EMAIL PHARMACEUICAL INDUSTRIES PVT LTD,MUMBAI vs. PCIT-4 , MUMBAI

P a g e | 3 A.Y. 2020-21 M/s Emil Pharmaceutical Industries Pvt. Ltd.

P a g e | 4 A.Y. 2020-21 M/s Emil Pharmaceutical Industries Pvt. Ltd.

5.1 The Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT [243 ITR 83] has held that twin conditions needs to be satisfied before exercising revisionary 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 AO 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 P a g e | 6 A.Y. 2020-21 M/s Emil Pharmaceutical Industries Pvt. Ltd. aforesaid any event the order passed by the AO 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. Their Lordship held when the AO 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 AO 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".

5.2 Thus, in our considered view following Apex Court ruling the Revision orders passed by Ld. PCIT are not sustainable in law. Reference could also be made to the decision of the jurisdictional High Court in the case of CIT vs Gabriel India Ltd. (203 ITR 108) (Bom)(HC) with regard to assumption of jurisdiction by the PCIT in the para below:

12. From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualize a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order unless the decisions is held to be erroneous. Cases may be visualized where the Income-tax Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and P a g e | 7 A.Y. 2020-21 M/s Emil Pharmaceutical Industries Pvt. Ltd. determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income-tax Officer. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the Income-tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interests of the Revenue. But that by itself will not be enough to vest the Commissioner with the power of suo-motu revision because the first requirement, viz., that the order is erroneous, is absent.

5.3 Apart from the above principles, we deem it appropriate to make reference to the decision of the hon'ble Delhi High Court in the case of CIT vs. Sun Beam Auto 227 CTR 113 wherein the Court has pointed out a distinction between lack of inquiry and inadequate inquiry. The following observations of the hon'ble Court are worth noting:

12. We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the Commissioner of Income-tax under section 263 of the Income-tax Act. As noted above, the submission of learned counsel for the revenue was that while passing the assessment order, the Assessing Officer did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the Assessing Officer had not applied his mind on the issue. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between lack of inquiry" and "inadequate inquiry". If there was any inquiry, even inadequate, that would not by itself, give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has different opinion in the matter. It is only in cases of "lack of inquiry", that such a course of action would be open".

P a g e | 8 A.Y. 2020-21 M/s Emil Pharmaceutical Industries Pvt. Ltd. 5.4 We find from the assessment records that the AO has brought on record material facts which go to show that necessary enquiries were indeed made on the impugned issue. Moreover, as stated in preceding paras, the very basis of selection of the case hinged upon the issue of deduction u/s 80G of the Act, and seen in the light of specific queries and replies of the assessee, it can be safely concluded that the issue was duly examined and the AO allowed the claim after due application of mind and in accordance with the provisions of the Act. We do not find that the assessment order could be considered as erroneous and prejudicial and liable to application of Explanation 2 to section 263 of the Act.

7.3 As we take notice of the fact that Parliament legislated that CSR expenses would not be eligible for deduction as business expenditure under section 37 of the Act by inserting Explanation 2 to section 37(1) vide the Finance (No.2) Act, 2014 (applicable from the assessment year 2015-16), which provided that any expenditure incurred by an assessee on the P a g e | 10 A.Y. 2020-21 M/s Emil Pharmaceutical Industries Pvt. Ltd. activities relating to CSR referred to in section 135 of the CA 2011, shall not be deemed to be an expenditure incurred by an assessee for the purpose of business or profession and shall not be allowed as deduction under section 37(1) of the IT Act. The intent of Parliament in bringing the aforesaid provision is given in the Explanatory Memorandum to the Finance (No.2) Bill, 2014 and is reproduced as under; CSR expenditure, being an application of income, is not incurred wholly and exclusively for the purposes of carrying on business. As the application of income is not allowed as deduction for the purposes of computing taxable income of a company, amount spent on CSR cannot be allowed as deduction for computing the taxable income of the company. Moreover, the objective of CSR is to share burden of the Government in providing social services by companies having net worth/turnover/profit above a threshold. If such expenses are allowed as tax deduction, this would result in subsidizing of around one-third of such expenses by the Government by way of tax expenditure."

7.4 The aforesaid explanatory memorandum categorically expresses the legislative intent and the rationale of disallowance of CSR expenditure referred to in section 135 of the Companies Act, that such expenditure is application of income and not incurred for the purposes of business. We are of considered view that this in itself justifies the grant of deduction u/s 80G. As CSR expenditure is application of income of the assessee under the Income Tax Act, that means it continues to form part of the Total income of the assessee. Section 80G(1) of the Act provides that in computing the total income of an assessee, there shall be deducted, in accordance with the provisions of this section, such sum paid by the assessee in the previous year as a donation. Further, section 80G(2) lists down the suns on which deduction shall be allowed to the assessee. Section 80G falls in Chapter VIA, which comes into play only after the gross total income has been computed by applying the computation provisions under various heads of income, including the Explanation 2 to section 37(1) of the Act. Thus, there is no correlation between suo- moto disallowance in section 37(1) and claim of deduction under section 80G of the Act.

7.5 As with regard to the reasoning that CSR expenditure are not voluntary but mandatory in nature due to penal consequences, we are of considered view that voluntary nature of donation is by nature of fact that it is not on the basis of any reciprocal promise of donee. The CSR expenditures are also without any reciprocal commitment from beneficiary being philanthropic in nature. The Act permits deduction of donations as per Section 80G of the Act, even though, assessee is not gaining any benefit out of any reciprocity from donee. Similar is the case of CSR expenditure. Thus the reasoning of learned Tax Authority, the CSR expenditure is mandatory, does not justify disallowance of these expenditures u/s 80G, if other conditions of section 80G are fulfilled. There is no allegation of Revenue that other conditions of Section 80G are not fulfilled. We, thus sustain the ground." 6.2 In a recent decision in the case of The Ruby Mills Limited, Mumbai vs PCIT on 27 June, 2025 in coordinate bench while dealing with similar issue held as under:

“6. We have considered the rival submissions of both the parties and have gone through the orders of lower authorities carefully. We have also deliberated on various case laws relied by both the parties. We find that assessment in the present case was completed on 19.02.2022. The assessing officer while passing the assessment order made various disallowance. However, there P a g e | 11 A.Y. 2020-21 M/s Emil Pharmaceutical Industries Pvt. Ltd. is no discussion about the issue identified by ld. Pr. CIT while exercising his jurisdiction under section 263. However, on perusal of notices under section 142(1) dated 8.06.2022, we find that assessing officer sought explanation on various issues including on the deduction under section 80G along with supporting documents. The assessee vide its reply dated 09.08.2022 furnished various details including the detail of examination claimed under section 80G. The assessee also The Ruby Mills Limited furnished receipt of donations and per Annexure-XII of the reply. The assessee explained that they have claimed deduction of 50% of total donation. As noted above, the assessing officer has not made such references in the assessment order. Thus, assessing officer impliedly accepted the explanation offered by assessee. We find that co-ordinate bench of Mumbai Tribunal in DCIT Vs Gabriel India Ltd. (supra), Vistex Asia Pacific Private Limited (supra) and Axis Securities Limited (supra) consistently allowed deduction under section 80G @ 50% of CSR expenses. We, further, find that this combination in Dalal and Broacha Stock Broking Pvt. Ltd. in ITA No. No. 2718/Mum/2025 dated 19.06.2025 by considering other decision of Tribunal passed the following order:

"6. We have considered the rival submissions of both the parties and have gone through the orders of lower authorities carefully. On careful perusal of assessment order, we find that case was selected for scrutiny on the issue of large amount of donation. No doubt that the assessing officer during the assessment examined the issue and disallowed donation under section 80G to Urvashi Foundations. Though, there is no discussion about the donation to other charitable trust or institution, however the assessing officer has sought details of donations to all about such charitable trust and institution. We find that the assessee also furnished all required details to the assessing officer. Thus, the assessing officer impliedly accepted the donation to such charitable trust or institution. We find that recently Co-ordinate Bench of Mumbai Tribunal in DCIT Vs Gabriel India (2025) 173 taxmann.com 219 (Mum) on similar issue where the assessee-company claimed deduction under section 80G at the rate of 50% of CSR expenses and furnished receipts of donees evidencing eligibility of deduction under section 80G allowed claim of such assessee. The tribunal while allowing relief to the assessee followed various other decisions of the different benches of the Tribunal. The relevant part of the decision if extracted below. "7.After giving a thoughtful consideration to the orders of the authorities below, we are of the considered view that the Coordinate Benches have been consistently taking the stand that 80G deduction cannot be denied. The relevant findings in the case of Ericsson India Global Services (P) Ltd. (supra), read as under:- "7. We have considered rival submissions and perused the material on record. We have also applied our mind to case laws cited before us. Undisputedly, expenditure incurred towards CSR is specifically prohibited from being allowed as deduction towards business expenditure by insertion of Explanation - 2 to Section 37(1) of the Act by Finance Act, 2014 w.e.f01.04.2015. However, there is no such Ericsson India Global Services Pvt. Ltd. v. DCIT corresponding amendment to section 80G of the Act. Only condition for claiming deduction under section 80G of the Act as per the existing provision is the institute to which donation is made must have been registered under section 80G of the Act. Once the aforesaid condition is fulfilled, the donor is entitled to avail the deduction. This is also the view expressed by the Coordinate Bench in case of Honda Motorcycle and Scooter India Pvt. Ltd. (supra). The relevant observation are as under: "17. Apropos the issue of disallowance u/s 80G of the Income-tax Act, 1961 (for short 'the Act') : The assessee made certain donation to approved institutions or funds and P a g e | 12 A.Y. 2020-21 M/s Emil Pharmaceutical Industries Pvt. Ltd. claimed 50% of the total donation made as deduction u/s 80G. This amount also formed part of the CSR initiative of the assessee company which amounts to INR 22,81,29,964/-. It is observed that the assessee has duly disallowed CSR expenditure of INR 22,81,29,964/-debited to the statement of profit and loss under section 37 of the Act. DRP rejected the claim of the assessee by saying that the donation is pursuant to the CSR policy of the company and lacks the test of voluntariness as required under section 80G. The AO has disallowed the claim on the ground that anything donation over and above the CSR u/s 80G will be only allowed as the CSR expense is not an allowable expense u/s 37 of the Act. Ld. Counsel of the assessee placed reliance on the following decisions :- JMS Mining (P.) Ltd. v. PCIT [2021] 130 taxmann.com 118/190 ITD 702/91 ITR(T) 80 (Kolkata - Trib.) Goldman Sachs Services (P) Ltd. v. JCIT (2020) ([2020] 117 taxmann.com 535 (Bangalore - Trib.) ) (ITAT Bangalore) (iii) First American (India) Pvt. Ltd. (ITA No. 1762/Bang/2019) Allegis Services (India) Pvt. Ltd. (ITA No. 1693 /Bang/ 2019) Ld. Counsel further submitted that if the intention was to deny deduction of CSR expenses under section 80G, appropriate amendments on lines of section 37(1) should also have been made The Ruby Mills Limited under section 80G of the Act. In the absence of any such amendment, CSR expenses should not be disallowed under section 80G of the Act.

8. Before us, it is the specific contention of learned Counsel of the assessee that the institutes to whom the assessee has donated the CRS fund are registered under section 80G of the Act. Keeping in view the submissions of the assessee as well as the ratio laid down in the judicial precedents cited before us, we direct the Assessing Officer to allow assessee's claim of deduction under section 80G of the Act, subject to, factual verification of assessee's claim that the donee institutions are registered under section 80G of the Act and other conditions of section 80G of the Act are fulfilled. Ground is allowed for statistical purposes."

9.In the result, appeals of the revenue are dismissed."

Considering the fact that view taken by assessing officer while allowing 50% of donation under section 80G out of CSR expenses are in accordance with the decisions of various benches of Tribunal. Thus, the view taken by assessing officer cannot be said P a g e | 13 A.Y. 2020-21 M/s Emil Pharmaceutical Industries Pvt. Ltd. to be erroneous. Thus, the pre-requisite twin conditions for exercising jurisdiction under section 263 has not meet out in the present case hence we quash / set aside the order of Pr. CIT dated 17.03.2025. In the result, grounds of appeal raised by assessee are allowed.

7. Considering the consistent decision of Co-ordinate Bench of Tribunal, we find that in accepting the claim of donation under section 80G @ 50% of total donation in the assessment order is not erroneous as the action of assessing officer is legally sustainable view. Thus, in our considered view, the twin conditions prescribed under section 263 of the Income Tax Act is not fulfilled in the present case. As the pre- requisite conditions for exercising jurisdiction under section 263 has not meet out in the present, hence we quash/set aside the order of ld. Pr. CIT. In the result, grounds of appeal raised by the assessee are allowed.”

7. In the case under consideration, the proposed revision is sought to be done merely on change of opinion disagreeing with the opinion of the AO that the expenditure is not deductible under sec 80G of the Act. Further, it is a settled position of law that where there are two views possible and the AO has adopted one of the two possible views, then the order cannot be held to be erroneous/ prejudicial to the interest of the revenue and thereby proceedings under section 263 of the Act could not be sustained. We find that in accepting the claim of donation under section 80G @ 50% of total donation in the assessment order is not erroneous as the action of the AO is legally sustainable view. Moreover, as discussed in the preceding paras, the deduction of CSR expenses under section 80G of the Act is held allowable consistently by the courts. Hence, both on legal ground as also on merits, appeal of the assessee has sufficient force. Therefore, respectfully following the above judicial precedents, we hereby quash the Revision order as P a g e | 14 A.Y. 2020-21 M/s Emil Pharmaceutical Industries Pvt. Ltd. unsustainable, allowing the grounds of appeal raised by the assessee in this regard.

8. We find that in ground of appeal clause (d) it is claimed that The Ld. PCIT had mentioned in SCN about unavailability of deduction u/s. 80G in case ‘A’ avails benefit of lower tax u/s.115BAA, but had failed to appreciate that the said provision was applicable w.e.f. A.Y 21-22 and not for A.Y. 20-21. 8.1 However perusal of the revision order reveals that as per para 4.5 and 4.6 on page-6 of the order, the ld.PCIT has already accepted the contentions of the ld.AR and has not taken any adverse view of the matter. Accordingly, this ground is not maintainable and is dismissed.

Order pronounced in the open court on 19/09/2025. NARENDER KUMAR CHOUDHRY PRABHASH SHANKAR (न्याययक सदस्य /JUDICIAL MEMBER) (लेखाकार सदस्य/ACCOUNTANT MEMBER)