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Facts
The appellant company challenged a revision order by the PCIT that disallowed deduction under Section 80G for CSR contributions. The PCIT held the AO's allowance of the deduction was erroneous and prejudicial to revenue.
Held
The Tribunal held that the PCIT's assumption of revisionary jurisdiction under Section 263 was incorrect. The AO had conducted an inquiry and the Bombay High Court's decision in Castrol India Ltd. supported the appellant's claim.
Key Issues
Whether CSR contributions made to approved institutions are eligible for deduction under Section 80G, and if the PCIT was justified in revising the AO's order allowing such deduction.
Sections Cited
263, 80G, 135, 143(3), 144B, 142(1), 37(1), 147
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, Mumbai “B” Bench, Mumbai.
Before: Shri Narender Kumar Choudhry (JM) & Shri Omkareshwar Chidara (AM)
Per Omkareshwar Chidara (AM) :- In the above cited appeal, the appellant company challenged the Revision Order passed by Ld. PCIT under section 263 of the I.T. Act stating that the appellant company is entitled to deduction under section 80G of the Act to approved institutions out of Corporate Social Responsibility (CSR) funds. The following grounds of appeal are raised by the appellant company:-
1. “1. On the facts and circumstances of the case, the Id. Pr. Commissioner of Income tax (PCIT) erred in holding that the assessment order passed under Section 143 (3) r.w.s. 144B of the Income tax Act, 1961 ('the Act") dated 29-11-2022 is erroneous in as much as prejudicial to the interest of the revenue within the meaning of Section 263 of the Act and setting the issue relating to disallowance of deduction claimed under section 80-G of the Act.
2. The Id. PCIT erred in not appreciating that there is no restriction under section 80-G of the Act to claim a deduction in respect of contributions made to institutions approved under section 80-G of the Act out of CSR contributions covered under Section 135 of the Companies Act, 2013 except to the Swachh Bharat Kosh, and the Clean Ganga Fund, referred to in clauses (iiihk) and iiihl) of clause (a) of subsection (2) of Section 80-G of the Act and as such the deduction claimed by the appellant under section 2 80-G of the Act in respect of contributions to approved institutions other than the above two funds was correctly allowed by the Assessing officer in the assessment made under section 143 (3) of the Act.
3. The Id. PCIT erred in not appreciating that the AO has made detailed inquiry in respect of claim of the appellant under section 80-G of the Act in terms of his notice under section 142 (1) of the Act dated 08-10-2022 and only after satisfying himself, allowed a deduction under section 80-G of the Act and as such the assessment order passed by the AO cannot be termed as erroneous and consequently prejudicial to the interest of revenue within the meaning of Section 263 of the Act.
4. The Id. PCIT erred in not following the principal laid down by the Hon Bombay High Court in the case of Castrol India Ltd. v. DCIT reported in [2024] 161 taxmann.com 75 (Bombay), on the issue of allowability of deduction under section 80-G to approved institutions out of CSR funds, which is binding on him.”
2. The Ld. AR of the appellant company has submitted that the appellant company has incurred CSR expenses of Rs. 42,56,102/- under section 135 of the Companies Act, 2013. Out of this, an amount of Rs. 26,50,000/- was incurred on various objects prescribed under section 135 of the Act through 5 CSR institutions which were approved institutions under section 80G of the Act. In view of section 37(1) of the Act, the CSR expenses of Rs. 42,56,102/- were added back for computing the ‘income from business and profession’. The appellant claimed a deduction of Rs. 3,50,000/- at the rate of 100% in respect of contribution of Rs. 3,50,000/- to PM Cares Fund and claimed a deduction of Rs. 11,50,000/- at the rate of 50% on the contributions of Rs. 23,00,0007- made to four institutions, which were included in the above CSR Expenses. It was also submitted during the hearing that the required details including donation chart, relevant bank statements evidencing payment of donations and approval certificate of Rotary Club were filed by the appellant in reply to notice under section 142 (1) as above and after examining the same, the AO allowed a deduction of Rs. 15,00,000/- under Section 80-G of the Act in the assessment made under section 143 (3) of the Act on 29-11-2022. After the completion of the assessment order under section 143(3) of the I.T. Act, the Ld. AR of the appellant argued the Ld. PCIT issued notice under section 263 of the Act dated 21-11-2024 informing the appellant that it appeared to him that the 3 assessment order passed under section 143(3) r.w.s. 144B of the Act on 29- 11-2022 for AY 2020-21, was erroneous in so far as it is prejudicial to the interest of revenue, within the meaning of Section 263 of the Act in respect of deduction of Rs. 15,00,000/- allowed under section 80-G of the Act by the Assessing Officer (AO). In view of the above, the PCIT required the appellant to show cause as to why the assessment order passed under section 143(3) of the Act. The, the Ld. AR of the appellant placed heavy reliance on the jurisdictional High Court decision of Castrol India Ltd. Vs. DCIT (2024) 161 taxmann.com 75 (Bom), where it was held as follows :-
12. It is seen that prior to the passing of the original assessment order, AO has raised queries vide notices dated 5th April 2019 and 12th September 2019, each of which were duly responded by Petitioner. Petitioner has explained that no deduction was claimed by it except that under section 80G of the Act. Copies of receipts of donations were also provided as proof of donation. All these details were also included in the computation of income. Petitioner has, thus, submitted detailed explanation along with supporting documents. It is also seen that Petitioner has claimed deduction for eligible donation as detailed in Schedule. We agree with Mr. Pardiwalla's submission that as far as donations given to eligible trust is concerned, it would still Qualify as deduction under section 80G of the Act even if the contribution is out of the CSR funds. The AO has examined all these aspects while passing the original assessment order.
3. Ld. AR of the appellant had argued that they had submitted all the details to Ld. PCIT(A) including the above decision which is binding on all lower courts and authorities in the State of Maharashtra. But, still, the Ld. PCIT has set aside the order of Ld. AO who allowed the 80G deduction of appellant company and held that the order of Ld. AO is “erroneous” and “prejudicial to the interest of Revenue”. The Ld. AR of the appellant company concluded his arguments and pleaded that the order of Ld. PCIT under section 263 of the Act may be set aside and the order of Ld. AO may be restored. The Ld. AR of the appellant has filed a paper book containing the following decisions rendered by Mumbai Tribunal for the proposition that CSR funds spent on approved institutions are entitled for 80G deduction :- a) Elan Pharma (India) Pvt. Ltd. Vs. PCIT (ITA No. 2419/Mum/2025 dated 9.6.2025)
4 b) The Ruby Mills Limited Vs. PCIT (ITA No. 3035/Mum/2025 dated 27.6.2025) c) ACG Pam Pharma Technologies Pvt. Ltd. Vs. PCIT (ITA No. 2734/Mum/2025 dated 1.7.2025) d) ACIT Vs. Sikka Ports and Terminals Ltd. (ITA No. 3074 & 3755/Mum/2024 dated 30.12.2024.
4. Per contra, Ld. Dr filed written submission which is reproduced below:
“1. Background of the Case: Strata Geosystems India Pvt. Ltd. filed its return of income for Assessment Year 2020-21 declaring total income of Rs. 35.66 crores. In its computation, it disallowed Rs. 42.56 lakhs towards CSR expenditure in accordance with Explanation 2 to Section 37(1) of the Income-tax Act. However, from the said CSR amount, it separately claimed a deduction of Rs. 15,00,000 under Section 80G, being donations made to institutions approved under that section. This included ^3.5 lakhs to the PM CARES Fund and Rs. 11.5 lakhs to four other approved institutions. The claim was made on the basis that such donations, although made in discharge of CSR obligations, were still eligible for deduction under Section 80G, provided they were not made to the specifically barred funds such as Swachh Bharat Kosh and Clean Ganga Fund. The return was selected for scrutiny under CASS, and the Assessing Officer, after issuing notice under Section 142(1) and examining the evidences, allowed the deduction in the assessment order dated 29.11.2022. Subsequently, the PCIT initiated revisionary proceedings under Section 263 on the ground that such allowance was erroneous and prejudicial to the interest of the Revenue.
Ground Taken By The Assessee: The appellant challenges the revision order under Section 263, arguing that the assessment under Section 143(3) r.w.s. 144B was neither erroneous nor prejudicial to Revenue. It is contended that donations made under CSR, except to Swachh Bharat Kosh and Clean Ganga Fund, are eligible for deduction under Section 80G, and the AO had duly examined and allowed the claim after inquiry. The appellant also relies on the Bombay High Court ruling in Castrol India Ltd. v. DCIT [2024] 161 taxmann.com 75, which supports its position.
Assessee's Claim The assessee claimed deduction of Rs. 15,00,000 under Section 80G for donations made to institutions approved under that section, even though the payments formed part of CSR expenses. It submitted that such deduction is allowable under Chapter VI-A and not restricted unless the donation is to Swachh Bharat Kosh or Clean Ganga Fund. The AO had verified the claim during assessment and allowed it after due inquiry. The assessee relied on judicial precedents, including Castrol India Ltd. (Bom HC), to argue that the assessment order was neither erroneous nor prejudicial to the interest of Revenue.
Revenue Rebuttal: I. The action of the learned PCIT in invoking jurisdiction under Section 263 of the Income-tax Act, 1961 is justified and in accordance with law. The assessment order passed under Section 143(3) r.w.s. 144B is patently erroneous and prejudicial to the interests of the Revenue insofar as it
5 allowed deduction of Rs.15,00,000 under Section 80G in respect of amounts that were part of the assessee's Corporate Social Responsibility (CSR) obligations under Section 135 of the Companies Act, 2013. Under the provisions of the Income Tax Act 1961, Corporate Social Responsibility (CSR) expenditure, though mandatory under Section 135 of the Companies Act, is specifically excluded from the ambit of business expenditure under Section 37(1). However, a question arises as to whether certain CSR contributions may qualify for deduction under Section 80G if such payments are made to institutions approved under the said section.
II. Section 80G provides deduction in respect of donations made to specified funds, trusts, or institutions, subject to certain conditions. It operates independently of Section 37 and permits deduction on voluntary donations, provided the donation is not made as part of a statutory obligation or quid pro quo arrangement. Therefore, for any claim under Section 80G to be valid, the contribution must retain the character of a voluntary donation and not merely a fulfillment of a legal obligation. The assessee's reliance on Castrol India Ltd. is misplaced, as that case dealt with reopening under Section 147, where reassessment was quashed due to absence of fresh material and being a mere change of opinion. In contrast, the present case involves revision under Section 263, where the assessment order was passed without proper inquiry into the allowability of deduction under Section 80G for CSR donations. Unlike Castrol, here the AO failed to examine a critical legal issue, making the order both erroneous and prejudicial to Revenue—thus justifying the PCIT's action. III. In the context of CSR contributions, recent judicial pronouncements have clarified this distinction. The Delhi Bench of the Income Tax Appellate Tribunal, in Agilent Technologies (International) Pvt. Ltd. [2024] 160 taxmann.com 238, has held that CSR contributions do not qualify for deduction under Section 80G, even if made to approved institutions, because such payments are driven by a statutory mandate and lack the element of voluntariness. This view is further supported by the principle laid down by the Hon'ble Supreme Court in PVG Raju, Rajah of Vizianagaram, where it was emphasized that only voluntary contributions are eligible for deduction under Section 80G.
IV. Further, the PCIT rightly noted that allowing such a claim results in the State indirectly subsidizing a portion of the mandatory CSR expenditure, which defeats the very purpose of CSR legislation. The claim made by the assessee included institutions other than the PM CARES Fund and went beyond the scope of allowable deduction prescribed under clauses (iiihk) and (iiihl) of Section 80G(2), which clearly exclude CSR- related contributions to Swachh Bharat Kosh and Clean Ganga Fund. The PCIT also correctly pointed out that the assessment order passed by the AO was cryptic and did not reflect any detailed inquiry or reasoning on this crucial legal issue, thereby attracting the twin conditions under Section 263—viz., that the order is both erroneous and prejudicial to the interest of the Revenue.
V. From the perspective of revisionary powers under Section 263, it is well-settled that where the Assessing Officer fails to examine a material issue or to apply the correct legal position, the order can be termed as 6 erroneous and prejudicial to the interests of the Revenue. The Hon'ble Supreme Court in Ld. CIT(A) v. Amitabh Bachchan [(2016) 384 ITR 200 (SC)] observed that non-enquiry into a significant claim may render the assessment order vulnerable to revision. Similarly, in Malabar Industrial Co. Ltd. v. CIT [(2000) 243 ITR 83 (SC)], the Court held that orders passed without application of mind or proper verification are amenable to revision under Section 263. VI. In light of the above, where an Assessing Officer allows a claim for deduction under Section 80G without examining the nature of the payment and its compliance with statutory conditions— especially when the payment pertains to CSR obligations—the omission constitutes a serious lapse. Such failure to conduct due inquiry vitiates the assessment and justifies invocation of revisionary jurisdiction by the Commissioner under Section 263 for appropriate verification and correction.
VII. Thus, the allowability of CSR contributions under Section 80G remains a contentious issue requiring careful legal scrutiny, and failure to examine this aspect during assessment proceedings warrants corrective action under the framework of Section 263.
5. Prayer In light of the above submissions, the Revenue respectfully prays that the Hon'ble Tribunal may kindly uphold the revision order passed by the PCIT under Section 263, as the original assessment was made without proper inquiry and wrongly allowed deduction under Section 80G for CSR expenses. The order being both erroneous and prejudicial to the interest of Revenue, we request that the revision be sustained.”
The Ld. DR heavily relied on the Delhi Tribunal’s decision in the case of Agilent Technologies (International) Pvt. Ltd. (supra), where Hon'ble Tribunal held that such deductions are not eligible under section 80G of the Act. From the notice under section 142(1) of the Act issued by Ld. AO and reply filed by the Ld. AR of the appellant company, it is seen that this query related to exemption under section 80G of the Act was raised by the Ld. AO and the appellant company replied the same. After getting the reply from the appellant company, the Ld. AO did not make any disallowance of claim under section 80G of the Act which implies he accepted the claim. In this background, Ld. PCIT has assumed Revisionary jurisdiction under section 263 of the Act and set aside the order of Ld. AO stating that the Ld. AO did not conduct the enquiries, the amounts paid by appellant company are not voluntary and hence the order of Ld. AO is incorrect.
7 6. Rival submissions are heard. The issue relating to whether the appellant company is eligible for deduction under section 80G of the Act is covered in favour of appellant by several decisions of various ITATs of the country and also by the observations of Bombay High Court in the case of Castrol India Ltd. (supra). It is further noted that the observations of Ld. PCIT that the Ld. AO has not examined the issue is factually incorrect because the Ld. AO issued a questionnaire and the appellant company replied in detail regarding the issue of deduction under section 80G of the Act. In view of this fact, observation of Hon'ble Bombay High Court in the decision of Castrol India and the decisions rendered in this regard by various Tribunals (supra) relied on by Ld. AR., it is held that the assumption of Revisionary jurisdiction by Ld. PCIT(A) under section 263 of the Act is not correct in the eyes of law and hence quashed.
The appeal of the appellant company is allowed. Order pronounced in the open Court on 25/07/2025.