SIDDHARTH COLORCHEM PRIVATE LIMITED,NARIMAN POINT, MUMBAI, MAHARASHTRA vs. DCIT 3(3)(1), MUMBAI, AAYAKAR BHAWAN,MUMBAI

Briefly stated, facts of the case are that the assessee, a company engaged in the business of manufacturing and export of dyestuffs and intermediates, filed its return of income for the relevant assessment year on 29.01.2021, declaring a total income of ₹35,20,91,580/-. The assessment was completed under Section 143(3) read with Section 144B of the Income-tax Act, 1961 (hereinafter referred to as ―the Act‖) on 26.09.2022, determining the total income at ₹35,86,01,929/-. Subsequently, the Learned Principal Commissioner of Income Tax (hereinafter ―Ld. PCIT‖), in exercise of the powers vested under the Act, called for the assessment records. Upon examination thereof, the Ld. PCIT observed that certain material aspects had not been verified by the Faceless Assessing Officer (hereinafter ―FAO‖) while passing the assessment order. It was specifically noted by the Ld. PCIT that the assessee had debited an amount of ₹30,00,000/- towards expenditure incurred under the head ―Corporate Social Responsibility‖ (CSR), which had been rightly disallowed by the assessee itself in the computation of income, in view of the specific bar under Explanation 2 to Section 37(1) of the Act. However, the assessee simultaneously claimed a deduction of ₹15,00,000/-, being 50% of the said CSR expenditure, under Section 80G of the Act, which was erroneously allowed by the FAO. The Ld. PCIT was of the considered view that CSR expenditure, being a statutory obligation under Section 135 of the Companies Act, 2013, is not incurred voluntarily, and hence, does not qualify for deduction under the r specific provisions of the section 37(1) of the Act. It was further observed by the ld PCIT that the FAO did not examine the issue of allowability of claim of deduction under Section 80G in respect of the said amount. In the absence of such examination, the Ld. PCIT concluded that the FAO had failed to apply his mind to the issue, thereby rendering the assessment order erroneous, in so far as it was prejudicial to the interest of the Revenue. Accordingly, invoking the provisions of Section 263 of the Act, the Ld. PCIT set aside the assessment order dated 26.09.2022, with a direction to the Assessing Officer to frame a fresh assessment after making necessary verification and disallowing the deduction claimed under Section 80G in respect of the said CSR expenditure, after affording due opportunity of being heard to the assessee.

The Ld. PCIT in para 6.9 of the impugned order has noted that the Co-ordinate Bench of the Tribunal in following two cases has decided the issue in favour of assessee but the Department had preferred further appeal before the Hon‘ble High Court:

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.

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.

The appeal of the assessee is accordingly allowed.