the assessee company to incur the expenditure towards social responsibility. The ld. DR further stated that the nature of expenditure is such that the same is not for the purpose of business as warranted in Explanation (ii) to Section 37(1) of the Act. The ld. DR reiterated the finding of the ld. Pr. CIT that the revenue has already preferred an appeal before the Hon’ble High Court against the order of the Tribunal which has decided the issue in favour of the assessee. The ld. DR relied on the order of the ld. Pr. CIT.
On perusal of the above observations it is evident that the only issue that requires adjudication is whether the allowability of CSR expenditure as deduction u/s 80G claimed by the assessee and accepted by the ld. AO would tantamount to holding the assessment order to be erroneous and prejudicial to the interest of the revenue, as per Section 263 of the Act. The pre-requisite of assuming jurisdiction u/s 263 of the Act is that the ld. Pr. CIT ought to be satisfied with the twin conditions that the assessment order should be erroneous and it has to be prejudicial to the interest of the revenue, in which case both the conditions are cumulative.
8.1. The ld. AR has placed reliance on the decision of the Hon’ble Apex Court in the case of Malabar Industrial Company Ltd. Vs. CIT [2009] 109 taxmann.com 66 (SC), where it has been held that the revisionary jurisdiction cannot be invoked to rectify any mistake or error in the assessment order but only when incorrect assumption of facts or application of law or where there is no application of mind by the AO. It was further held that the assessment order could be prejudicial to the interest of the revenue when there is loss of revenue as a consequence of an erroneous order and that not all losses can be treated as prejudicial to the interest of the revenue where the AO has taken one of the plausible views where two views are possible unless the view taken by the AO is held to be unsustainable.
8.1.1. In the present case in hand, the issue of claiming the CSR expenditure which does not form part of the profit and loss account for computing income under the head income from business and profession claimed as deduction u/s 80G of the Act cannot be denied under Chapter VIA, has been settled by various decision of the Co-ordinate Benches in favour of the assessee. The revenue’s contention that the appeal against the said orders are pending before the Hon’ble High Courts, is not justifiable, in our view, for the reasons that the decisions of the higher forums are binding on the AO and by following the same, the ld. AO has allowed the claim of the assessee, more so, when there are decisions of the Jurisdictional Co-ordinate Benches in favour of the assessee on this issue.
8.2. Pertinently it is also not the case where the ld. AO has not conducted any enquiry into this issue. We do not find any justification in the order of the ld. Pr. CIT in assuming jurisdiction u/s 263 of the Act on the issue of deduction claimed by the assessee u/s 80G towards CSR expenses.
We, therefore, are of the view that the assessment order is neither erroneous nor prejudicial to the interest of the revenue and, therefore, deem it fit to allow the grounds raised by the assessee.
In the result, appeal filed by the assessee is hereby allowed.