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Facts
The assessee appealed against an order passed by the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act, 1961. The PCIT initiated revisionary proceedings, citing that the original assessment order allowing deduction for CSR expenses and ESOP expenses was erroneous and prejudicial to the interest of revenue. The original assessment had allowed these deductions.
Held
The Tribunal held that for the PCIT to assume jurisdiction under Section 263, there must be material on record to demonstrate that the Assessing Officer's order was erroneous and prejudicial to the revenue. It was found that the Assessing Officer had made inquiries and was satisfied with the assessee's explanation. The PCIT's conclusion that the order was erroneous without proper material and merely based on disagreement with the assessee's accepted claims was not sustainable.
Key Issues
Whether the PCIT was justified in invoking Section 263 of the Income Tax Act, 1961, to revise the assessment order when the Assessing Officer had made inquiries and accepted the assessee's claims regarding CSR and ESOP expenses?
Sections Cited
263, 143(3), 144C(13), 144B, 37(1), 80G, 40(a), 43B, 35DDA, 80HHC
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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: SHRI AMIT SHUKLA & SHRI GIRISH AGRAWAL
Assessment Year: 2018-19 Colgate Palmolive (India) vs Principal Commissioner of Limited Income Tax-6, Mumbai Colgate Research Centre, Main Street, Hiranandani Stree, Powai, Mumbai- 400076 PAN:AAACC4309B Appellant Respondent Present for: Appellant by : Shri J D Mistry, Sr. Advocate Respondent by : Shri R A Dhyani, CIT DR Date of Hearing : 06.08.2025 Date of Pronouncement : 29.09.2025 O R D E R
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:
This appeal filed by the assessee is against the order of Ld. Principal Commissioner of Income Tax, Mumbai-2, vide order no. ITBA/REV/F/REV5/2024-25/1074272596(1), dated 10.03.2025, passed u/s.263 against the assessment order by Assessment Unit, Income Tax Department u/s. 143(3) r.w.s. 144C(13) r.w.s. 144B of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 19.07.2022, for Assessment Year 2018-19.
Colgate-Palmolive (India) Limited AY 2018-19 2. Grounds taken by the assessee are reproduced as under: “The present appeal is being preferred on the following grounds amongst others which, it is prayed, may be considered without prejudice to one another Ground No.
1. Revisionary proceedings under section 263 of the Act are had in law 1.1 On the facts and in the circumstances of the case and in law, the learned Principal Commissioner of Income Tax-6 ('PCIT’) erred in assuming jurisdiction, and thereby erred in initiating, continuing and concluding the proceedings under section 263 of the Income-tax Act, 1961 ('the Act') The Appellant prays that the order passed by the PCIT, initiating revisionary proceedings under section 263 of the Act be held as void and liable to be quashed, and that the assessment order dated 19 July 2022 passed by the assessing officer under section 143(3) read with section 1440(13) of the Act be restored as not being erroneous or prejudicial to the interests of revenue. Without prejudice to Ground no 1 - Ground No. 2: Denial of deduction under Chapter VI A under section 80G of the Act 2.1. On the facts and in the circumstances of the case and in law, the learned PCTT erred in holding that deduction claimed under section 80G of the Act was erroneously allowed in the assessment order and disregarding the fact that the said amount is deductible in accordance with the law The Appellant prays that the learned AO be directed to allow claim of deduction under section 80G of the Act. Without prejudice to Ground no 1 - Ground No. 3: Disallowance of ESOP expense 3.1. On the facts and in the circumstances of the case and in law, the learned PCIT erred in holding that deduction towards Employee Stock Option Plan (ESOP) expenditure claimed under section 37(1) of the Act was erroneously allowed in the assessment order and disregarding the fact that the said amount being actually paid is deductible in accordance with the law. The Appellant prays that the learned AO be directed to allow claim of ESOP expenditure paid under section 37(1) of the Act.” 2.1. Aforesaid grounds raised by the assessee in the present appeal relate to revisionary proceeding initiated u/s.263 and revisionary order passed thereunder. The issue raised in the revisionary proceedings relate to denial of deduction under Chapter-VIA u/s.80G and disallowance of Employees Stock Option Plan (ESOP) expenditure claimed u/s.37(1).
Brief facts of the case are that assessee filed its return of income on 30.11.2018, reporting total income at Rs.992,46,65,080/-. Assessment was completed u/s.143(3) r.w.s. 144C(13), determining total income at Rs.1630,80,42,389/-. Assessee claimed deduction u/s.80G towards donations made by it. Details of donations so made is tabulated below:-
Name of Donee INR Eligible INR Social Empowerment And Economic 60,00,000 50% 30,00,000 Development Society (Seed) 50% SEVA MANDIR 65,00,000 32,50,000 PRATHAM Mumbai Education 10,00,000 50% 5,00,000 Initiative 50% NETWORK IN THANE BY PEOPLE 15,00,000 7,50,000 50% WATER FOR PEOPLE INDIA TRUST 1,20,00,000 60,00,000 ACTION AND ASSOCIATION 30,00,000 50% 15,00,000 Total Donation 3,00,00,000 1,50,00,000 3.1. Assessee furnished all the details and explanation in respect of the donations so claimed including the contribution towards Corporate Social Responsibility (CSR) expenses. Assessee in its computation of total income had suo moto disallowed and added back the expenditure made towards CSR. It claimed deduction u/s.80G for an amount of Rs.1.50 Crores which were allowed by the ld. AO while completing the original assessment.
Colgate-Palmolive (India) Limited AY 2018-19 3.2. On the other issue in respect of claim of ESOP expenditure, assessee had debited Rs.9,41,63,548/- under the head ‘ESOP expenditure-Ind AS adjustment’ which was added back in the computation of total income. However, it claimed deduction of Rs.9,22,27,077/- out of the said expenses u/s.37(1).
As mentioned in para 2 of the impugned revisionary order, ld. PCIT from the perusal of the records noted that there were objections raised by the Revenue audit based on which took up the matter for revision on the above stated two issues by issuance of show-cause notice dated 30.01.2024 u/s.263. Before the ld. PCIT, assessee reiterated its submissions which were made in the original assessment proceedings, corroborated by documentary evidences. It also submitted that both the issues are squarely covered by the decision of the Co-ordinate Bench in assessee’s own case for immediately preceding year i.e. A.Y.2017-18 in dated 29.07.2024. Ld. PCIT took note of the submissions made by the assessee in para 8 of the impugned order. He also took note of the decisions of the Co-ordinate Bench (supra) whereby, the revision u/s.263 was set aside on both the issues which are raised in the present appeal.
We note that he has expressed his disagreement with the above stated decision of the Co-ordinate Bench by observing that the matter decided by the Hon’ble High Court of Karnataka in the case of CIT vs. Biocon Limited 121 taxmann.com 351 dated 11.11.2020 is pending before the Hon’ble Supreme Court in the appeal filed by the department. According to him, since the matter is sub-judiced before the Hon’ble Supreme Court, he expressed his disagreement with the decision of the Co-ordinate Bench (supra) and thus, continued to complete the 4 Colgate-Palmolive (India) Limited AY 2018-19 revisionary proceedings by setting aside the assessment order and directing the ld. AO to make thorough enquiry on the matter and reassess the income after giving opportunity of being heard to the assessee.
5.1. At the outset, we deprecate such an expression of ld. PCIT of disagreeing with the decision of the Coordinate Bench which does not demonstrate adherence to judicial discipline, more particularly when there is no express stay granted by the higher forum on the operation of the said decision. Such an expression is ought to be avoided so as to reflect to the judicial hierarchy.
We perused the order of the Co-ordinate Bench in assessee’s own case for A.Y.2017-18 (supra) and find that it squarely covers the present appeal on both the issues raised by the ld. PCIT for invoking the revisionary proceedings and passing the impugned revisionary order. Before us, nothing cogent was brought on record by the Revenue to controvert the observations and findings of the Co-ordinate Bench in assessee’s own case for A.Y.2017-18.
6.1. In order to take note of the factual matrix in the present case, we refer to the computation of total income and tax for the year under consideration placed in the paper book wherein assessee has made suo moto disallowance of CSR expenses and added back Employees Stock Option Plan (ESOP) debited to P & L towards IndAS adjustment. It made claim towards Employee Stock Option Payments - transfer of employees IndAS adjustments and u/s.80G for the donations made. The said computation is extracted below for ready reference:-
Colgate-Palmolive (India) Limited AY 2018-19 Net Profit before tax as per P&L 9,83,03,15,142 ADD: DISALLOWANECS Donation 85,000 Depreciation/Amortisation 1,56,50,99,857 as per books Disallowance under section 77,052 14A (As per TAR) Corporate Social 16,72,37,651 Responsibility Amount of Interest paid to 29,43,000 Micro, Small and Medium Enterprises (As per Sec 23 of MSMED) Expenses allocable to 4,09,562 Income from House Property Municipal Tax allocable to 11,70,880 Income from House Property Income under section 41(3) 30,502 – Sale of RTC asset Employee Stock Option 9,41,63,548 debited to P&L – IND AS adjustment Disallowance under section 35,92,56,632 Sec 40(a) (as per TAR) Disallowance under section 5,87,47,640 Sec 43B (as per TAR) Amortisation of Prepaid 1,75,82,362 Expenses for Security Deposited (INDAS) Loss on sale of Fixed Assets 16,58,981 Provision for Doubtful Debt 15,30,330 Gratuity + Pension benefits 1,64,59,336 considered in Comprehensive Income Disallowance us 40A(3) 38,372 Penalty 4,93,806 2,28,69,84,512 LESS: ALLOWANCES Exceptional Items Employee Stock Option 9,22,27,077 Payments/Trf of employees – IND AS adjustment Amortisation of Notional 1,76,85,249 Interest income for Security 6 Colgate-Palmolive (India) Limited AY 2018-19 Deposited (INDAS) Depreciation as per Income 1,77,35,32,863 tax (As per TAR) Allowance under 32AD 8,66,55,495 Interest Income considered 27,25,34,751 separately Rental Income considered 1,96,87,500 separately Deduction under section 11,30,08,030 Sec 40(a) (as per TAR) VRS deduction u/s.35DDA 5,85,10,841 2,43,38,41,806 Income from Business or 9,68,34,57,848 Profession Income from other sources 244A Interest on Refund Interest Income 27,25,34,751 Less: Tax free interest income 2,22,21,350 25,03,13,401 Total Income from other 25,03,13,401 sources Income from House Property Rental Income 1,96,87,500 Municipal Tax 11,70,880 1,85,16,620 Less: 30% 55,54,986 1,29,61,634 1,29,61,634 Income from Capital Gain Long term capital gain on maturity of a Bond Long term capital Gain on sale - - by way of Slump Sale Less: Brought forward loss - - GROSS TOTAL INCOME 9,94,67,32,883 Chapter VI A deduction: Section 80G(2)-Donations 1,50,00,000 Section 80JJAA – Workmen 70,67,807 2,20,67,807 TOTAL INCOME 9,92,46,65,076 ROUNDED TO 9,92,46,65,071 Colgate-Palmolive (India) Limited AY 2018-19 Tax @ 30% on Other than 2,97,73,99,521 Capital Gain Tax @ 20% on Capital Gain - 2,97,73,99,521 Surcharge @ 12% 35,72,87,943 Education CESS @ 3% 10,00,40,624 Total tax payable including 3,43,47,28,088 surcharge Tax payable u/s.115JB – MAT 2,09,68,56,443 Higher of the two 3,43,47,28,088 Less: MAT credit Net tax liability 3,43,47,28,088 Less: Credit u/s 91 Less: Tax Deducted Source 2,72,18,632 Balance Payable 3,40,75,09,456 Less: Advance Tax paid June 15, 2017 40,00,00,000 Sept 15, 2017 1,00,02,00,000 Dec 14, 2017 1,02,00,00,000 Mar 15, 2018 90,80,00,000 Balance payable/(Refundable) 8,74,99,310 3,41,56,99,310 Add: Interest u/s.234C 81,89,846 Balance Payable (8)
6.2. Thus, there is no change in the factual matrix of the present case when compared to that of the one dealt by the Co-ordinate Bench in the appeal for A.Y.2017-18 and hence, the observations and findings apply mutatis mutandis on the two issues in appeal before us. We extract below the relevant paragraphs from the order of the Co-ordinate Bench (supra):
6. In respect to other query relating to employee stock ownership plan (ESOP), the reply of the assessee reads as under:-
7. At this juncture, it would be pertinent to consider the computation of income for the year under consideration and the same reads as under:-
A careful perusal of the aforementioned computation of income show that the assessee has added Rs.15,58,06,642/- being expenditure claimed under Corporate Social Responsibility (CSR). It can also be seen that the assessee has added employee stock option debited to its P&L account amounting to Rs.8,85,69,795/- and Colgate-Palmolive (India) Limited AY 2018-19 thereafter claimed a deduction of Rs.13,50,61,022/- and deduction under Chapter VIA u/s 80G(2) of the Act was claimed at Rs.1,50,42,600/-. 8.1. After considering the reply of the assessee to the first notice, on 16/03/2021, the AO issued another notice which is exhibited at page 115 to 119 of the paper book. The relevant queries reads as under:-
“1. With respect to Foreign Outward Remittances, made during the year please provide following: 1a) Kindly submit details of all the payments made under various to no-residents in the below format. Also explain the source of Foreign remittance made with supporting documents: Name of Payee Amount (Rs.) Country of Residence of Nature of Payee Payment 1b) Kindly explain for each such payment, weather income tax was not deducted or was deducted at lower rate. If you have any certificate to that extent from the Tax Department, please submit copy of the same.
1c) For all such payments where income tax is not deducted or deducted at lower rate, kindly submit copies of bills and TRC submitted by those parties along with copies of agreements entered into with them for those transactions.
1d) Please reconcile the amount of foreign remittances with the 15CA/CB certificates available with the department for the year consideration.
1e) kindly provide the complete bank account statement, highlighting such transactions.
5. With respect to Any Other Amount Allowable as deduction "claimed in Schedule BP of return, please furnish the justification on allowability of these deductions with supporting and legal arguments with respect specific section under Income tax Act.”
Colgate-Palmolive (India) Limited AY 2018-19 8.2. On 24/03/2021, the assessee filed a detailed reply which is exhibited at pages 126 to 131 of the paper book supported with documentary evidence placed at pages 132 to 136 of the paper book. The relevant part is extracted for ready reference:-
5) In relation to “Any Other Amount Allowable as deduction” we had already provided a break up in our submission dated March 5,2021. We further submit the brief explanation at Annexure 13 and supporting attached from Exhibit 1 to 4.”
8.3. Page 120 of the paper book is the copy of the e-mail sent along with annexures. All these evidences go on to show the level of enquiry made by the AO at the time of the scrutiny assessment proceedings. Assuming jurisdiction conferred upon him by the provisions of Section 263 of the Act, the PCIT issued following showcause notice to the assessee:-
Insofar as the issue relating to allowability of expenses on account of employee stock options, it was explained that Colgate Group has a global employee stock option policy where the employees of the Colgate Group company are given an option to acquire the shares of Colgate-Palmolive Company, US, for a prescribed grant price.
Colgate-Palmolive (India) Limited AY 2018-19 When the employees of the group company exercise such option, the Colgate- Palmolive Company, US, issues the shares to the employees at the pre-decided grant price and recovers the differential cost (i.e. difference between prevailing market price at the time of exercise less grant price) from the concerned Colgate Group Company. The said difference is also treated as income in the hands of the employees and taxed as perquisite. 9.1. It was further explained that the company recognized the ESOP expenses as a debit to P&L over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied, as determined on the grant date, based on the fair value of the options. It was further pointed out that such charge to P&L account is disallowed while computing the taxable income as has been show in the computation of income elsewhere.
This claim of the assessee was claimed to be supported by the decision of the Co- ordinate Benches in the case of Novo Nordisk India (P.) Ltd. vs. Deputy Commissioner of Income-tax, Circle-12(2), Bangalore [2014] 42 taxmann.com 168,Northern Operating Services (P.) Ltd. vs. Joint Commissioner of Income-tax [2023] 149 taxmann.com 52, and the decision of the Special Bench in the case of Biocon Ltd. [2013] 35 taxmann.com 335 (SB) which has been subsequently approved by the Hon’ble Karnataka High Court in the case of Biocon Ltd. [2020] 121 taxmann.com 351.
Insofar as the claim of CSR expenses is concerned, it was pointed out that in the computation of income exhibited elsewhere, the assessee has disallowed the CSR expenses of Rs.15,58,06,642/-. It need to be pointed out here specifically that the claim of deduction u/s 80G is a different issues and the same has been explained by supporting evidence mentioned elsewhere. Considering the assessment proceedings, we are of the opinion that the AO has examined each and every issue thoroughly with vortex of evidence. Therefore, it would be unjust if the PCIT says that the impugned assessment order was erroneous and prejudicial to the interest of the revenue because of non-enquiry on part of the AO.
While coming to the aforementioned conclusion, we draw support from the decision of the Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd., 243 ITR 83 (SC), where the Hon’ble Supreme Court has laid down the following ratio:- “A bare reading of section 263 of the Income-tax Act, 1961, makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suo moto under it, is that the order of the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent--if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue-- recourse cannot be had to section 263(1) of the Act. The provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order 7 is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous ". 16
Further, the Hon’ble Bombay High Court in the case of CIT vs. Gabriel India Ltd. reported in [1993] 203 ITR 108 (Bombay), while dealing with identical issue has held as under:- 13. We, therefore, hold that in order to exercise power under sub-section (1) of section 263 of the Act there must be material before the Commissioner to consider that the order passed by the Income-tax Officer was erroneous in so far as it is prejudicial to the interests of the Revenue. We have already held what is erroneous. It must be an order which is not in accordance with the law or which has been passed by the Income-tax Officer without making any enquiry in undue haste. We have also held as to what is prejudicial to the interests of the Revenue. An order can be said to be prejudicial to the interests of the Revenue if it is not in accordance with the law in consequence whereof the lawful revenue due to the State has not been realised or cannot be realised. There must be material available on the record called for by the Commissioner to satisfy him prima facie that the aforesaid two requisites are present. If not, he has no authority to initiate proceedings for revision. Exercise of power of suomotu revision under such circumstances will amount to arbitrary exercise of power. It is well-settled that when exercise of statutory power is dependent upon the existence of certain objective facts, the authority before exercising such power must have materials on record to satisfy it in that regard. If the action of the authority is challenged before the court it would be open to the courts to examine whether the relevant objective factors were available from the records called for and examined by such authority. Our aforesaid conclusion gets full support from a decision of SabyasachiMukharji J. (as his Lordship then was) in Russell Properties Pvt. Ltd. v. A. Chowdhury, Addl. CIT . In our opinion, any other view in the matter will amount to giving unbridled and arbitrary power to the revising authority to initiate proceedings for revision in every case and start re-examination and fresh enquiries in matters which have already been concluded under the law. As already stated it is a quasi judicial power hedged in with limitation and has to be exercised subject to the same and within its scope and ambit. So far as calling for the records and examining the same is concerned, undoubtedly, it is an administrative act, but on examination "to consider" or in other words, to form an opinion that the particular order is erroneous in so tar as it is prejudicial to the interests of the Revenue, is a quasi-judicial act because on this consideration or opinion the whole machinery of re-examination and reconsideration of an order of assessment, which has already been concluded and controversy which has been set at rest, is set again in motion. It is an important decision and the same cannot be based on the whims or caprice of the revising authority. There must be materials available from the records called for by the Commissioner.
14. We may now examine the facts of the present case in the light of the powers of the Commissioner set out above. The Income-tax Officer in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given detailed explanation in that regard by a letter in writing. All these are part of the record of the case. Evidently, the claim was allowed by the Income-tax Officer on being satisfied with the explanation of the assessee. Such Colgate-Palmolive (India) Limited AY 2018-19 decision of the Income-tax Officer cannot be held to be "erroneous" simply because in his order he did not make an elaborate discussion in that regard. Moreover, in the instant case, the Commissioner himself, even after initiating proceedings for revision and hearing the assessee, could not say that the allowance of the claim of the assessee was erroneous and that the expenditure was not revenue expenditure but an expenditure of capital nature. He simply asked the Income-tax Officer to re-examine the matter. That, in our opinion, is not permissible. Further inquiry and/or fresh determination can be directed by the Commissioner only after coming to the conclusion that the earlier finding of the Income-tax Officer was erroneous and prejudicial to the interests of the Revenue. Without doing so, he does not get the power to set aside the assessment. In the instant case, the Commissioner did so and it is for that reason that the Tribunal did not approve his action and set aside his order. We do not find any infirmity in the above conclusion of the Tribunal.”
The Hon’ble Supreme Court in the case of CIT vs. Max India Ltd. reported in [2007] 295 ITR 282 (SC), had the occasion to consider a similar challenge to 263 proceedings and held as under:- “1. In our view at the relevant time two views were possible on the word 'profits' in the proviso to section 80HHC(3). It is true that vide 2005 amendment the law has been clarified with retrospective effect by insertion of the word 'loss' in the new proviso. We express no opinion on the scope of the said amendment of 2005. Suffice it to state that in this particular case when the order of the Commissioner was passed under section 263 of the Income-tax Act two views on the said word 'profits' existed. In our view the matter is squarely covered by the judgment of this Court in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 as also by the judgment of the Calcutta High Court in the case of Russell Properties (P.) Ltd. v. A. Chowdhury, Addl. CIT [1977] 109 ITR 229 at 243. 2. At this stage we may clarify that under para 10 of the judgment in the case of Malabar Industrial Co. Ltd. (supra) this Court has taken the view that the phrase "prejudicial to the interest of the revenue" under section 263 has to be read in conjunction with the expression "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 interest of the revenue. For example, when the 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 interest of the revenue, unless the view taken by the Income-tax Officer is unsustainable in law. According to the learned Additional Solicitor General on interpretation of the provision of section 80HHC(3) as it then stood the view taken by the Assessing Officer was unsustainable in law and therefore the Commissioner was right in invoking section 263 of the Income-tax Act. In this connection he has further submitted that in fact 2005 amendment which is clarificatory and retrospective in nature itself indicates that the view taken by the Assessing Officer at the relevant time was unsustainable in law. We find no merit in the said contentions. Firstly, 18 Colgate-Palmolive (India) Limited AY 2018-19 it is not in dispute when the Order of the Commissioner was passed there were two views on the word 'profit' in that section. The problem with section 80HHC is that it has been amended eleven times. Different views existed on the day when the Commissioner passed the above order. Moreover the mechanics of the section have become so complicated over the years that two views were inherently possible. Therefore, subsequent amendment in 2005 even though retrospective will not attract the provision of section 263 particularly when as stated above we have to take into account the position of law as it stood on the date when the Commissioner passed the order dated 5-3-1997 in purported exercise of his powers under section 263 of the Income-tax Act.”
Considering the facts in totality, in light of the judicial decisions discussed hereinabove, we set aside the order of the PCIT dt.12/03/2024 and restore that of the AO dt. 17/02/2022, framed u/s 143(3) r.w.s 144C(13) of the Act.
6.3. In the given set of facts and circumstances, we respectfully following the decision of the Co-ordinate Bench, quash the impugned revisionary order passed by ld. PCIT.
In the result, appeal of the assessee is allowed.
Order pronounced in the open court on 29 September, 2025.