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Facts
The assessee filed its return of income, which was selected for scrutiny. The Assessing Officer (AO) framed the assessment. The Principal Commissioner of Income Tax (PCIT) initiated proceedings under section 263, holding that the AO erroneously allowed a deduction under section 80G for CSR expenses, as these are mandatory and not voluntary. The assessee argued that the AO had made proper enquiries.
Held
The Tribunal held that the AO had made necessary enquiries regarding the CSR expenditure for deduction under section 80G. It noted that there were divergent views on the issue and the AO had adopted a plausible view. Therefore, the PCIT's revisionary order under section 263 was not justified as the assessment order was neither erroneous nor prejudicial to the interest of the revenue.
Key Issues
Whether the revisional proceedings under Section 263 initiated by the PCIT are valid when the Assessing Officer has made enquiries and adopted a plausible view regarding the allowability of CSR expenses as deduction under Section 80G?
Sections Cited
263, 80G, 143(3), 144B, 135, 37(1), 143(2), 142(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “F” MUMBAI
Before: SHRI OM PRAKASH KANT & MS. KAVITHA RAJAGOPAL
This appeal by the assessee is directed against revisional order dated 18.03.2025 passed by the Ld. Principal Commissioner of Income-tax, Mumbai-4 [in short ‘the Ld. PCIT’] for assessment year 2020-21, raising following grounds:-
“1. The learned Principal CIT has erred in law and on the facts of order the case in passing an u/s. 263 of the Income Tax Act holding that the assessment order is erroneous and prejudicial to the interest of revenue for allowing ineligible claim of deduction of Rs. 64,43,500/- u/s. 80G of the Income Tax Act.
The assessee craves leave to add, alter or amend the above ground of appeal.”
2. Briefly stated, the facts of the case are that the assessee filed its return of income for the year under consideration on 03.02.2021 declaring a total income of Rs. 26,77,29,270/-. The said return was selected for scrutiny assessment and, in pursuance thereof, statutory notices under the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) were issued and duly complied with. Upon consideration of the submissions furnished by the assessee, the learned Assessing Officer accepted the returned income and framed the assessment under section 143(3) read with section 144B of the Act vide order dated 08.09.2022.
2.1 Subsequently, the learned Principal Commissioner of Income Tax (PCIT), upon examination of the assessment records, was of the prima facie view that the Assessing Officer had erroneously allowed the assessee’s claim of deduction under section 80G of the Act amounting to Rs. 64,43,500/-, being part of the Corporate Social Responsibility (CSR) expenditure aggregating to Rs. 1,19,09,024/-. The learned PCIT observed that expenditure incurred on CSR activities, being not purely voluntary in nature, does not qualify for deduction under section 80G of the Act. He was therefore of the opinion that the assessment order passed by the Assessing Officer suffered from infirmity and was consequently erroneous in so far as it was prejudicial to the interests of the Revenue. Accordingly, a notice under section 263 of the Act dated 03.03.2025 was issued.
2.2 After considering the reply filed by the assessee, the learned PCIT held that, firstly, the Assessing Officer had failed to conduct requisite enquiry on the allowability of CSR expenditure vis-à-vis deduction under section 80G of the Act; and secondly, that in view of the mandatory nature of CSR obligations, such expenditure could not be regarded as voluntary so as to fall within the ambit of section 80G. The learned PCIT thus concluded that the omission on the part of the Assessing Officer constituted an error of law rendering the assessment order erroneous and prejudicial to the interest of the Revenue. The relevant finding of the ld. PCIT is reproduced as under:
“4.1 After going through the findings in the assessment order, the issue raised in the audit objection and reply of the assessee in response to show cause notice u/s 263 of the Act, following facts are noted: 4.2 The assessment order was passed on 08/09/2022 and it was observed by the audit that Section 80G deduction claimed to the tune of Rs.64,43,500/- was not allowable in view of the fact that the the assessee had claimed CSR expenses of Rs.119,09,024/-and out of the same expenses under CSR heads, Rs.64,43,500/- was claimed as deduction u/s 80G of the Act. In the assessment order, the AO has not mentioned about any enquiry conducted on the issue of claim of CSR expenses vis-a-vis deduction u/s. 80G of the Act. 4.3 It is an undisputed fact that the CSR expenses are mandatory in nature and being incurred by virtue of compliance to Section135 of companies Act 2013 read with Schedule VII of this companies Rules, 2014. Explanation 2 to Section 37 of the Income Tax mandates that CSR expenses shall not be allowed as business expenditure. It is also an undisputed fact that the donation u/s 80G have to be voluntary donations and this has been upheld by Hon'ble Apex Court in 1 SCR 1017G (1967)in the case of Commissioner of Expenditure Tax vs PVG Raju, Rajah of Vizianagaram. "Thus, the CSR expenses as statutory obligation will fail the test of voluntariness so as to be eligible for deduction u/s. 80G of the Act. Furthermore, the assessee cannot get benefit of compliance to the provisions of the Companies Act on one hand and at the same time claim those expenses as deduction u/s80 G of the Act. This amounts to circumventing the provision of Explanation 2 to S.37(1) of the Act. CSR expenses are akin to application of income out of net profits available to the assessee whereas s.80G deductions are payouts above the bottom line(net profits). 4.4 The assessee has referred to various decisions on the issue in its support and argued that Section 80G only excludes the donation to Swachh Bharat Kosh and Clean Ganga Fund were not deductible under section 80G For the sake of convenience, Section80G(2)(iiihk)and (iiihl) is reproduced hereunder: ".... Deduction in respect of donations to certain funds, charitable institutions, etc 80G. (1) In computing the total income of an assessee, there shall be deducted, in accordance with and subject to the provisions of this section, - ……. (2) The sums referred to in sub-section (1) shall be the following, namely:- (a) any sums paid by the assessee in the previous year as donations to - ……. (iiihk) the Swachh Bharat Kosh, set up by the Central Government, other than the sum spent by the assessee in pursuance of Corporate Social Responsibility under sub-section (5) of section 135 of the Companies Act, 2013 (18 of 2013); or (iiihl) the Clean Ganga Fund, set up by the Central Government, where such assessee is a resident and such sum is other than the sum spent by the assessee in pursuance of Corporate Social Responsibility under sub- section (5) of section 135 of the Companies Act, 2013 (18 of 2013); or …….” 4.5 The above provisions mandates that for the amount spent over and above CSR expenses made under Swachh Bharat Kosh and Clean Ganga Fund, the assessee can claim deduction under Section 80G(2)(iiihk) & (iiihl). Thus, eventhough assessee has incurred CSR expenses under these two funds, the amount over and above the amount claimed under CSR will be eligible for deduction u/s. 80G of the Act. This is an enabling provision to allow more funds flow in Swachh Bharat Kosh and Clean Ganga Fund and this provision cannot be interpreted to mean that all other heads of deductions u/s. 80G can be claimed even though they are spent under CSR liability. This issue is still not settled by higher judicial authority like Supreme Court and High Courts. 4.6 The assessee has also enclosed the decision of Hon'ble ITAT 'F' Bench Mumbai dated 24.07.2023 in in assessee's own case for A.Y. 2018-19 on challenging the validity of order u/s. 263 of the Act. Para 5 of the said order is reproduced hereunder: "...5. Heard both the sides and perused the material on record. On perusal of the computation of total income filed by the assessee in the paper book it is noticed that assessee has claimed deduction u/s 80G in respect of donations given as per the detail mentioned in the note to the computation income to the amount of Rs. 18,83,000/-. We could not find any material on record to demonstrate that during the course of assessment proceedings the AO has examined the claim of deduction made as per provision of section 80G of the Act. Therefore, we restore this issue to the limited extent of verification of conditions for allowability of deduction in accordance with the provision of Section 80G of the Act to the file of the assessing officer. Therefore, the appeal of the assessee is partly allowed for statistical purposes..." The assessee contended that on the ground of Section 80G claim, Section 263 order of A.Y. 2018-19 was set aside by the Hon'ble Bench and therefore, current Section 263 proceedings should be dropped. As is apparent from the above order, the case was restored to the AO for verification, the order u/s. 263 was not at all set aside. 4.7 In the current case, it is important to note from the assessment order that the A.O has, nowhere in the assessment order, mentioned or discussed anything about the claim of expenses under CSR head vis-à-vis donations u/s. 80G. The appellant has referred to various court decisions to support its contention that there cannot be revision u/s 263 of the Act once the A.O has taken conscious decision after proper enquiry and no error in the assessment order can be pointed out. On this contention, I must reiterate that S. 263 can be resorted to in the case of incorrect assumption of facts as well as incorrect interpretation of law. In the current case, there is no query regards CSR expenses eligible for s.80G of the Act and hence, there is incorrect assumption of facts as regards CSR expenses eligible for S.80G deductions. Further, incorrect assumption of facts led to incorrect application of law. Therefore, revisionary power u/s 263 lies with the PCIT in the current facts of the case. 4.8 In common parlance, donations are made without any expectation of reciprocal return or benefits in lieu of the same whereas the expenses made under CSR head are for the benefits in the form of mandatory compliance as per section 135 of the Companies Act. Thus, voluntariness is lacking in the expenses made under CSR head. In the decision by Supreme Court in the case of Commissioner of Expenditure Tax vs. PVG Raju Raja of Vizianagaram (supra), the Hon'ble Apex Court held that for any payment to constitute as donation, it must satisfy the test of voluntariness. The assessee, in the current case incurred expenses under CSR head as part of mandatory compliance of the provisions of Companies Act and this certainly lacked voluntariness character. Thus, it is apparent that the A.O had no occasion to examine the issue of CSR expenses vs. section 80G donations and to this extent, it can be held that the assessment order suffers from infirmity being erroneous and also prejudicial to the interest of revenue for allowing ineligible claim of deduction of Rs.64,43,500/- u/s. 80G of the Act. Hence, the assessment order dated 08/09/2022 is hereby partly set aside to the file of the AO to enquire the claim of Section 80G deduction out of CSR expenses and modify the assessment order as per findings in this order.”
We have heard the rival submissions advanced by the learned counsel for the parties and have carefully perused the record. The learned counsel for the assessee has reiterated the submissions earlier placed before the Principal Commissioner of Income-tax (PCIT). He has pointed out that the Assessing Officer, in the course of scrutiny, had issued a notice under section 143(2) of the Act dated 29.06.2021 calling for details with respect to the deduction claimed under Chapter VIA of the Act, whereupon the assessee, vide response dated 05.07.2021, furnished complete particulars of donations made. Thereafter, the Assessing Officer, by notice issued under section 142(1) of the Act dated 24.11.2021, specifically enquired into the claim of deduction under section 80G of the Act. In response, the assessee furnished detailed explanations together with supporting evidence, including justification regarding the eligibility of the Corporate Social Responsibility (CSR) expenditure for deduction under section 80G of the Act. It was, therefore, submitted that the enquiry required in law had, in fact, been conducted by the Assessing Officer and, accordingly, the Explanation appended below section 263 of the Act could not have been invoked in the present case. The PCIT, however, proceeded on the premise that no enquiry had been undertaken on the specific issue of CSR expenditure vis-à-vis deduction under section 80G of the Act.
4.1 On the substantive issue of eligibility of CSR expenditure for deduction under section 80G of the Act, it is evident that divergent views have been expressed by various benches of the Income Tax Appellate Tribunal. The Bangalore Bench of the Tribunal in FNF India Private Limited v. ACIT [(2021) 85 ITR (T) 18 (Bang.)] and the Kolkata Bench in JMS Mining Private Limited v. PCIT [(2021) 136 taxmann.com 118 (Kol-Trib.)] have upheld the admissibility of such deduction. Conversely, the Delhi Bench of the Tribunal in Agilent Technologies (International) Pvt. Ltd. v. ACIT [2024] 160 taxmann.com 238 (Del. Trib.) has taken a contrary view and disallowed the claim. Particular significance attaches to the decision of the Kolkata Bench in JMS Mining Private Limited v. PCIT (supra), which arose in the context of revisional proceedings under section 263 of the Act. In that case, the Tribunal held that the Assessing Officer’s decision to allow deduction under section 80G in respect of CSR expenditure constituted a plausible and legally sustainable view, and consequently, the revisional order passed under section 263 of the Act was quashed.
4.2 In the present case also, having regard to the existence of divergent judicial opinion and the fact that the Assessing Officer adopted one such plausible view, it cannot be said that the assessment order suffered from an error which was prejudicial to the interests of the Revenue. In this connection, reference may usefully be made to the decision of Hon’ble Supreme Court in CIT v. Max India Limited [2007] 295 ITR 282 (SC), wherein it was held that when two views are reasonably possible on a question of law and the Assessing Officer has adopted one such view, the mere preference of the Commissioner for another view does not justify invocation of revisional jurisdiction under section 263 of the Act.
4.3 In view of the foregoing discussion, we are of the considered opinion that the assessment order passed by the Assessing Officer does not fall within the ambit of section 263 of the Act. Consequently, the impugned order passed by the PCIT is unsustainable in law and is hereby set aside.
The relevant grounds of the appeal of the assessee are accordingly allowed 6. In the result, appeal of the assessee stands allowed.
Order pronounced in the open Court on 25/08/2025.