INFINERA INDIA PRIVATE LIMITED,BENGALURU vs. PRINCIPAL COMMISSIONER OF INCOME TAX, BENGALURU-3, BENGALURU

The Assessee has raised the following grounds of appeal:

Without prejudice to the above, the learned PCIT erred in law and on facts in holding that deduction under Section 80G of the Act is not allowable in respect of eligible donations forming part of CSR expenditure. 6. That the learned PCIT failed to appreciate that Explanation 2 to Section 37(1) of the Act merely disallows CSR expenditure as business expenditure and does not prohibit allowance of deduction under any other independent provision of the Act, including Section 80G of the Act, where the prescribed conditions are fulfilled. 7. That the learned PCIT erred in failing to appreciate that the Appellant had suo motu disallowed the entire CSR expenditure under Section 37(1) of the Act while computing income under the head “Profits and Gains of Business of Profession”, and therefore denial of deduction under Section 80G of the Act would result in unintended double disallowance contrary to the scheme of the Act. 8. That the learned PCIT erred in disregarding the binding/persuasive jurisdictional judicial precedents, including the decision of the Hon’ble ITAT in the Appellant’s own case for AY 2015-16 in Infinera India Private Limited vs JCIT [2022] 137 taxmann.com 197 (Bangalore ITAT) and other judicial authorities, which support the allowability of deduction under Section 80G of the Act in respect of eligible CSR donations. Appellant submits that each of the above grounds are independent and without prejudice to one another. Appellant craves leave to add, alter, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing the appeal, so as to enable to Honourable Tribunal to decide on the appeal in accordance with the law.

Briefly stated, the Assessee is a company engaged in providing software development and related services, including hardware design and implementation. It filed its return of income for the relevant assessment year on 13 February 2021 and revised it on 15 December 2021, declaring a total income of ₹56,22,42,480. Thereafter, notices were issued to the Assessee, and the assessment proceedings culminated in an order dated 13 September 2023, passed under section 143(3) read with sections 144C(13) and 144B of the Income-tax Act, determining the total income at ₹57,06,45,948. The sole adjustment was the disallowance of the deduction claimed by the Assessee in respect of education cess. 04. Upon examining the records, the Principal Commissioner of Income Tax noted that the Assessee’s claim for a deduction of ₹46,00,000 under section 80G of the Act had been allowed in the assessment order. Although the Assessee had not debited the donation to its profit and loss account, it had incurred ₹87,60,000 in corporate social responsibility expenditure and claimed a deduction under section 80G in respect of that expenditure. Relying on CBDT Circular No. 1 of 2015, the Principal Commissioner held that the deduction claimed under section 80G in respect of CSR expenditure was inadmissible. Accordingly, the assessment order dated 13 September 2023, passed under section 143(3) read with sections 144C(13) and 144B of the Act for the relevant assessment year, was considered erroneous and prejudicial to the interests of the Revenue. A notice under section 263 of the Act was therefore issued to the Assessee on 5 March 2026. 05. In response to the notice, the Assessee filed detailed submissions objecting to the initiation of revisionary proceedings under section 263 of the Act. It contended that the exercise of revisionary jurisdiction was unwarranted because the twin conditions prescribed under section 263—namely, that the assessment order must be both erroneous and prejudicial to the interests of the Revenue—were not satisfied. Relying on the decision of the Hon’ble Supreme Court in Malabar Industrial Co. Ltd. v. CIT, the Assessee submitted that the Principal Commissioner could not revise the assessment order unless both conditions were fulfilled. It further stated that the Assessing Officer had examined the claim for deduction under section 80G during the assessment proceedings after calling for the relevant details and had adopted a plausible view. As divergent judicial views existed on the allowability of deduction under section 80G in respect of CSR expenditure, the view taken by the Assessing Officer was a permissible view in law and could not be revised under section 263 merely because the Principal Commissioner held a different opinion. The Assessee also submitted that the deduction claimed under section 80G was not prohibited by law and, accordingly, requested that the revisionary proceedings be dropped. 06. The learned PCIT observed that the issue was whether a deduction under section 80G could be allowed in respect of expenditure incurred towards CSR obligations. Referring to Explanation 2 to section 37(1), inserted by the Finance (No. 2) Act, 2014, and to CBDT Circular No. 1 of 2015, he noted that CSR expenditure is treated as an application of income and is not allowable as a deduction in computing taxable income. He therefore held that the Assessing Officer had failed to examine the allowability of the deduction claimed under section 80G. Accordingly, by order dated 23 March 2026, the learned PCIT directed the Assessing Officer to reassess on this issue after affording the Assessee an opportunity of being heard. 07. Aggrieved by the order, the Assessee is in appeal before us. The learned Authorised Representative submitted that the assessment order was neither erroneous nor prejudicial to the interests of the Revenue. He further contended that the Act does not bar the Assessee from claiming a deduction under section 80G in respect of eligible CSR contributions, except contributions to specifically excluded funds. As the Assessee had not claimed any deduction for contributions to such excluded funds, including the Clean Ganga Fund, the claim was allowable under section 80G. Relying on several judicial precedents, he submitted that Explanation 2 to section 37(1) does not preclude an Assessee from claiming a deduction under section 80G, particularly when the CSR expenditure has not been claimed as a business deduction under section 37(1). He therefore contended that the learned PCIT’s order was without basis and liable to be quashed. In any event, there were divergent views on whether CSR expenditure was eligible for deduction under section 80G. Since the Assessing Officer had adopted one of the possible views, revisionary jurisdiction under section 263 could not be invoked. Accordingly, he prayed that the order passed by the learned PCIT under section 263 be set aside. 08. The learned Commissioner of Income Tax–Departmental Representative supported the order of the learned PCIT. He submitted that the Assessee’s claim for deduction under section 80G of the Act was barred by section 37(1) of the Act and the circular issued by the Central Board of Direct Taxes. He further contended that the Assessing Officer’s failure to follow the binding circular constituted an error that rendered the assessment order erroneous and prejudicial to the interests of the Revenue. Accordingly, he submitted that the learned PCIT was justified in directing the Assessing Officer to re-assess on this issue after proper examination. 09. We have carefully considered the rival submissions and reviewed the orders of the lower authorities. The Assessee claimed a deduction of ₹46,00,000 under section 80G of the Income-tax Act in respect of donations forming part of its CSR expenditure. The learned PCIT invoked section 263 on the ground that such a deduction was inadmissible where the donations constituted CSR expenditure, relying on section 37(1) and CBDT Circular No. 1 of 2015. 10. It is undisputed that donations qualifying under section 80G are deductible even when they form part of the Assessee’s CSR expenditure. Section 80G does not prohibit such a deduction, provided the prescribed conditions are met. A careful reading of section 80G shows that the Act contains no bar to allowing a deduction under Chapter VI-A for eligible donations made towards CSR activities under section 135 of the Companies Act, 2013. Although CSR expenditure is not allowable as business expenditure under section 37(1), that restriction does not preclude a deduction under section 80G. Since the donations satisfied the conditions prescribed under section 80G, the Assessing Officer committed no error in allowing the deduction of ₹46,00,000. The assessment order was therefore not amenable to revision under section 263 of the Act. 11. Even otherwise, Explanation 2 to section 37(1) merely disallows CSR expenditure when computing income under the head “Profits and gains of business or profession.” It does not restrict deductions under Chapter VI-A of the Act. Had the Legislature intended to deny deductions under Chapter VI-A in respect of CSR expenditure incurred by an assessee-company, it would have inserted an express restriction in the relevant provision. We find no such restriction in the Act. 12. As to the eligibility of CSR expenditure for deduction under section 80G, there are divergent views among various benches of the Tribunal. The Bangalore Bench of the Tribunal in FNF India (P.) Ltd v. Asstt. CIT [2021] 133 taxmann.com 251, and the Kolkata Bench in JMS Mining (P.) Ltd v. Pr. CIT [2021] 130 taxmann.com 118/190 ITD 702 (Kol - Trib.), have held that CSR expenditure is allowable for deduction under section 80G. The Principal Commissioner in the impugned order has also referred to two decisions of the Mumbai Bench of the Tribunal, namely Blue Cross Laboratories (P) Ltd v. Pr. CIT [IT Appeal No. 1806 (MUM) of 2023, dated 30-8-2023] and Worley Services India (P) Ltd v. Pr. CIT [IT Appeal No. 554 (MUM) of 2024, dated 3-6-2024], in which CSR expenditure has been allowed under section 80G. Conversely, the Delhi Bench in Agilent Technologies (International) (P.) Ltd v. ACIT/NFAC, Delhi [2024] 160 taxmann.com 238/ 205 ITD 551 (Delhi - Trib.) has taken a contrary view and disallowed such a claim. In the face of such conflicting judicial precedents, the legal position that emerges is that two views are reasonably possible on the issue. It is trite law that where the Assessing Officer adopts one such plausible view, the mere fact that the Commissioner prefers an alternative view does not render the assessment erroneous. In this context, reference may be made to the decision of the Hon'ble Supreme Court in CIT (Central) v. Max India Ltd. [2008] 166 Taxman 188/[2007] 295 ITR 282, wherein it is laid down that where two views are reasonably possible on a particular issue, and the Assessing Officer has taken one such view, the mere preference of the Commissioner for an alternative interpretation does not justify the invocation of revisionary jurisdiction under section 263 of the Act. 13. Thus, the principles governing the exercise of revisionary jurisdiction under section 263 are well settled by the decision of the Hon’ble Supreme Court in Malabar Industrial Co. Ltd. v. CIT [2000] 109 Taxman 66/243 ITR 83 (SC). For jurisdiction under section 263 to be validly exercised, the assessment order must be both erroneous and prejudicial to the interests of the Revenue; unless both conditions are met, revisionary jurisdiction cannot be invoked. In the present case, the Assessing Officer committed no error in allowing the deduction under section 80G for eligible donations forming part of the Assessee’s CSR expenditure, as such donations are not expressly prohibited by that provision. The assessment order was therefore not erroneous, and the learned PCIT could not exercise jurisdiction under section 263 of the Act. 14. In Jashan Jewels (P.) Ltd. vs. Principal Commissioner of Income-tax [2025] 176 taxmann.com 749 (Mumbai - Trib.)/[2025] 214 ITD 112 (Mumbai - Trib.)[17-07- 2025], the Commissioner invoked revisionary jurisdiction under section 263 on the ground that expenditure incurred towards the assessee's CSR activities could not be allowed as a deduction under section 80G, since there was no material to show that the Assessing Officer failed to apply his mind. The order passed by the Assessing Officer could not be characterised as erroneous or prejudicial to the interests of the revenue. A similar view was also taken in Jeevandeep Edumedia (P.) Ltd. vs. Principal Commissioner of Income-tax [2025] 176 taxmann.com 750 (Mumbai - Trib.)[17-07-2025]. 15. Accordingly, we quash the order passed by the learned PCIT under section 263 of the Act and allow the assessee's appeal.