Loading judgment…
Facts
The assessee filed an appeal against an order under section 263 of the Income Tax Act, 1961. The Principal CIT initiated revisionary proceedings alleging that the assessment order was erroneous and prejudicial to the interest of the revenue on three grounds: disallowance of interest on delayed payment of TDS, non-disallowance of interest under section 201(1A)/206C(7), and allowability of deduction under section 80G for CSR expenses.
Held
The Tribunal held that the issues raised by the PCIT in paragraph 6 of its order were not part of the notice issued under section 263, thus violating principles of natural justice. Regarding the disallowance of interest on delayed TDS payment, the Tribunal found that the explanation for the deduction was not examined by the AO. For interest under section 201(1A)/206C(7), the AO had not examined this aspect. However, concerning the CSR expenditure deduction under section 80G, the Tribunal noted it was a debatable issue, and invoking section 263 was not appropriate, following precedent.
Key Issues
Whether the PCIT rightly invoked Section 263 powers when the original assessment order was allegedly erroneous and prejudicial to revenue, especially concerning notice to the assessee and the debatable nature of certain issues like CSR deduction.
Sections Cited
263, 143(3), 40(a)(ia), 201(1A), 206C(7), 80G, 144B, 40(a)(i), 43B
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: SHRI NARENDRA KUMAR BILLAIYASHRI SANDEEP SINGH KARHAIL
Date of Hearing – 21/08/2025 Date of Order - 10/09/2025
O R D E R PER SANDEEP SINGH KARHAIL, J.M. The assessee has filed the present appeal against the impugned order dated 26.03.2025, passed under section 263 of the Income-tax Act, 1961 (“the Act”) by the learned Principal Commissioner of Income-tax-4, Mumbai, [“learned PCIT”], for the assessment year 2020-21.
In this appeal, the assessee has raised the following grounds: – “1.0 That on the facts and in the circumstances of the case, the impugned order passed u/s 263 is grossly arbitrary and bad in law in relation to the issues raised and adjudicated therein and needs to be summarily deleted. 1.1 That on the facts and in the circumstances of the case, the Ld. PCIT was not justified and grossly erred in initiating proceedings u/s 263 of the Act ./2025 (A.Y. 2020-21) 2
without appreciating the fact that order u/s 143(3) passed by the Ld. AO was neither erroneous nor prejudicial to interests of the Revenue and therefore the proceedings are bad in law. 2.0 That on the facts and in the circumstances of the case, the Ld. PCIT was not justified and grossly erred in holding that, the assessee has incurred on payment of interest on delayed payment of TDS to the tune of Rs. 92,01,623 without appreciating the fact that the same has been actual expense which was disallowed last year u/s 40(a)(ia) of the Act and claimed as allowance in captioned AY on payment of TDS, which was fully justified and in-line with the prevailing provisions of the law. 3.0 That on the facts and in the circumstances of the case, the Ld. PCIT was not justified and grossly erred in holding that, the assessee has incurred expense on payment of interest on TDS u/s. 201(1A) and 206C (7) without appreciating the fact that the expense was fully justified and in-line with the prevailing provisions of the law, which had been duly examined by the Ld. AO in assessment proceedings. 4.0 That, on the facts and in the circumstances of the case, the Ld. PCIT was not justified and grossly erred in holding that, the assessee has wrongly claimed deduction u/s 80G on CSR expenses without appreciating the fact that the claim was fully justified and in-line with the prevailing provisions of the law, which had been duly examined by the Ld. AO in assessment proceedings 5.0 That on the facts and in the circumstances of the case, the Ld. PCIT was not justified and grossly erred in holding that, the assessee has wrongly claimed deduction without appreciating that, the claim of deduction has been duly allowed by various judicial precedents on the same facts.”
Vide its application dated 13.08.2025, the assessee raised the following additional grounds of appeal: - “1.0 On the facts and in circumstances of the case,, the impugned order passed u/s 263 on the additional issues are grossly arbitrary and bad in law and needs to be summarily deleted. 2.0 That on the facts and in the circumstances of the case, the Ld. PCIT was not justified and grossly erred in holding that, the assessee has purchase of foreign currency of Rs 9.71 crores without appreciating that, it is factually incorrect since nowhere in financial statement the above facts of foreign currency purchase of Rs 9.71 crores is mentioned. 3.0 That on the facts and in the circumstances of the case, the Ld. PCIT was not justified and grossly erred in holding that, the assessee has claimed full depreciation on land & building without appreciating that, it is factually incorrect since the assessee has shown capital gain on sale of land and on building the sale consideration has reduced from block of assets. Further, the Ld. AO in the assessment proceedings has duly verified by making specific enquires on the above aspects.
./2025 (A.Y. 2020-21) 3 4.0 That on the facts and in the circumstances of the case, the Ld. PCIT was not justified and grossly erred in holding that, the assessee has made royalty patent of Rs 5 crores to CFO for patent use has not been verified without appreciating that, the Ld. AO in the assessment proceedings has duly verified by making specific enquires on the above aspects. 5.0 That on the facts and in the circumstances of the case, the Ld. PCIT was not justified and grossly erred in holding that, the assessee has made donation of Rs 6 lacs whose 80G certificate validity has been expired without appreciating that, as per the amendment vide Finance Act 2009, section 80G registration were given perpetual validity. Further, the Ld. AO in the assessment proceedings has duly verified by making specific enquires on the above aspects.”
Since the issues raised by way of additional ground are legal issues which can be decided on the basis of material available on record, the same are admitted in view of the ratio laid down by the Hon’ble Supreme Court in National Thermal Power Co. Ltd. vs. CIT, reported in (1998) 229 ITR 383 (SC).
5. The main grievance of the assessee, in the present appeal, is against the invocation of revisionary proceedings under section 263 of the Act by the learned PCIT.
6. The brief facts of the case as emanating from the record are: The assessee is engaged in producing dyed polyester yarn. For the year under consideration, the assessee filed its return of income on 02.02.2021, declaring a total income of Rs.16,91,91,270/-. The return filed by the assessee was selected for complete scrutiny for the following reasons: a. Lower amount disallowed under section 40(a)(i) in ITR in comparison to default found under section 201 as per data received from CIT (CPC-TDS) b. Lower amount disallowed under section 40(a)(ia) in ITR (Part A- OI) in comparison to audit report ./2025 (A.Y. 2020-21) 4
c. Sale consideration of the property in ITR is less than sale consideration of property reported in SFT.
7. After considering the submissions of the assessee, in response to the statutory notices issued during the assessment proceedings, the Assessing Officer (“AO”) passed the order dated 02.09.2022 under section 143(3) read with section 144B of the Act, accepting the return of income filed by the assessee.
8. Subsequently, the learned PCIT issued a notice dated 03.03.2025 under section 263 of the Act. The said notice is reproduced as follows for ready reference: - “In your case, Return of Income was filed for AY 2020-21 on 02.02.2021 declaring total income of Rs.16,91,91,270/-. Subsequently, the case was selected for scrutiny accordingly, assessment order u/s. 143(3) r.w.s 144B of the Act was passed on 02.09.2022 accepting the returned income. 2. On perusal of the Computation of Total Income filed by the assessee, it is seen that the assessee has reduced an amount of Rs.92,01,623/- being interest on delayed payment of TDS from the Profit as per P&L Avc./Income from Business or Profession. Interest on delayed payment of TDS is not an allowable deduction. The same ought to have been disallowed. Failure to do so has resulted in underassessment of income to the tune of Rs.92,01,623/-. 3. It is also seen from the Form CD (Tax Audit Report), the Tax Auditor has certified in clause 34(c) that the assessee is liable to pay interest under section 201(1A) or section 206C(7) of the Income Tax Act. The total amount of interest u/s. 201(1A)/206C(7) is shown at Rs.6,87,150/-. Sections 201(1A) and 206C(7) apply for failure to deduct tax at source or the delay in payment of tax that has been deducted/collected at source. On perusal of the computation of income filed by the assessee, it is seen that the amount of Rs.6,87,150/- has not been disallowed. Failure to do so has resulted in underassessment of income to the tune of Rs.6,87,150/-. 4. Further, it is seen from the computation of income that that assessee has made a total CSR expenditure of Rs. 8,43,000/- and Rs. 15,000/- towards donation. However, on perusal of the Schedule 80G (TR), it is seen that the assessee had shown total payments made to the tune of Rs.9,54,000/- and had claimed 50% of the same as deduction u/s. 80G amounting to Rs. 4,77,000/-. The expenditure for which deduction is claimed is purely CSR expenditure on which 80G deduction is not allowable as:
./2025 (A.Y. 2020-21) 5 CSR expenditure by the assessee forms part of the mandatory requirement of the Companies Act 2013 and consequently not eligible for deduction us 80G of the IT Act. Allowing deduction under section 80G will result in subsidizing these expenses incurred by the corporate which is not the intent of the legislature. The main characteristic of charity is that it is purely voluntary and there is no legal obligation to make that contribution. The amounts spent on CSR activities, even though is contributed to the areas where 80G deduction is available, but the same lacks voluntary character and partakes the nature of an obligation to be fulfilled, a necessary requirement imposed by law in accordance with Section 135 of the Companies Act 2013. In view of the above, the assessee is not eligible for deduction u/s. 80G of the Income Tax Act, 1961 to the tune of Rs.4,77,000/-. And the same needs to be disallowed and added back to the total income of the assessee.
Assessment Order u/s. 143(3) r.w.s 144B of the Act dated 02/09/2022 was passed by the Faceless Assessment Officer without making enquiry or verification which should have been made as discussed above.
In view of the aforesaid reasons, it is seen that the Assessment Order dated 02/09/2022 passed is erroneous in so far as it is prejudicial to the interest of the revenue. Therefore, I, the Pr. Commissioner of Income-tax -4, Mumbai, in exercise of the powers conferred on me under the provisions of Section 263 of the I.T. Act, 1961, propose to consider this matter and pass such order thereon as the facts and circumstances of the case may justify.”
Therefore, the learned PCIT alleged that the assessment order dated 02.09.2022 passed by the AO is erroneous insofar as it is prejudicial to the interest of the Revenue on the following issues: - (a) Interest on delayed payment of TDS to the tune of Rs.92,01,623/- is disallowable. (b) Interest under section 201(1A) / section 206C(7) of the Act amounting to Rs.6,87,150/- was not disallowed by the assessee while computing its total income. (c) The assessee has claimed a deduction under section 80G of the Act in respect of expenditure incurred on Corporate Social Responsibility (“CSR”).
./2025 (A.Y. 2020-21) 6
The learned PCIT, vide notice issued under section 263 of the Act alleged that since the assessment order dated 02.09.2022 passed under section 143(3) read with section 144B of the Act was passed without making enquiry or verification which should have been made on the aforesaid issues, the same is erroneous insofar as it is prejudicial to the interest of the Revenue.
In response to the notice issued under section 263 of the Act, neither the assessee attended nor made any submissions. Accordingly, the learned PCIT, on the basis of material available on record, proceeded to pass the impugned order under section 263 of the Act. The learned PCIT, vide impugned order, passed under section 263 of the Act set aside the assessment order passed under section 143(3) read with section 144B of the Act and directed the AO to conduct enquires and modify the assessment order not only on the issues, on which notice under section 263 of the Act was issued, as noted in the foregoing paragraphs, but also on the following issues: - “6. After going through various other submissions filed during assessment proceeding, following discrepancies are further noted: (i) There is purchase of foreign currencies by the assessee to the tune of Rs.9.71 crores and the A.O has not carried out any enquiries and its implication on computation of total income. (ii) There is sale of immovable property being Daman factory land & buildings on 13/08/2019 whereas full depreciation is being claimed which included Rs.80.05 lacs depreciation on machinery. No enquiries are found to have been done by the A.O during assessment proceedings. (iii) There is royalty payment of Rs.5 crores to its own CFO of the assessee Company for patent lease which has also gone without enquiry during assessment as regards its allowability. (iv) Details of donation paid include Rs.6 lacs donated to Vishwakarma Kaushal Kendra whose 80G certificate validity is for the period 09.07.2008 to 31.03.2010. This payment is thus not eligible for deduction u/s. 80G of the Act.”
Being aggrieved, the assessee is in appeal before us.
./2025 (A.Y. 2020-21) 7
We have considered the submissions of both sides and perused the material on record. At the outset, it is evident that the issues as noted by the learned PCIT in para 6 of its order, reproduced in the foregoing paragraph, do not form part of the notice issued under section 263 of the Act by the learned PCIT. Therefore, it is amply evident from the record that the opportunity was not granted to the assessee to rebut the same. Thus, it is contrary to the provisions of section 263 of the Act, which specifically requires the grant of an opportunity to be heard to be given to the assessee before passing the order under section 263 of the Act. We find that the Hon’ble Supreme Court in CIT vs. Amitabh Bachchan, (2016) 384 ITR 200 (SC) observed as follows:- “10 … What is contemplated by Section 263, is an opportunity of hearing to be afforded to the assessee. Failure to give such an opportunity would render the revisional order legally fragile not on the ground of lack of jurisdiction but on the ground of violation of principles of natural justice.”
Accordingly, the direction of the learned PCIT, vide impugned order, to modify the assessment order on the aforesaid issues is quashed. As a result, the additional grounds of appeal raised by the assessee are allowed.
14. The first issue on which notice under section 263 of the Act was issued pertains to the disallowance of interest on delayed payment of TDS to the tune of Rs.92,01,623/-. As per the learned PCIT, the assessee has reduced an amount of Rs.92,01,623/- as interest on the delayed payment of TDS while computing its total income. Learned PCIT further noted that the said amount was not added back by the assessee while computing its total income, and no such disallowance under section 43B of the Act is noticeable for the preceding assessment years. Therefore, the learned PCIT held that the claim of ./2025 (A.Y. 2020-21) 8 Rs.92,01,623/- by the assessee ought to have been disallowed while completing the assessment and failure to do so has resulted in under- assessment of income. Thus, the learned PCIT held that since no inquiry was conducted by the AO on the aforesaid issue, the assessment order is erroneous insofar as it is prejudicial to the interest of the Revenue. It is undisputed that the assessee neither attended the proceedings under section 263 of the Act nor made any submissions.
During the hearing, the learned Authorised Representative (“learned AR”), by referring to the computation of income for assessment year 2019- 20, forming part of the paper book, submitted that the assessee made an addition of Rs.1,75,01,997/- being the expenses on which TDS was not deducted while computing its total income. Furthermore, while referring to the computation of total income for the assessment year 2020-21, the learned AR submitted that during the year under consideration, the assessee claimed a deduction of expenditure amounting to Rs.92,01,623/- on payment of TDS, on which TDS was not deducted in the last year. Thus, the learned AR submitted that the learned PCIT had incorrectly presumed such expenditure to be the interest on delayed payment of TDS, which, in fact, pertains to expenditure on which TDS was paid in this year and accordingly claimed as a deduction.
On the contrary, the learned Departmental Representative (“learned DR”) submitted that the AO during the assessment proceedings neither raised any query on this issue nor sought any information/details from the assessee.
./2025 (A.Y. 2020-21) 9 Further, even in response to the notice issued under section 263 of the Act, the assessee chose not to file any submission/details.
Having considered the submission of both sides and perused the material available on record, it is evident that the explanation of the deduction of Rs.92,01,623/- as now placed before us by the assessee was not examined by any of the lower authorities. Furthermore, we find merit in the learned PCIT's findings that no examination was conducted during the assessment proceedings. The learned AR also could not bring any material on record to prove that this aspect was examined by the AO during the scrutiny assessment proceedings. The aspect whether the deduction claimed is qua the interest on delayed payment of TDS or is in relation to such expenditure on which TDS was deducted during the year under consideration requires necessary examination, which we are of the considered view was not undertaken by the AO during the assessment proceedings. Accordingly, we are of the considered view that the learned PCIT was justified in invoking the proceedings under section 263 of the Act and directing the AO to pass a fresh assessment order on this issue after conducting necessary enquiries. As a result, we uphold the impugned order passed under section 263 of the Act, limited to this issue.
The next issue on which notice under section 263 of the Act was issued by the learned PCIT pertains to the disallowance of interest under section 201(1A)/section 206(7) of the Act. In absence of any response from the assessee to the notice issued under section 263 of the Act, the learned PCIT, vide impugned order, treated the assessment order to be erroneous in so far ./2025 (A.Y. 2020-21) 10 as prejudicial to the interest of the Revenue, as the AO did not examine the allowability of interest amounting to Rs. 6,87,150/- paid under section 201(1A)/section 206C(7) of the Act. During the hearing, the learned AR, by referring to the tax audit report in Form 3D, which forms part of the paper book, submitted that the interest amounting to Rs. 6,87,150/- was paid by the assessee under section 201(1A)/section 206C(7) of the Act on 31.12.2020. Further, by referring to the Financial Statements of the assessee for the year under consideration, the learned AR submitted that the aforesaid interest was not claimed by the assessee while filing its return of income. On the contrary, the learned DR submitted that this aspect was not at all examined by the AO during the assessment proceedings, and the details now furnished by the assessee were not called for by the AO for any examination.
Having considered the submissions of both sides, we agree with the submissions of the learned DR that the issue whether the amount of Rs.6,87,150/- payable as interest under section 201(1A)/section 206C(7) of the Act was not examined by the AO during the assessment proceedings and the details as referred to now, on behalf of the assessee, were not produced for verification before the AO. Accordingly, we are of the considered view that the learned PCIT rightly invoked the provisions of section 263 of the Act and directed the AO to modify the assessment order after conducting a necessary inquiry on this issue. Therefore, we uphold the impugned order passed by the learned PCIT under section 263 of the Act, limited to this issue.
The last issue on which notice under section 263 of the Act was issued by the learned PCIT pertains to the allowability of deduction under section ./2025 (A.Y. 2020-21) 11 80G of the Act in respect of CSR expenses. The learned PCIT on the basis that the assessee has claimed deduction under section 80G of the Act to the tune of Rs.4,77,000/- in respect of the expenditure incurred on CSR held that the assessment order is erroneous in so far as prejudicial to the interest of the Revenue as the said expenditure, being statutorily mandated, cannot be considered as voluntary donation under section 80G of the Act. The learned PCIT, vide the impugned order, further held that the AO nowhere mentioned or discussed the claim of expenses under the head “CSR” vis-à-vis deduction under section 80G of the Act, and no enquiry in this regard was made during the assessment proceedings. Accordingly, the learned PCIT held that for non- examination of this issue, the assessment order suffers from infirmity being erroneous and also prejudicial to the interest of the Revenue for allowing an ineligible claim of deduction of Rs. 4,77,000/- under section 80G of the Act.
Having considered the submissions of both sides and perused the material available on record, we find that the Co-ordinate Bench of the Tribunal in M/s. Industrial Solvents and Chemicals Pvt. Ltd. vs. PCIT, in for the assessment year 2020-21, vide order dated 26.08.2025, held that invocation of revisionary proceedings under section 263 of the Act on the issue of allowability of deduction under section 80G of the Act in respect of CSR expenditure is highly debatable in nature, and therefore, is outside the purview for the provisions of section 263 of the Act. The relevant findings of the Co-ordinate Bench, in the aforesaid decisions, are reproduced as follows: - “6. We have given a thoughtful consideration to the impugned order of the ld. PCIT. We are of the considered view that the issue raised by the ld. PCIT is a ./2025 (A.Y. 2020-21) 12 highly debatable issue as the Co-ordinate Benches of the Tribunal have taken a consistent view that CSR expenditure can be claimed as expenditure u/s 80G of the Act in the cases of Motilal Oswal Securities Ltd. (ITA No. 1795/Mum/2023, order dated 18.08.2023), Allegis Services India Pot. Ltd. (ITA No. 1693/Bang/2019), IMS Mining Put. Ltd. [130 taxmann.com 118 (Kolkata Trib.)] and Elan Pharma (India) Pot. Ltd. vs. PCIT in ITA No. 2419/Mum/2025. We find that the impugned issue is a highly debatable issue and such highly debatable issue cannot be subject matter of assumption of jurisdiction u/s 263 of the Act.
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 Co-ordinate 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.”
Respectfully following the aforesaid decision of the Co-ordinate Bench of the Tribunal, which in turn has followed the decision of the Hon’ble Bombay High Court in PCIT vs. Postal Gujarat Power Ltd., reported in (2019) 10 ./2025 (A.Y. 2020-21) 13 taxmann.com 458 (Bom), we are of the considered view that learned PCIT erred in initiating revisionary proceedings under section 263 of the Act on the issue of deduction claimed under section 80G of the Act in respect of CSR expenses. Accordingly, the impugned order passed by the learned PCIT under section 263 of the Act, limited to this issue, is quashed.
In the result, the appeal by the assessee is partly allowed in terms of our aforesaid decision. Order pronounced in the open Court on 10/09/2025