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Facts
The assessee's return was processed without variation. The Ld.PCIT invoked Section 263, citing non-verification of CSR expenses claimed under Section 80G and education cess. The assessee argued that CSR expenditure was claimed under Section 80G, not as a business expense, and the education cess error was inadvertent with tax paid.
Held
The Tribunal held that the CSR expenditure issue was debatable and thus outside the scope of Section 263, relying on High Court and Tribunal precedents. Regarding education cess, though the assessment order was deemed erroneous, the tax had already been paid, making further action futile.
Key Issues
Whether the PCIT's revisionary order under Section 263 was justified when the issues were debatable or the tax had already been paid for an inadvertent error.
Sections Cited
263, 143(1)(a), 143(3), 144B, 80G
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Income Tax Appellate Tribunal, MUMBAI BENCH “F”, MUMBAI
Before: SHRI NARENDRA KUMAR BILLAIYA & SHRI ANIKESH BANERJEE
The instant appeal of the assessee was filed against the order of the Learned Principal Commissioner of Income-tax, Mumbai-8 [for brevity, ‘Ld.PCIT] passed under section 263 of the Income-tax Act, 1961 (in shot, ‘the Act) for the Assessment Year 2020-21, date of order 19/03/2025. The impugned order emanated from the order of the Assessment Unit, Income-tax Department (in short, ‘the Ld.AO’) passed u/s 143(3) r.w.s. 144B of the Act, date of order 29/09/2022.
M/s Unique Pharmaceutical Laboratories Limited 2. The brief facts of the case are that the assessee filed the return of income declaring total income at Rs.19,41,37,910/- for the impugned assessment year. The return was processed u/s 143(1)(a) of the Act. The assessee is engaged in the business of licencing of brands, leasing of immovable properties and other non- financial activities. The assessee’s case was selected for scrutiny under CASS and the assessment was completed without any variation in income. After verification, the Ld.AO passed a speaking order and accepted the return of income of the assessee. Later on, by invoking provisions of section 263 of the Act, the Ld.PCIT issued the notice u/s 263 related to the CSR expenses amount to Rs.30 lakhs was claimed by the assessee u/s 80G during computation of income amount to Rs.15 lakhs. He further considered that the assessee claimed education cess amount to Rs.9,55,877/- which is not admissible under the Act. The Ld. AO had not verified both the transactions during the assessment proceeding. Accordingly, the Ld.PCIT considered the impugned assessment order as erroneous and prejudicial to the interest of the revenue. Accordingly, he set aside the assessment order for further verification related to both the issues as stated above. Being aggrieved, the assessee filed an appeal before us by challenging the revisional order passed under section 263 of the Act.
The Ld. AR argued and submitted that the assessee had incurred CSR expenditure amounting to Rs.30,00,000/-, out of which a sum of Rs.15,00,000/- was claimed as a deduction under section 80G of the Act. It was further contended that the CSR expenditure was not claimed as a business expense but specifically as a deduction under section 80G. Considering this claim, the Ld. PCIT invoked the provisions of section 263 of the Act. However, the said revisionary order was duly quashed by the coordinate bench of the ITAT, Mumbai. The issue is squarely M/s Unique Pharmaceutical Laboratories Limited covered by the decision of the coordinate bench of the ITAT, Mumbai in the case of M/s Industrial Solvents and Chemicals Private Ltd. vs. PCIT, pronounced on 26.08.2025. The relevant paragraphs (7 and 8) of the said order are reproduced below: – “7. Even if no specific enquiry was made by the AO during the course of the scrutiny assessment proceedings, but being a debatable issue it is outside the purview of revisionary powers u/s 263 of the Act. At this stage, it is relevant to note the following observations of the Hon'ble Bombay High Court in PCIT vs. Postal Gujarat Power Ltd, reported in (2019) 10 taxmann.com 418 (Bom):- "9. The Revenue may be correct in contending that, the Assessing Officer had not carried out detailed enquiries with respect to this claim of assessee. However, this by itself would not be sufficient to enable the Commissioner to exercise revisional power. In a given case, as in the present one, if the answer to the legal issue can be had on the basis of the material already on record, there would be no useful purpose in asking the Assessing Officer to carry out the same exercise and come to the same conclusion as the Tribunal in the present case has. In this context, we do not accept the contention of the Counsel for the Revenue that, answer in law had to come from the Assessing Officer and not the Tribunal. He had argued that even if the Tribunal was right in law, since the Assessing Officer had not come to the said conclusion, the order of the Commissioner should not be disturbed. In our opinion, if the Tribunal has come to the correct conclusions in law and said conclusions are based on materials already on record, it would be futile to reinstate the order of the Commissioner, which in turn, would require the Assessing Officer to carry out the same exercise and axiomatically come to the same conclusion. This line, we are adopting, is within the fold of the requirement of the order of Assessing Officer being erroneous. In other words, if it can be demonstrated that the order was not erroneous, the order of revision would, in any case, require an interference. The matter can be looked from slightly different angle. If while examining the order of the A.O. Commissioner notices that, though the A.O. was not examined for claim of the assessee, but the claim itself is legally tenable, would be judicial in exercising and set aside the assessment? The answer may be in the negative"
The above-mentioned binding observations of the Hon’ble Jurisdictional High Court are sufficient for not sending the matter back to the file of the AO for verification as it would be a futile exercise as the issue has already been decided in several judicial decisions by the Coordiante M/s Unique Pharmaceutical Laboratories Limited Benches in favour of the assessee and against the revenue. Considering the facts of the case in totality, in light of the decision of the Hon’ble Bombay High Court (supra), the assessment order dated 22/09/2022 is restored and that of the ld. PCIT is set aside.” 4. He further argued that the same issue is squarely covered by the decision of coordinate bench of ITAT, Mumbai Bench in the case of Elan Pharma (India) Pvt Ltd vs PCIT, date of pronouncement 09/06/2025, where it was held that the PCIT cannot set aside the assessment order, as the said issue is highly debatable issue and the bench already taken a consistent view that CSIR expenses can be claimed u/s 80G of the Act. So, on this point, the assessment order cannot be treated as erroneous. Further related to education cess, the Ld.AR stated that the accepted the mistake related to the wrong claim and the tax was paid amount to Rs.2,84,840/- and the copy of the challan is duly placed on record. So accordingly, it was prayed that the order u/s 263 be set aside and restore that of the Ld.AO.
The Ld.DR argued and stands in favour of the order of Ld.PCIT.
We have carefully considered the rival submissions, perused the material available on record, and examined the impugned order passed under section 263 of the Act. The undisputed facts reveal that the assessee filed its return of income declaring total income of Rs.19,41,37,910/-, which was processed under section 143(1)(a) of the Act. The case was selected for scrutiny under CASS and the assessment was completed after due verification, without any variation in the returned income. The Ld. AO passed a speaking order accepting the returned income. Subsequently, the Ld. PCIT invoked the revisionary jurisdiction under section 263 on two issues:
M/s Unique Pharmaceutical Laboratories Limited (i) deduction of Rs.15,00,000/- claimed under section 80G in respect of CSR expenditure amounting to Rs.30,00,000/-, and (ii) disallowance of education cess amounting to Rs.9,55,877/-. The Ld. PCIT was of the view that both issues were not examined by the Assessing Officer and, therefore, the assessment order was erroneous and prejudicial to the interests of the Revenue. We note that the issue regarding the allowability of CSR expenditure claimed as deduction under section 80G is now well settled in favour of the assessee by a series of decisions of the coordinate benches of the Tribunal. In particular, the issue is squarely covered by the decision of the ITAT, Mumbai Bench in the case of M/s Industrial Solvents and Chemicals Pvt. Ltd. (supra), wherein it was held that even if the Assessing Officer had not specifically made an enquiry on this issue, the same being a debatable matter of law, it falls outside the scope of section 263. The Tribunal, relying on the judgment of the Hon’ble Bombay High Court in PCIT vs. Postal Gujarat Power Ltd., [10 taxmann.com 418 (Bom)], held that where two possible views exist, the order of the Assessing Officer cannot be treated as erroneous merely because the PCIT holds a different view. Similarly, in M/s Elan Pharma (India) Pvt. Ltd. (supra), the coordinate bench has consistently held that CSR expenditure, if not claimed as business expenditure but as donation under section 80G, is eligible for deduction. Therefore, the assessment order cannot be considered erroneous or prejudicial to the interest of the revenue on this count. As regards the issue of education cess, to this extent, we are of the considered view that the impugned assessment order is erroneous inasmuch as it is prejudicial to the interest of the revenue, however, the Ld. AR has fairly accepted the inadvertent M/s Unique Pharmaceutical Laboratories Limited error and submitted that the differential tax of Rs.2,84,840/- has already been paid by the assessee, supported by the relevant challan placed on record. Considering the totality of the facts and the binding judicial precedents cited above, we hold that the assessment order passed by the Ld. AO cannot be regarded as erroneous or prejudicial to the interest of the revenue within the meaning of section 263 of the Act. Accordingly, the revisional order passed by the Ld. PCIT is quashed, and the assessment order passed by the Ld. AO is restored. In the result, the appeal filed by the assessee stands allowed.