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Facts
The assessee claimed deduction under Section 80G for donations made as CSR expenditure. The PCIT invoked Section 263, holding that the AO's order allowing this deduction was erroneous and prejudicial to the revenue's interest, as CSR expenditure is mandatory and not voluntary. The assessee appealed this.
Held
The Tribunal held that the AO had duly examined the claim and that there were two plausible legal views on the issue. Since the AO adopted a plausible view, the PCIT's invocation of Section 263 was not justified. The deduction under Section 80G for CSR expenditure was allowed.
Key Issues
Whether the PCIT was justified in invoking Section 263 of the Income Tax Act to revise the AO's order allowing deduction under Section 80G for CSR expenditure, and whether such deduction is allowable.
Sections Cited
263, 142(1), 37(1), 80G, 135, 143(3), 144B
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “D” BENCH MUMBAI
Before: HON’BLE SHRI SANDEEP GOSAIN & HON’BLE SHRI GIRISH AGRAWAL
Date of Hearing 15.07.2025 Date of Pronouncement 06.08.2025 आदेश / ORDER
PER SANDEEP GOSAIN, JM:
1. The present appeal has been filed by the assessee challenging the impugned order dt. 13.03.2025 passed u/s 263 of the Income Tax Act, 1961 (‘the Act’), by the Principal Commissioner of Income Tax, Mumbai -3 for the assessment year 2020-21.
Ground No. 1 to 5 raised by the assessee are interrelated and interconnected and relates to challenging the order of PCIT in invoking jurisdiction u/s 263 of the Act. Therefore, we have decided to adjudicate these grounds through the present consolidated order.
We have heard the counsels for both the parties, perused the material placed on record, judgements cited before us and the orders passed by the revenue authorities. From the records we noticed that assessee had debited an amount of Rs.26,00,000/- on account of CSR expenditure and added the same to the total income in its computation of income as the same was not allowable u/s 37(1) of the Act. However, the assessee had 50% i.e Rs. 13,00,000/- of the CSR Expenditure claimed as deduction u/s 80G of the Act. However, according to Ld. PCIT the AO had allowed assessee’s claim of deduction u/s 80G of the Act and has failed to examine the issue of allowability of deduction u/s 80G on the donation made out of CSR expenditure, thus invoking the jurisdiction u/s 263 of the Act.
Whereas, Ld. AR while placing reliance upon the order passed by the AO submitted that the issue in question was looked into in detail and in this regard placed on record the copy of notice issued u/s 142(1) of the Act along with questionnaire dated 07.03.2022 the same is at paper book page No. 27 to 28 and the query raised by the AO u/s 142(1) of the Act are reproduced herein below:
The assessee has also filed detailed submissions before AO dated 11.03.2022 along with annexure and the same is at paper book page No. 29 to 35 and the same is reproduced herein below:
6. We further noticed that the copy of computation of income, ITR acknowledge and audited financial statements of the assessee for the year under consideration were also placed on record and submitted before AO which are at paper book page No. 1 to 26 and in this way it is quite apparent from record that the detailed enquires with regard to the issue in question were carried out by the AO during the course of assessment which were duly replied along with all the supportive documents by the assessee. Thus in our view under these circumstances provisions of Sec. 263 of the Act could not have been invoked by the Ld. PCIT.
7. The assessee has also relied upon the decision of the Coordinate Bench in the case of Siddharth Colorchem Pvt Ltd. Vs. DCIT in wherein the operative portion is reproduced herein below:
Before us, the learned counsel appearing on behalf of the assessee submitted that the Assessing Officer had duly examined and verified the assessee’s claim for deduction under Section 80G of the Act. In support of such submission, he invited our attention to the query raised by the Assessing Officer vide notice issued under Section 142(1) of the Act dated 07.12.2021, which is placed at pages 19–20 of the Paper Book. In the said notice, the Assessing Officer specifically called upon the assessee to furnish the source of payment and the exemption certificate pertaining to the donation made. In response thereto, the assessee, by way of its letter dated 17.01.2022, a copy of which is found at pages 23–28 of the Paper Book, submitted that a donation of ₹30,00,000/- had been made to the ‘B. L. Singhania Foundation’. Along with this, the assessee furnished a copy of the relevant bank statement evidencing the payment, as well as a valid certificate under Section 80G issued in favour of the assessee. The bank statement evidencing the said transaction is available at page 29 and the 80G certificate at page 30 of the Paper Book. Based on the aforesaid, it was contended that the Assessing Officer had duly applied his mind to the issue and conducted inquiries before accepting the claim. It was, therefore, not a case of lack of inquiry or non-application of mind, which alone could justify the exercise of revisionary jurisdiction under Section 263 of the Act. In further support, the learned counsel placed reliance on the decision of the Co-ordinate Bench of the Kolkata Tribunal in the case of JMS Mining (P.) Ltd. v. PCIT [2021] 130 taxmann.com 118 (Kolkata-Trib.). It was submitted that in the said case also, the assessee had claimed deduction under Section 80G in respect of donations forming part of CSR expenditure. The Tribunal, after examining the statutory framework, particularly the proviso to Section 80G(2), noted that while donations to funds such as the Swachh Bharat Kosh and the Clean Ganga Fund are expressly excluded for CSR deductibility under Section 80G, no such restriction applies to other qualifying donations and section 263 invoked was accordingly setaside. The learned counsel further submitted that the Ld. PCIT himself had acknowledged the existence of a view taken by Co-ordinate Benches of the Tribunal favouring the allowability of such deduction, and that the Department’s challenge to the same is presently pending before the jurisdictional High Court. Thus, it was argued that the view adopted by the Assessing Officer was a plausible and sustainable one in law, and merely because the Ld. PCIT held a different legal opinion, he could not invoke Section 263 to supplant the original view with his own interpretation.
5.1 In rebuttal, the learned Departmental Representative placed reliance on the decision of the Delhi Tribunal in Agilent Technologies (International) (P.) Ltd. v. ACIT [(2024) 160 taxmann.com 238 (Delhi-Trib.)], wherein it was held that CSR expenditure, being specifically disallowed under Section 37(1) of the Act, cannot be simultaneously claimed under Section 80G. According to the Revenue, such a statutory bar operates uniformly and, therefore, any allowance of deduction under Section 80G in respect of CSR expenditure would be contrary to law.
We have heard the rival submissions advanced by the parties and carefully perused the material placed on record. The Ld. PCIT has exercised revisionary jurisdiction under Section 263 of the Act and held that the assessment order passed by the Assessing Officer was erroneous in so far as it was prejudicial to the interest of the Revenue. The basis of such finding was that the Assessing Officer had allegedly failed to conduct any inquiry before allowing the assessee’s claim of deduction under Section 80G of the Act, in respect of the amount forming part of Corporate Social Responsibility (CSR) expenditure, which had otherwise been disallowed under Section 37(1) of the Act. Before us, the learned counsel for the assessee has drawn attention to the inquiries conducted by the Assessing Officer through the issuance of notice under Section 142(1) of the Act and to the specific replies furnished by the assessee substantiating its claim. It is evident from the record that the assessee had furnished details regarding the donation, including the name of the recipient trust, the source of payment, the bank statement evidencing the said payment, and a valid certificate of eligibility under Section 80G of the Act. Upon a cumulative appraisal of the record, we are of the considered view that the Assessing Officer had duly examined the requisite conditions under Section 80G of the Act before allowing the deduction. This is, therefore, not a case where no inquiry was conducted or where the inquiry was perfunctory. Rather, the material placed before the Assessing Officer was considered, and a conscious view was taken on the issue.
6.1 Further, it is not in dispute that divergent judicial views existed at the relevant time. The Ld. PCIT himself has taken note of decisions of Co-ordinate Benches of the Tribunal wherein deduction under Section 80G was allowed in respect of donations forming part of CSR expenditure. The assessee has also placed reliance on the judgment of the Kolkata Bench of the Tribunal in JMS Mining (P.) Ltd., while the Revenue has referred to the contrary view adopted in Agilent Technologies (International) (P.) Ltd. by the Delhi Bench.
6.2 In view of the existence of two plausible legal views on the issue, it is trite law that where the Assessing Officer has adopted one of the possible views—one which is neither perverse nor contrary to law—the exercise of revisionary jurisdiction under Section 263 of the Act is not warranted. The view adopted by the Assessing Officer cannot be regarded as unsustainable in law merely because another authority holds a different opinion. Further, in CIT v. Max India Ltd. [(2007) 295 ITR 282 (SC)], it is held that where two views are possible and the Assessing Officer has adopted one of them, the revisional jurisdiction cannot be exercised merely because the Commissioner prefers the other view.
6.3 Accordingly, we are of the view that the assessment order in question cannot be held to be erroneous and prejudicial to the interest of the Revenue so as to justify interference under Section 263 of the Act. The impugned order passed by the Ld. PCIT is, therefore, not sustainable in law and is hereby set aside.
6.4 The grounds raised by the assessee are allowed.
The appeal of the assessee is accordingly allowed.
Whereas on the contrary, Ld. DR appearing on behalf of the revenue, while relying upon the orders passed by Ld. PCIT u/s 263 of the Act submitted that the order passed u/s. 143(3) r.w.s 144B of the Act dated 08.09.2022 is erroneous as the AO has not made enquiries into the issue of claim of deduction u/s 80G of the Act in respect of expenditure incurred on CSR. The assessing officer has not examined the issue of allowability of deduction claimed u/s. 80G of the Act, when where the donations are made out of CSR expenditure. The AO has not specifically enquired into the allowability of the claim of the deduction U/S.80G of the Act, therefore, there is lack of enquiry on this specific claim of the assessee. It is observed that the AO has passed the order u/s. 143(3) r.w.s 144B of the Act on incorrect assumption of fact and law that the deduction u/s.80G of the Act is correctly claimed by the assessee. Therefore, the order passed u/s. 143(3) r.w.s 144B of the Act dated 08.09.2022is erroneous to that extent.
It was further submitted that in none of the assessee's submission before the assessing officer also, the assessee argued that the donations being part of CSR expenditure are still eligible for deduction u/s 80G. However, the assessing officer's failure to consider this issue despite it being in contravention of the provisions of the Act in view of the Explanation 2 to section 37(1) read with Explanatory notes to the Finance Bill 2014, caused erroneous allowance of deduction u/s 80G and made the order prejudicial to the interests of revenue.
It was also submitted that, on the same issue, the Department has preferred appeals before the Hon'ble High Court against the orders of the Hon'ble ITAT. In some of the cases where the Department has preferred appeals before the Hon'ble High Court are enumerated as below:
Sr. Name of the Pan ITAT Order High Court No case lodging No 1. Blue Cross AAACB1549G 1806/M/23 ITXAL/30782/ Laboratories 2024 Pvt Ltd 2 Worley AAACH0456J 554/Mum/2024 ITXAL/4392 / Services 2025 Industries Pvt Ltd
Thus it was requested to dismiss the appeal filed by the assessee.
We have heard the counsels of both the parties, perused the material placed on record, Judgements cited before us and also orders passed by Revenue Authorities. From the record, we noticed that as per the facts of the present case the assessee is a company engaged in the business of broking, distribution of financial products etc. During the year under consideration, the assessee had made donation to charitable Trust amounting to Rs. 26,00,000/- and had claimed deduction under section 80G of the Act. Although the assessee had classified the amount of donation as “Corporate Social Responsibility” (CSR) expenses under section 135 of the Companies Act, 2013 in his books of account and suo moto disallowed the same in computation of income in accordance Explanation 2 of section 37 of the Act. However, in his return of income, the assessee claimed deduction under section 80G of the Act. The said claim was duly disclosed in the computation of income and tax audit report, which was examined and allowed by the Ld. AO while passing the order of assessment under section 143(3) of the Act dated 24.9.2022.
Later on, Ld. PCIT invoked revision jurisdiction under section 263 of the Act and passed the impugned order by holding that deduction under section 80G of the Act was erroneously allowed, since donation was in nature of CSR expenditure which is not voluntary in nature and thus not eligible for deduction. It was further held that the issue of section 80G/CSR was not discussed in the assessment order and hence assessment order is erroneous in so far as it is prejudicial to the interest of the Revenue.” Now, the question for determination before us is as to whether deduction claimed under section 80G of the Act is eligible in respect of donation classified as “Corporate Social Responsibility (CSR) and as to whether conditions for invoking section 263 of the Act are satisfied or not.
First for all, we take up the first issue/question and after hearing the parties at length on this issue, we noticed that Ld. PCIT has held that since CSR expenditure is mandatory therefore the same cannot constitute a donation, which is voluntary and hence not eligible for deduction under section 80G of the Act. Whereas it is an undisputed fact that donation made by the assessee are to entities registered under section 80G and that the assessee is otherwise eligible to claim deduction under section 80G of the Act.
We noticed that though section 135 of the Companies Act, 2013 mandates the quantum of CSR expenses, it does not mandate to whom and how the amount to be spent and the Appellant at its discretion can choose the mode of spending towards CSR. The donations made by the assessee charitable trust are made voluntarily as there is no reciprocal commitment from the donees. In any case, section 80G of the Act does not put any condition for the donation to be voluntary in nature for the purpose of claiming deduction. CBDT, vide Circular No. 1/2015 dated 21st January 2015 which contains the Explanatory Notes provisions of the Finance (No. 2) Act, 2014, has stated that expenditure incurred which is eligible for CSR and allowable under other sections, shall be allowed as a deduction while computing income. The relevant extract of CBDT Circular is reproduced as under:
"13.3 The provisions of section 37(1) of the Income-tax Act provide that deduction for any expenditure, which is not mentioned specifically in section 30 to section 36 of the Income- tax Act, shall be allowed if the same is incurred wholly and exclusively for the purposes of carrying on business or profession. As the CSR expenditure (being an application of income) is not incurred for the purposes of carrying on business, such expenditures cannot be allowed under the provisions of section 37 of the Income-tax Act. Therefore, in order to provide certainty on this issue, said section 37 has been amended to clarify that for the purposes of sub-section (1) of section 37 any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to have been incurred for the purpose of business and hence shall not be allowed as deduction under said section 37. However, the CSR expenditure which is of the nature described in section 30 to section 36 of the Income-tax Act shall be allowed as deduction under those sections subject to fulfillment of conditions, if any, specified therein."
The CBDT Circular clearly states that the restriction on claiming deduction of CSR expense is only with respect to Section 37(1) of the Act wherein it will not be deemed to be a business expenditure for the purpose computing income under the head 'Profits and Gains from Business or Profession'. The Circular itself clarifies that CSR expenditure will be allowable under other sections under the same head of income. In view of CBDT Circular, it is clear that there is no express bar in claiming deduction in respect of CSR expenditure, other than under Section 37(1) of the Act. The Ministry of Corporate Affairs ("MCA") has issued Frequently Asked Questions ("FAQ") through General Circular No. 01/2016 dated January 12, 2016 (FAQ No. 6) has clarified on the issue as follows:
"Question No. 6: What tax benefits can be availed under CSR? Answer: No specific tax exemptions have been extended to CSR expenditure per se. The Finance Act, 2014 also clarifies that expenditure on CSR does not form part of business expenditure. What no specific tax exemptions have been extended to expenditure incurred on CSR, spending on several activities like Prime Minister's Relief Fund, scientific research, rural development projects, skill development projects, agriculture extension projects etc, which find place in Schedule VII, already enjoys exemptions under different sections of the Income-tax Act, 1961."
This clarification being issued by the Ministry of Corporate Affairs, Government of India also confirms that donation covered under CSR Expenses are eligible for the deduction under section 80G of the Income-tax Act, 1961. Moreover, reliance is placed on the decision of the Coordinate Bench of the ITAT, Mumbai Bench in the case of ACIT v. Sharda Cropchem Limited (ITA No. 6163/Mum/2024) wherein it was held that donations which are classified as CSR expenditure are eligible for deduction under Section 80G of the Act. The relevant extract of the order is reproduced as under:
"9. We have carefully perused relevant provisions of the Act and legal position emerging from the cited decision (supra).The CSR expenses which are required to be mandatorily incurred by the assessee-company as per section 135 of the Companies Act are not entitled to deduction under section 37(1) for assessment year 2015-16 by virtue of the fetter placed by Explanation 2 to section 37(1), which was inserted by the Finance (No. 2) Act, 2014. A plain reading of Explanation 2 to section 37(1) shows that any expenditure incurred towards CSR activities as referred to in section 135 of the Companies Act, 2013 shall not be allowed as ' business expenditure' and shall be deemed to have not been incurred for purpose of business. The embargo created by Explanation 2 inserted in section 37 by Finance (No. 2) Act, 2014 was to deny deduction for (3SR expens incurred by companies, as and by way of regular business expenditure while computing 'income under the head business'. So, it can be clearly seen that this Explanation 2 to section 37(1) which denies deduction for CSR expenses by way of business expenditure is applicable only to the extent of computing 'business income' under Chapter IV-D. The said Explanation cannot be extended or imported to CSR contributions which are otherwise eligible for deduction under any other provision or Chapter, so as to say donations made by charitable trust registered under section 80G.Parliament has expressed its intention clearly by bringing in restriction in respect of expenditure classified by an assessee company while claiming deduction under section 80G i.e. CSR expenditure related to Swachh Bharat Kosh and Clean Ganga Fund. And if the Parliament desired, it could have been made such kind of restriction or any restriction like in the case of donation to Swachh Bharat Kosh& Clean Ganga Fund. So the assertion of the Assessing Officer is erroneous and therefore cannot be accepted. It can be safely inferred that when the Legislature in particular has provided for only the above referred tivo specific exceptions in section 80G, then it is the implied intent of the Legislature to permit deduction under section 80G in respect of CSR contributions made to funds/organizations referred to in all other sub-clauses of section 80G [other than (iiihk) and (iiihl)] of the Act.
9.1 It may be stated here that the co-ordinate Bench of ITAT, Mumbai in the case Alubound Dacs India Private Limited vs. Dy. CIT in IT A No. 3663/M u m/2023 ( A. Y. 2020 - 21)has duly considered similar contentious issue and decided the same in favour of the assessee. The relevant extracts are reproduced below for the sake of ready reference: .............
9.3 Respectfully following the decisions cited above, we hold that the assessee is entitled to deduction claimed u/s. 80G of the Act towards the CSR expenditure incurred by it. We, therefore, direct the Id. A.O. to allow the claim of the assessee subject to the condition that the assessee has satisfied the other requirements warranted u/s.SOG of the Act. We do not find any infirmity in the appellate order. Hence, ground no. 3 raised by the Revenue is dismissed.
Thus, after evaluating the facts of the present case and also decision of the Coordinate Bench and the settled proposition of law, we are also of the view that the assessee is entitled for deduction claimed under section 80G of the Act towards CSR expenditure incurred by it.
Now the question for determination before us is as to whether Ld. PCIT could have invoked section 263 of the Act for denial of deduction claimed under section 80G of the Act in respect of donation classified as CSR. In this regard reliance is being placed upon the decision of Hon'ble Mumbai Tribunal in the case of Inter Gold (India) Pvt. Ltd. v. Pr. CIT (ITA No. 4400/Mum/2023) wherein it was held that the provisions of Section 263 of the Act cannot be invoked for denial of deduction claimed under Section 80G in respect of donations classified as CSR. The relevant extract of the order is reproduced below:
"11. After considering the aforesaid submissions and the reasons given by the Id. PCIT, we are unable to sustain the impugned order u/s.263 on this issue for the reason that, this issue has been duly enquired and examined by the Id. AO during the course of assessment proceedings and without finding any defect in such order or how the claim allowed by the Id. AO u/s.80G is unsustainable in law, he cannot cancel the assessment order. Assessee has also relied upon various Tribunal decisions directly on this issue which has also been incorporated in the impugned order, wherein it has been held that even if the money spent for CSR is disallowable but if the same has been paid to charitable organisation and donation is claimed u/s.80G, the same is allowable, because both operate separately. Thus, taking a contrary opinion does not mean that order of the Id. AO erroneous and prejudicial to the interest of the Revenue.
12. Claiming a deduction from computation of business income as provided from sections 28 to 44DB is different from claiming a deduction under chapter VIA of the Act which is allowed from Total Income. As per Explanation 2 to Section 37, CSR expenditure is not allowable as deduction while computing the business income under the provision of Section 28-44DB, whereas deduction u/s.SOG is allowed while computing the total income under Chapter VIA. There is no pre-condition that claim for deduction u/s.SQG on a donation should be voluntary. It is independent of computation of business income as it is allowed from Gross Total Income. The assessee had disallowed the CSR expenses while computing business income. Further, there is no dispute that the assessee has filed complete details of donation and also filed the certificate u/s.80G which was enclosed before the AO. Section 80G (1) of the Act provides that in computing total income of the assessee, they shall be deducted in accordance with the provision of Section, such sum paid by the assessee in the previous year as a donation. Deduction under Chapter VIA provides deduction from the gross total income which is computed after making necessary allowances / disallowances in accordance with Section 28- 44BB of the Act including Explanation to Section 37(1). Thus, Section 37(1) and Section 80G of the Act are independent and the principles governing what is not allowable u/s. 37(1) have been provided in the section itself. Even in section 80G also, what is not allowable has also been provided under the Act. For instance, Section 80G specifically mentions two clauses, viz., section 800(2)(a)(iihk) and (iiihl), i.e., contributions towards 'Swacha Bharat Kosh' and 'Clean Ganga Fund', where donation in the nature of CSR Expenditure is not allowable as deduction under section 80G of the Act. Therefore, the disallowances for deduction under section 80G vis-avis CSR can be restricted to contributions made to these Funds mentioned in Section 80G(2)(a)(iiihk) and (iiihl) only. It is an undisputed fact that the assessee has not claimed any deduction against the aforesaid clauses of 8OG(2)(a) of the Act and as such entire donation claimed by the assessee is allowable u/s 80G. The Ministry of Corporate Affairs ("MCA") has issued "FAQs" through General circular no. 01/2016 dated January 12, 2016 (FAQ No. 6) and has clarified on the issue as follows:
"Question No. 6: What tax benefits can be availed under CSR? Answer: No specific tax exemptions have been extended to CSR expenditure per se. The Finance Act, 2014 also clarifies that expenditure on CSR does not form part of business expenditure. While no specific tax exemptions have been extended to expenditure incurred on CSR, spending on several activities like Prime Minister's Relief Fund, scientific research, rural development projects, skill development projects, agriculture extension projects etc, which fund place in Schedule VII, already enjoys exemptions under different sections of the Income-tax Act, 1961."
12. This clarification being issued by the Ministry of Corporate Affairs, Government of India clarifies that donation covered under CSR Expenses which not are eligible for the deduction under section 80G of the Incometax Act, 1961, but are allowed under different sections. Ergo, there is nothing that if any expenditure is disallowable u/s 37 the same cannot be allowed under other provisions of Act, if the conditions of allowability are satisfied. Titus, allowing the claim of deduction u/s. 80G by the Id. AO cannot be held to be unsustainable in law or amounts to erroneous and prejudicial to the interest of the Revenue. Thus order of the Ld. PCIT is reversed on this point."
Therefore after having gone through the decisions referred above and also keeping in view of the facts of the present case, we are also of the view that Ld. PCIT has wrongly invoked provisions of section 263 of the Act for denial of deduction claimed by the assessee under section 263 of the Act in respect of donation classified as CSR. Therefore we do not find substance in the impugned order and the same is thus stands quashed and the assessment order passed by the Ld. AO is restored and accordingly appeal of the assessee is allowed.
In the result, appeal filed by the assessee is allowed.
Order pronounced in the open court on 06.08.2025 Sd/- Sd/- (GIRISH AGRAWAL) (SANDEEP GOSAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated 06/08/2025 KRK, PS आदेश की �ितिलिप अ�ेिषत/Copy of the Order forwarded to : अपीलाथ� / The Appellant 1. ��थ� / The Respondent. 2. संबंिधत आयकर आयु� / The CIT(A) 3. आयकर आयु�(अपील) / Concerned CIT 4. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण,मु�बई/ DR, ITAT, Mumbai 5. गाड� फाईल / Guard file. 6. आदेशानुसार/BY ORDER, स�ािपत �ित //True Copy//
उप/सहायक पंजीकार ( Asst. Registrar) आयकर अपीलीय अिधकरण, मु�बई मु�बई / ITAT, Mumbai मु�बई मु�बई