ABHAY ISPAT (INDIA) PRIVATE LIMITED,MUMBAI vs. PRINCIPAL COMMISSIONER OF INCOME TAX OFFICER, MUMBAI - 6, MUMBAI

In this appeal, the assessee has raised the following grounds: “1. On the fact and circumstances of the case as well as in Law, the Learned Principal Commissioner of Income Tax (PCIT) has erred in initiating proceedings U/s.263 of the Income Tax Act, 1961 (the Act) dated 03.03.2025 and passing an order U/s 263 of the Act, without considering the facts & Circumstances of the case.

The brief facts of the case as emanating from the record are: The assessee is engaged in wholesale and retail trade. For the year under consideration, the assessee filed its return of income declaring a total income of ₹ 16,63,88,490/-. The return filed by the assessee was selected for scrutiny, and statutory notices under section 143(2) and section 142(1) were issued and served on the assessee. After considering the submissions of the assessee in response to the statutory notices, the assessment was concluded vide order dated 20.09.2022 passed under section 143(3) r.w.s. 144B of the Act accepting the return of income filed by the assessee.

Subsequently, on the basis of objections raised by the internal audit, notice under section 263 of the Act was issued on 03.03.2025 on the basis that vide order dated 20.09.2022 passed under section 143(3) r.w.s 144B of the Act the assessment was concluded accepting the return of income and allowing the deduction claimed by the assessee under section 80G of the Act in respect of CSR expenses without making any examination on the said issue. In response, the assessee submitted that it spent ₹ 1,55,000/- towards CSR, which was suo-moto disallowed under section 37(1) of the Act. Further, the assessee submitted that it claimed deduction under section 80G of the Act to the tune of ₹ 77,500/- (being 50% of ₹ 1,55,000/-). As per the assessee, the aforesaid payment as donation was made to various foundations, trusts, clubs, etc., and thus the same is eligible for deduction under section 80G of the Act. Further, the assessee submitted that except section 37, there is no other provision in the Act which disallows, restricts or prohibits the claim of any deduction for CSR if the CSR expenditure is otherwise eligible for deduction. Thus, the assessee submitted that the CSR expenditure is eligible for deduction under section 80G of the Act, even if the expenditure was disallowed under section 37(1) of the Act by virtue of the provisions of Explanation - 2 to section 37 of the Act. In support of its submission, the assessee placed reliance upon the following decisions, wherein deduction under section 80G of the Act was allowed in respect of CSR expenditure: - a. FDC Ltd. vs. PCIT, 157 taxmann.com 387 (Mumbai – Trib)

The learned PCIT, vide impugned order, disagreed with the submissions of the assessee and held that the CSR expenditure, being statutorily mandated, cannot be considered as a voluntary donation under section 80G of the Act. The learned PCIT also placed reliance upon the decision of the Co- ordinate Bench of the Tribunal in Agilent Technology (International) Pvt. Ltd. vs. ACIT, reported in (2024) 160 taxmann.com 238 (Delhi – Trib), wherein CSR contribution was held to be not allowable as deduction under section 80G of the Act as the same lacks the voluntariness required to qualify as donation under section 80G of the Act. Accordingly, the learned PCIT held that the assessment order dated 20.09.2022 passed under section 143(3) r.w.s. 144B of the Act is erroneous insofar as it is prejudicial to the interests of the Revenue. Accordingly, the learned PCIT set aside the assessment order on the issue of deduction claimed under section 80G of the Act in respect of CSR expenditure and directed the AO to make an enquiry on this issue after providing an opportunity of hearing to the assessee. Being aggrieved, the assessee is in appeal before us.

During the hearing, the learned Authorised Representative (“learned AR”) submitted that all the details pertaining to the claim of deduction under section 80G of the Act in respect of CSR expenditure were filed by the assessee before the learned PCIT in response to the notice under section 263 of the Act. However, the learned PCIT did not point out any defect in the details so filed by the assessee. The learned AR submitted that merely on the basis that CSR expenditure is not voluntary in nature, the learned PCIT set aside the assessment order and held the same to be erroneous and prejudicial to the interest of the revenue. Further, the learned AR submitted that this issue is no longer res integra and has been decided in favour of the taxpayer by various decisions of the Coordinate Bench of the Tribunal. Accordingly, the learned AR submitted that even though the Delhi Bench of the Tribunal has taken a view in favour of the Revenue, the same only leads to the conclusion that this issue is debatable, and therefore, outside the purview of the revisionary proceedings under section 263 of the Act.

On the other hand, the learned Departmental Representative (“learned DR”), vehemently relying upon the impugned order, submitted that the AO while passing the assessment order did not make any inquiry on this issue and passed the assessment order accepting the return of income, allowing the claim of deduction made by the assessee under section 80G of the Act in respect of CSR expenditure. Thus, the learned DR submitted that the assessment order was passed without making inquiries or verification which should have been made, and therefore, the assessment order is erroneous insofar as it is prejudicial to the interest of the revenue.

We have considered the submissions of both sides and perused the material available on record. In the present case, the assessee incurred expenditure of ₹ 1,55,000/- towards CSR and disallowed the same while computing its income under the head “income from business” in terms of provisions of Explanation – 2 to section 37(1) of the Act. However, while computing the deduction under section 80G of the Act, the assessee claimed a deduction of ₹ 77,500/- (50% of ₹ 1,55,000/-) being the CSR expenditure covered under the provisions of section 80G of the Act. Thus, undisputedly, the assessee has not claimed the CSR expenditure under section 37(1) of the Act, and its claim is only restricted to section 80G of the Act. It is evident from the record that the learned PCIT, on the basis that the said expenditure was incurred voluntarily and therefore cannot be called a donation, initiated the revisionary proceedings under section 263 of the Act. We find that while disagreeing with the submissions of the assessee and setting aside the assessment order, the learned PCIT, vide impugned order, placed reliance upon the decision of the Delhi Bench of the Tribunal in Agilent technologies (International) Pvt. Ltd. and held that for a payment to be considered for deduction under section 80G of the Act, the same should be voluntary in nature, unlike in the present case where the payment was made in compliance of the provisions of the Companies Act, 2013.

We find that the Coordinate Bench of the Tribunal in CIT vs. Sikka Ports and Terminals Ltd., reported in (2025) 173 taxmann.com 366 (Mum – Trib), after considering the decision placed reliance upon by the learned PCIT in Agilent Technologies (International) Pvt. Ltd. (supra), observed as follows: - “7. Therefore to examine if CSR spending of the assessee would be a donation it is essential to examine whether the donations given by the assessee to M/s. Reliance Foundation and M/s Shyam Kothari Foundation without any material return and without any consideration and whether it was a grant for quid pro quo. It is not the case of the revenue that the assessee has made contributions to these institutions with an intention get something in return. The only contention of the revenue is that the contributions are made as part of a mandate and not voluntary. However, the Hon'ble Supreme Court in the above

Further, we find that in Allegis Services (India) Private Ltd. V/s ACIT, in ITA No. 1693/Bang./2019, the deduction in respect of CSR expenditure under section 80G of the Act was objected to on a similar basis as in the present case. While deciding the issue in favour of the taxpayer, the Bangalore Bench of the Tribunal, vide order dated 29/04/2020, observed as follows: - "We have perused submissions advanced by both sides in light of records placed before us. 10. Section 135 of Companies Act, 2013 requires companies with CSR obligations, with effect from 01/04/2014. Finance (No.2) Act, 2014 inserted new Explanation 2 to sub- section (1) of section 37, so as to clarify that for 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 be an expenditure incurred by the assessee for the purposes of the business or profession. 11. This amendment will take effect from 1/04/2015 and will, accordingly, apply to assessment year 2015-16 and subsequent years.

In our view, expenditure incurred under section 30 to 36 are claimed while computing income under the head, 'Income form Business and Profession", whereas monies spent under section 80G are claimed while computing "Total Taxable income" in the hands of assessee. The point of claim under these provisions are different.

For claiming benefit under section 80G, deductions are considered at the stage of computing "Total taxable income". Even if any payments under section 80G forms part of CSR payments keeping in mind ineligible deduction expressly provided u/s.80G), the same would already stand excluded while computing, Income under the head, "Income form Business and Profession". The effect of such disallowance would lead to increase in Business income. Thereafter benefit accruing to assessee under Chapter VIA for computing "Total Taxable Income" cannot be denied to assessee, subject to fulfillment of necessary conditions therein.

We therefore do not agree with arguments advanced by Ld. Sr.DR.

In present facts of case, Ld. AR submitted that all payments forming part of CSR does not form part of profit and loss account for computing Income under the head, "Income from Business and Profession". It has been submitted that some payments forming part of CSR were claimed as deduction under section80G of the Act, for computing "Total taxable income", which has been disallowed by authorities below. In our view, assessee cannot be denied the benefit of claim under Chapter VI A, which is considered for computing Total Taxable Income". If assessee is denied this benefit, merely because such payment forms part of CSR, would lead to double disallowance, which is not the intention of Legislature.

On the basis of above discussion, in our view, authorities below have erred in denying claim of assessee under section 80G of the Act. We also note that authorities below have not verified nature of payments qualifying exemption under section 80G of the Act and quantum of eligibility as per section 80G(1) of the Act.

Under such circumstances, we are remitting the issue back to Ld.AO for verifying conditions necessary to claim deduction under section 80G of the Act. Assessee is directed to file all requisite details in order to substantiate

We find that the issue of the allowability of CSR expenditure under section 80G of the Act has been decided in favour of the taxpayer in various other decisions, as relied upon by the assessee in its submissions before the learned PCIT. Therefore, at the outset, it is evident that without going into the question whether there was an examination by the AO during the assessment proceedings, this issue itself is debatable in nature and thus is outside the purview of revisionary powers of the learned PCIT under section 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”

In the result, the appeal by the assessee is allowed. Order pronounced in the open Court on 05/08/2025