CORAL INDIA FINANCE & HOUSING LIMITED,MUMBAI vs. THE PRINCIPAL COMMISSIONER OF INCOME TAX - 3, MUMBAI, MUMBAI

IN THE INCOME-TAX APPELLATE TRIBUNAL “C” BENCH,
MUMBAI
BEFORE SHRI SANDEEP GOSAIN, JUDICIAL MEMBER
&
SHRI PRABHASH SHANKAR, ACCOUNTANT MEMBER
Coral
India
Finance
&
Housing Limited, 4th Floor,
Dalamal
House,
Jamanlal
Bajaj Marg, Nariman Point,
Mumbai
–
400
021,
Maharashtra v/s.
बनाम
Principal Commissioner of Income Tax– 3, 612, 6th
Floor,
Aayakar
Bhavan,
Maharishi
Karve
Road,
Mumbai
–
400
020,
Maharashtra
स्थायी लेखा सं./जीआइआर सं./PAN/GIR No: AAACC4449C
Appellant/अपीलार्थी
..
Respondent/प्रतिवादी

Appellant by :
Shri V K Ginde, AR
Respondent by :
Shri R A Dhyani, (CIT-DR)

Date of Hearing
10.07.2025
Date of Pronouncement
05.08.2025

आदेश / O R D E R

PER PRABHASH SHANKAR [A.M.] :-

The present appeal is filed by the assessee against the Revision order passed by the Principal Commissioner of Income-tax, PCIT,
Mumbai-3 [hereinafter referred to as “PCIT”] u/s 263 of the Act pertaining to assessment order passed u/s. 143(3) of the Income-tax Act,
1961 [hereinafter referred to as “Act”] dated 25.09.2022 for the Assessment Year [A.Y.] 2020-21. P a g e | 2
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Coral India Finance & Housing Limited, Mumbai

Coral India Finance & Housing Limited, Mumbai the Act, therefore, there is lack of enquiry on this specific claim of the assessee.
5. Before him, the assessee claimed that CSR expenditure of Rs.10,35,000/- had been incurred as provided u/s. 135 of the Companies
Act, 2013, during the year as reflecting in its Financials. This amount had already been disallowed while arriving at income from business.
Deduction u/s. 80G comes into play at the time of computing taxable income. The disallowance of CSR expenditure under Explanation 2 to Section 37(1) applies only in the context of determining business income while determining allowable or disallowable expenses incurred for business purpose. The embargo created by Explanation 2 inserted in section 37 by Finance (No. 2) Act, 2014 was to deny deduction for CSR expenses incurred by companies, as part 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 for deduction under any other provision or Chapter. Thus, section 37 does not preclude an assessee from claiming deductions under Chapter VIA (which includes section 80G) for eligible donations. The restriction in respect of P a g e | 4
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Coral India Finance & Housing Limited, Mumbai expenditure made by the taxpayer to any other fund or institution as referred to in section 80G(2)(a)(iv) of the Act had not been placed by the legislature. In assessee’s case, the trusts to whom such donations have been made are duly registered with and having continuing 80G authorization. After confronting the assessee on this issue and proposed invocation of the provisions of section 263 of the Act, he concluded that the order u/s 143(3) r.w.s. 144B of the Act was erroneous in so far as it is prejudicial to the interest of revenue.
6. Before us, the ld.AR has made written as well as oral submissions and also filed a paper book with supporting details.
Reiterating the submissions made before the ld.PCIT, he argued that specific query was raised during assessment proceedings and the AO as per notice u/s 142(1) of the Act and after having examined the facts, he adopted a view which cannot be treated as erroneous. It is contented that in response to this notice the assessee furnished details of donation made along with donation receipts. He also placed reliance on various coordinate bench decisions wherein similar order u/s 263 of the Act was quashed.
7. Per contra, the ld.CIT(DR) has relied on the revision order claiming that such deduction of CSR expenses u/s 80G of the Act is not P a g e | 5
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Coral India Finance & Housing Limited, Mumbai in accordance with provisions of law and legislative intention behind bringing in Explanation 2 to section 37 of the Act to specifically deny
CSR expenditure as allowable deduction.
8. We have carefully considered all relevant facts of the case, rival submissions and also the contents of the revisions order and the paper book submitted. We observe that the assessee had duly disclosed such facts on record during assessment proceedings and the AO taking note of such disclosed facts did not draw any adverse inference. We find that the AO issued notices u/s 142(1) of the Act inter alia calling for details of donations made(para 3.1).Further, as per para 3.2 of the order ,it is stated by the AO that the assessee company claimed deduction Chapter
VIA amounting to Rs.5,17,500/-.No adverse view was taken by him while concluding the assessment order and he allowed the claim of the assessee u/s 80G of the Act. Therefore, we find that the AO did make necessary enquiries in the matter by calling for relevant details for examination. Apparently, it is not a case of no enquiry at all. Thus, on facts and the circumstances of the case, it can be safely construed that the issue must have been deliberated by the AO though not specifically brought out in the body of the assessment order. Thus, the AO has P a g e | 6
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Coral India Finance & Housing Limited, Mumbai considered the issue and allowed the claim of deduction u/s. 80G w.r.t.
CSR expenses which is a plausible view taken by him.
8.1 The hon'ble Supreme Court in the case of Malabar
Industries Ltd. v. CIT (supra) have held that twin conditions needs to be satisfied before exercising revisional juri iction 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 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 P a g e | 7
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Coral India Finance & Housing Limited, Mumbai 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. 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 juri ictional High Court in the case of CIT vs Gabriel India
Ltd. (203 ITR 108) (Bom) (HC) with regard to assumption of juri iction 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 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." (Emphasis supplied)

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Coral India Finance & Housing Limited, Mumbai

Coral India Finance & Housing Limited, Mumbai the Companies Act, 2013, Schedule VII of the Act and Companies (CSR) Policy Rules, 2014
where companies having net worth of Rs 500 crores of more or turnover of Rs. 1000 crores or more or net profit of Rs 5 crores of more have to mandatorily comply with the CSR provisions specified us. 135(1) of the Companies Act, 2011. The above mentioned companies are liable to spend atleast 25% of its average net profit for the immediately preceding three financial years on CSR activities. In the present case, the assessee has contributed Rs 30 lacs to various educational and charitable trust for which the assessee has claimed 50% of the total donation paid as deduction u/s. 800 of the Act. Prior to the Finance (No.2) Act, 2014, the said expenditure was claimed as 'business expenditure' u/s. 37(1) of the Act where after the insertion of Explanation 2 to section 37(1) of the Act, the CSR expenses referred to in section 135 of the Companies Act, 2013 shall not be deemed to be an expenditure incurred by the assessee for the purpose of business or profession. It is observed that the said expenses pertaining to CSR has been claimed as deduction u/s. 80G of the Act which claim was perennially rejected by the Revenue for the reason that only donations which are voluntary in nature will come under the purview of section 80G of the Act and donation towards CSR was merely a statutory obligation on companies as per section 135 of the Companies Act, 2013. It is pertinent to point out that the intention of the legislature was clear when the same was clarified by the Finance (No.2) Act, 2014 that CSR expenses will not fall under the business expenditure and also there has been an express bar specified in sub clause (iiihk) and (iiihl) of section 80G(2)(a) of the Act that any sum paid by the assessee as donation to Swatch Bharat
Kosh and Clean Ganga Fund will not come under the purview of deduction u's 80G of the Act subject to certain conditions. This justifies the fact that the other donations specified us
80G of the Act would be entitled to deduction provided the conditions stipulated u/s. 80G of the Act are satisfied. In the present case in hand, the contributions made by the assessee would not fall under the two exceptions specified above which clearly mandates that the assessee is entitled to claim deduction for the donations contributed during the year under consideration u/s 80G of the Act. The decision relied upon by the ld. A.O in the case of PVG
Raju (supra) is distinguishable on the facts of the present case where there is no requirement of proving the voluntariness of the donation contributed by the assessee for claiming deduction u/s. 80G of the Act. The amendment brought about by Finance Act, 2015 to section 80G of the Act which had inserted the sub clauses (iiihk) and (iiihl) to be the exception for qualifying a donation for claiming us. 80G of the Act could also be an evidencing factor to substantiate that CSR expenditures which falls under the nature specified in section 30 to 36 of the Act are an allowable deduction u/s 80G of the Act.
12. On the above observation, we deem it fit to 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 ld. A.O, to allow the claim of the assessee subject to the condition that the assessee has satisfied the other requirements warranted u/s.80G of the Act. Hence, ground no. 2 raised by the assessee is allowed."
9.1 The Delhi Tribunal in the case of Interglobe Technology
Quotient (P.) Ltd. (2024) 163 Taxmann.com 542 (Del)held that mandatory nature of CSR expenditure does not justify disallowance of same u/s. 80G, if other conditions of Section 80G are fulfilled by observing as follows:

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Coral India Finance & Housing Limited, Mumbai

"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 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."
10. 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

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Coral India Finance & Housing Limited, Mumbai 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. 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. Therefore, even on this count deduction allowed u/s 80G vis-à-vis CSR expenditure cannot make the assessment order erroneous.
10.1 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 unsustainable, allowing the grounds of appeal raised by the assessee.
11. In the result, the appeal filed by the assessee is hereby allowed.
Order pronounced in the open court on 05.08.2025. SANDEEP GOSAIN
PRABHASH SHANKAR
(न्याययक सदस्य /JUDICIAL MEMBER)
(लेखाकारसदस्य/ACCOUNTANT MEMBER)

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Coral India Finance & Housing Limited, Mumbai

Place: म ुंबई/Mumbai
ददनाुंक /Date 05.08.2025
Lubhna Shaikh / Steno

आदेश की प्रयियलयि अग्रेयिि/Copy of the Order forwarded to :
1. अपीलार्थी / The Appellant
2. प्रत्यर्थी / The Respondent.
3. आयकर आयुक्त / CIT
4. विभागीय प्रविविवि, आयकर अपीलीय अविकरण DR, ITAT,
Mumbai
5. गार्ड फाईल / Guard file.

सत्यावपि प्रवि ////
आदेशानुसार/ BY ORDER,

उि/सहायक िंजीकार (Dy./Asstt.