ABM KNOWLEDGEWARE LIMITED,MUMBAI vs. ASSESSING OFFICER CIRCLE 4(1)(1), MUMBAI

ITA 3460/MUM/2025Status: DisposedITAT Mumbai31 July 2025AY 2020-202123 pages
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What did the Tribunal hold?

The Tribunal held that the PCIT erred in revising the assessment order under section 263. The Tribunal found that CSR expenses, while mandatory under the Companies Act, 2013, do not form part of the profit and loss account for computing income under the head 'Profits and Gains of Business or Profession'. However, if certain payments forming part of CSR expenditure are otherwise eligible under section 80G, the deduction under section 80G cannot be denied. This is because the benefit under Chapter VI-A is available for computing 'Total Taxable Income'. The Tribunal noted that the AO had not mentioned any specific enquiry regarding CSR expenses and section 80G claims. However, it reiterated that section 263 can be invoked for incorrect assumption of facts or incorrect interpretation of law. The Tribunal relied on the Supreme Court's definition of 'donation' in P.V.G. Raju (supra), stating that a payment made without material return or consideration, and not for quid pro quo, is a donation. The revenue did not contend that the assessee made contributions with an intention to get something in return. Therefore, the Tribunal concluded that the payments made, whether voluntarily or as part of a mandate, do not negate the intention of the contribution. The reliance placed by the revenue on Agilent Technologies (International) (P.) Ltd. was found to be factually distinguishable. The Tribunal held that the order passed under section 263 could not be sustained as the Act allows deduction under section 80G for eligible payments, even if they form part of CSR spending, provided they are not explicitly excluded by section 80G(2)(iihk) and (iihl). The issue of whether CSR expenses are generally ineligible for 80G deduction was noted as not settled by higher judicial authorities. The Tribunal allowed grounds 3 to 8 of the assessee's appeal.

What were the facts?

The assessee, ABM Knowledgeware Limited, filed its return of income for Assessment Year 2020-21 on 24/12/2020, declaring a total income of Rs.18,46,03,870/-. The case was selected for scrutiny, and after issuing notices under sections 143(2) and 142(1) of the Income Tax Act, 1961, the assessment was completed by accepting the returned income. Subsequently, the Principal Commissioner of Income Tax (PCIT), Mumbai - 4, issued a notice under section 263 of the Act on 04/03/2025. The PCIT noted that the assessee claimed a deduction of Rs.22,32,000/- under section 80G for payments made to various foundations, trusts, and associations, which were identified as Corporate Social Responsibility (CSR) expenses. The PCIT opined that CSR expenditure, being mandatory under the Companies Act, 2013, is not eligible for deduction under section 80G as it lacks voluntariness.

What were the issues?

1. Whether the assessment order dated 06.09.2022 passed under section 143(3) of the Income Tax Act, 1961, was erroneous and prejudicial to the interests of the revenue, warranting revision under section 263, considering the Assessing Officer (AO) had conducted due enquiry and consciously allowed the deduction under section 80G (turning on Section 263 and Section 80G). 2. Whether the PCIT exceeded jurisdiction under section 263 by revising the order on a debatable issue where the AO had taken a plausible view (turning on Section 263). 3. Whether the PCIT erred in claiming that the AO had not mentioned any enquiry conducted, and if the absence of specific details of enquiry in the assessment order makes it erroneous or prejudicial to the revenue (turning on Section 263). 4. Whether the PCIT issued a non-speaking order by failing to provide specific tests or verification approaches the AO should have mentioned (turning on Section 263). 5. Whether the PCIT erred in referring to the judgment of the Hon'ble Apex Court in Commissioner of Expenditure Tax vs PVG Raju, Rajah of Vizianagaram (1 SCR 1017G (1967)) as misplaced and out of context for the facts of this case (turning on Section 80G and principles of donation). 6. Whether the PCIT erred in presuming that all CSR expenditures lack voluntariness without examining the specific nature of the donations or the assessee's compliance with 80G conditions (turning on Section 80G). 7. Whether the PCIT erred in interpreting Section 80G(2)(iihk) and (iihl) of the Act to conclude that all CSR expenses are ineligible for deduction, ignoring the provision which only excludes donations to Swachh Bharat Kosh and Clean Ganga Fund from CSR mandates (turning on Section 80G). 8. Whether the PCIT erred in not considering that Section 135 of the Companies Act, 2013, does not prohibit CSR expenses deduction under section 80G (turning on Section 80G and Section 135 of Companies Act, 2013). Assessee's Contentions: The assessee argued that the AO conducted due enquiry and consciously allowed the deduction. They contended that the PCIT exceeded jurisdiction under section 263 on a debatable issue where the AO took a plausible view. The assessee asserted that the assessment order not detailing every enquiry does not make it erroneous. They also argued that the PCIT's reference to the PVG Raju case was misplaced and that the PCIT wrongly presumed all CSR expenditures lack voluntariness. The assessee further argued that Section 80G(2)(iihk) and (iihl) only exclude donations to Swachh Bharat Kosh and Clean Ganga Fund from CSR mandates, not all CSR expenses. They also stated that Section 135 of the Companies Act, 2013, does not prohibit 80G deductions for CSR expenses. The assessee relied on various court decisions and explanatory notes to the MOA for the amendment to Section 37. Revenue's Contentions: The revenue, through the Senior DR, argued that CSR expenses are mandatory and allowing deduction under section 80G would subsidize these expenses, which is not the legislative intent. The revenue relied on the decision in Agilent Technologies (International) (P.) Ltd. and Dy. CIT v. Hindustan Dorr Oliver Ltd [1994] 48 TTJ Mumbai 552.

Which sections of the Income-tax Act were involved?

Section 80G,Section 143(3),Section 142(1),Section 263,Section 37,Section 135

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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI

Before: SMT. BEENA PILLAI & SHRI OMKARESHWAR CHIDARA

For Appellant: Shri. Bharat Raichandani (Virtually, Shri Bhagrati Sahu
For Respondent: Shri. Rajesh Kumar Yadav, SR. DR
Hearing: 24.07.2025Pronounced: 31.07.2025

Per: Smt. Beena Pillai, J.M.: The present appeal filed by the assessee arises out of order dated 20/03/2025, passed by ld. PCIT, Mumbai - 4, for assessment year 2020-21 on following grounds of appeal:

“1. The Learned Principal Commissioner of Income Tax (herein after referred as PCIT) erred in law and facts in holding that the assessment order u/s 143(3) of the Act dated 06.09.2022 was erroneous and prejudicial to the interests of revenue, without appreciating that the Assessing Officer (AO) had conducted due enquiry and consciously allowed the deduction u/s 80G of the Act.

2.

The PCIT has erred in exceeding juri iction u/s 263 by re

The order continues below.

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