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Facts
The assessee claimed a deduction under Section 80G for CSR expenditure. The Principal Commissioner of Income Tax (PCIT) initiated revision proceedings under Section 263, holding that the Assessing Officer (AO) erroneously allowed this deduction, as CSR expenditure is not permissible under Section 37(1) and hence not eligible for 80G deduction. The assessee contended that the issue was already inquired into by the AO, who allowed the deduction after satisfying himself.
Held
The Tribunal held that the AO had made a plausible inquiry and taken a possible view in allowing the deduction, especially since the assessee had provided detailed responses to queries regarding CSR expenditure. Following various judicial precedents, the Tribunal concluded that the PCIT was not justified in invoking revisionary powers under Section 263 as the conditions of 'error' and 'prejudicial to the interest of revenue' were not met. The Tribunal directed the AO to allow the deduction, subject to verification of the donee institutions' eligibility.
Key Issues
Whether the Principal Commissioner was justified in revising the assessment order under Section 263, to disallow the deduction claimed under Section 80G for CSR expenditure when the Assessing Officer had already made an inquiry and allowed the claim.
Sections Cited
263, 143(3), 80G, 37(1), 142(1), 135, 40, 30, 36, 37(1), 135(1), 80G(2)(a), 80G(5)(vi)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI SANDEEP GOSAIN & SHRI PRABHASH SHANKAR
ORDER Per: SHRI. SANDEEP GOSAIN, J.M.: The present appeal has been filed by the assessee challenging the impugned order dated 13/03/2025, passed u/s. 263 of the Income Tax Act, 1961 ('the Act'), by the learned Principal Commissioner of Income Tax, Mumbai - 3 ('Ld. PCIT'), for the assessment year 2020-21.
A.Y. 2020-21 2 A. K. Capital Services Limited 2. All the grounds raised by the assessee are interrelated and interconnected and relates to challenging the order of Ld. PCIT passed u/s. 263 of the Act. Therefore, we have decided to adjudicate these grounds through the present consolidated order.
3. We have heard the Counsels for both the parties, perused the materials placed on record, judgment cited before us and also the orders passed by the Ld. PCIT.
4. From the records, we found that in this case, the assessee had debited an amount of Rs. 1,48,75,000/- on account of CSR expenditure and added the same to the total income in its computation of income. Since, the assessee claimed 100% of the CSR expenditure, as deduction u/s. 80G of the Act on the CSR expenditure, which according to the Ld. PCIT was not permissible under law and the same is not clear from the order of AO while passing the order u/s. 143(3) of the Act. It is a case of Ld. PCIT that the AO allowed the claim of deduction u/s. 80G of the Act, which should not have been allowed and thus, as per Ld. PCIT, the AO has failed to examine the issue of allowability of deduction u/s. 80G of the Act on the donations made out of CSR expenditure, thus, concluded that the order of assessment is erroneous in so far as, it is prejudicial to the interest of the revenue.
A.Y. 2020-21 3 A. K. Capital Services Limited 5. Whereas, on the contrary, it is clear stand of the assessee from very beginning to the effect that this issue has already been inquired into during the course of assessment by the AO and after satisfying himself, the AO passed order, thereby, allowing the deduction claimed u/s. 80G of the Act.
After having heard the Counsels for the parties at length, we found that the facts of the present case are not in dispute. From the order of assessment, we have seen that this issue has already been inquired into during the course of assessment by the AO, even otherwise, on the ground of claim of deduction u/s. 80G of the Act on the expenses made on CSR activity is covered by the decision of the coordinate benches of ITAT, more particularly, in the case of Moil Limited vs. CIT-I, Nagpur, (2017) 81 taxmann.com 420 (Bombay), wherein it was held as under: “5. On a perusal of the orders passed by the Authorities, it appears that before the assessment order was passed, a notice was served on the assessee under Section 142 (1) of the Act and 20 queries pertaining to different heads were made therein. The ninth query in the notice under Section 142 (1) of the Act pertains to the expenditure for the Corporate Social Responsibility. By the said query, the assessee was directed to give a detailed note of expenditure for the Corporate Social Responsibility along with bifurcation of the expenses under different heads. An exhaustive reply was submitted by the assessee to the notice under Section 142 (1) of the Act. In paragraph 8 of the reply, the assessee gave the detailed note pertaining to the expenditure for the Corporate Social Responsibility under different heads that runs into several pages. The heads under which the expenses were made towards the Corporate Social Responsibility were specifically mentioned as A.Y. 2020-21 4 A. K. Capital Services Limited health, environment, sports, education etc. and for each of the different heads, particulars were given in respect of every minor or major expenses. A detailed note on the expenditure on the Corporate Social Responsibility claim was given in paragraph 8 which runs into more than five pages. It is not disputed that the appellant - assessee is a Government of India undertaking and the Government has a control over the expenses of the undertaking. It is pertinent to note that during the previous assessment years, similar claims were made by the assessee - Company and the assessment orders allowing the claims have attained finality. We have minutely perused the assessment order. The claims for deductions were made by the assessee at least under 20 heads and queries were made in the notice under Section 142 (1) of the Act to the assessee in respect of nearly all of them. We, however, find from the assessment order that the Assessing Officer has dealt with nearly nine claims of deductions. These claims have been specifically mentioned in the assessment order and they have been discussed therein because the Assessing Officer appears to have disallowed those claims either partially or totally. In respect of the claim for the Corporate Social Responsibility and some other claims that were allowed by the Assessing Officer, the Assessing Officer has not made a specific reference in the assessment order. It is apparent from the assessment order that the Assessing Officer has expressed in detail about the claims that were disallowable. Where the claims were allowable, as we find from the reading of the assessment order, the Assessing Officer has not referred to those claims. The Corporate Social Responsibility claim is one of them. It is apparent from the notice under Section 142 (1) of the Act that a specific query in regard to the claim pertaining to the Corporate Social Responsibility was made and a detailed note after giving bifurcation of the expenses under different heads was sought. We have perused the response in respect of this query which is exhaustive. We find that the assessee has given the details, as are sought under query no.9 in the notice under Section 142 (1) of the Act. If that is so, the judgments, reported in Fine Jewellery (India) Ltd. (supra) and Nirav Modi (supra) and on which the learned Counsel for the assessee has placed great reliance would come into play. It is held in the judgments referred to herein above by relying on the judgment in the case of Idea Cellular Ltd. (supra) that if a query is raised during the assessment proceedings and the query is responded to by the assessee, the mere fact that the query is not dealt with in the assessment order would not lead to a conclusion that no mind has been applied to it. In the case of Fine Jewellery (India) Ltd. (supra) this Court found that from the nature of the expenditure as explained by the assessee in that case the A.Y. 2020-21 5 A. K. Capital Services Limited Assessing Officer took a possible view and therefore, it was not a case where the provisions of Section 263 of the Act could have been resorted to. Considering the explanation of the assessee in this case, we are also of the view that the Assessing Officer had taken a possible view. In the case of Nirav Modi (supra) this Court held that the Tribunal was justified in that case in cancelling the order under Section 263 of the Act as the assessee had responded to the query made to it during the assessment proceedings and merely because the assessment order did not mention the same, it would not lead to a conclusion that the Assessing Officer had not applied his mind to the case. In the instant case, we find that the Assessing Officer has applied his mind to the claims made by the assessee and wherever the claims were disallowable they have been discussed in that assessment order and there is no discussion or reference in respect of the claims that were allowed. In view of the law laid down in the judgments in the case of Fine Jewellery (India) Ltd. (supra) and Nirav Modi (supra) it would be necessary to hold that in the circumstances of the case, it cannot be said that merely because the Assessing Officer had not specifically mentioned about the claim in respect of the Corporate Social Responsibility, the Assessing Officer had passed the assessment order without making any enquiry in respect of the allowability of the claim of Corporate Social Responsibility. In our view, the provisions of Section 263 of the Act could not have been invoked by the Commissioner of Income Tax in the circumstances of this case. The Tribunal was not justified in holding that the query under Section 142 (1) of the Act was very general in nature and the reply of the assessee was also very general in nature. In our considered view, the query pertaining to Corporate Social Responsibility was exhaustively answered and the appellant - assessee had provided the data pertaining to the expenditure under each head of the claim in respect of Corporate Social Responsibility, in detail. The Tribunal was not justified in holding that the reply/explanation of the assessee was not elaborate enough to decide whether the expenditure claim was admissible under the provisions of the Income Tax Act. The Assessing Officer is not expected to raise more queries, if the Assessing Officer is satisfied about the admissibility of claim on the basis of the material and the details supplied. In the facts and circumstances of the case, we answer the question of law in the negative and against the Revenue.”
A.Y. 2020-21 6 A. K. Capital Services Limited 7. In the case of FDC Ltd. vs. Principal Commissioner of Income-tax [2023] 157 taxmann.com 387 (Mumbai - Trib.)[02- 08-2023], wherein it was held as under: III. Section 80G, read with section 37(1), of the Income-tax Act, 1961 - Deductions - Donations to certain funds, charitable institutions, etc. (CSR expenditure) - Assessment year 2018-19 - Assessing Officer allowed deduction under section 80G - Pr. Commissioner was of view that said claim was made by assessee in respect of expenses incurred on Corporate Social Responsibility (CSR), which was not allowable under section 37(1) and, hence, deduction under section 80G should not have been allowed - Accordingly, he held assessment order passed by Assessing Officer to be erroneous and prejudicial to interest of revenue - It was observed that in case of JMS Mining (P.) Ltd. v. Pr. CIT [2021] 130 taxmann.com 118, Tribunal had held that disallowance of CSR expenses is required to be made under section 37(1), but there is no statutory bar in claiming deduction under section 80G if said expenses are otherwise allowable as deduction under section 80G - Whether view taken by Pr. Commissioner on this issue being a debatable one, meaning thereby, action of Assessing Officer in allowing deduction under section 80G would result in a possible view - Held, yes - Whether Pr. Commissioner was not justified in initiating revision proceedings and, therefore, impugned order was to be set aside - Held, yes [Para 12] [In favour of assessee] 8. In the case of Panama Petrochem Ltd. vs. P-8, dated 05/05/2025, wherein it was held as under: “6. Heard both sides. In the case of Malabar Industrial Company Vs. Ld. CIT(A) (243 ITR 83)(SC), Hon'ble Supreme Court has held that for a valid order under section 263 of the Act, twin conditions of "error" and "prejudicial to the interest of Revenue" should be satisfied. While explaining the meaning of "Error", Hon'ble Supreme Court has held that if the AO followed one of the two possible views, then the same cannot be termed as "Error". In the present case, it is observed that there are plethora of decisions in favour of the appellant as relied on by appellant holding that in the present circumstances, donation under section 80G of the act is eligible for A.Y. 2020-21 7 A. K. Capital Services Limited deduction even though the same was claimed under CSR expenditure, as mentioned by Ld. AR of the appellant. So, both the conditions, "Error" and "prejudicial to the interest of Revenue" are not fulfilled in this case to pass a valid order under section 263 of the Act. Hence, following the ratio of Hon'ble Supreme Court in the case of Malabar Industrial Company(supra), it is held that the order of PCIT under section 263 of the Act is bad in law and quashed.
9. In the case of Deputy Commissioner of Income-tax vs. Gabriel India Ltd. [2025] 173 taxmann.com 219 (Mumbai - Trib.)[13-03-2025], wherein it was held as under:
7. After giving a thoughtful consideration to the orders of the authorities below, we are of the considered view that the Coordinate Benches have been consistently taking the stand that 80G deduction cannot be denied. The relevant findings in the case of Ericsson India Global Services (P) Ltd. (supra), read as under:- "7. We have considered rival submissions and perused the material on record. We have also applied our mind to case laws cited before us. Undisputedly, expenditure incurred towards CSR is specifically prohibited from being allowed as deduction towards business expenditure by insertion of Explanation - 2 to Section 37(1) of the Act by Finance Act, 2014 w.e.f01.04.2015. However, there is no such Ericsson India Global Services Pvt. Ltd. v. DCIT corresponding amendment to section 80G of the Act. Only condition for claiming deduction under section 80G of the Act as per the existing provision is the institute to which donation is made must have been registered under section 80G of the Act. Once the aforesaid condition is fulfilled, the donor is entitled to avail the deduction. This is also the view expressed by the Coordinate Bench in case of Honda Motorcycle and Scooter India Pvt. Ltd. (supra). The relevant observation are as under: "17. Apropos the issue of disallowance u/s 80G of the Income-tax Act, 1961 (for short 'the Act') : The assessee made certain donation to approved institutions or funds and claimed 50% of the total donation made as deduction u/s 80G. This amount also formed part of the CSR initiative of the assessee company which amounts to INR 22,81,29,964/-. It is observed that the assessee has duly disallowed CSR expenditure of INR 22,81,29,964/-debited to the statement of profit and loss under section 37 of the Act. DRP rejected the claim of the assessee by saying that the donation is pursuant to the CSR policy of the company and lacks the test of voluntariness as required under section 80G. The AO has disallowed the claim on the ground that anything donation over and above the CSR u/s 80G will be only allowed as the CSR expense is not an allowable expense u/s 37 of the Act. Ld. Counsel of the assessee placed reliance on the following decisions :- (i) JMS Mining (P.) Ltd. v. PCIT [2021] 130 taxmann.com 118/190 ITD 702/91 ITR(T) 80 (Kolkata - Trib.)
(ii) Goldman Sachs Services (P) Ltd. v. JCIT (2020) ([2020] 117 taxmann.com 535 (Bangalore - Trib.) ) (ITAT Bangalore) (iii) First American (India) Pvt. Ltd. (ITA No. 1762/Bang/2019)
(iv) Allegis Services (India) Pvt. Ltd. (ITA No. 1693 /Bang/ 2019) Ld. Counsel further submitted that if the intention was to deny deduction of CSR expenses under section 80G, appropriate amendments on lines of section 37(1) should also have been made under section 80G of the Act. In the absence of any such amendment, CSR expenses should not be disallowed under section 80G of the Act.
We have heard both the parties and perused the records. We find that ITAT, Bangalore Bench in the case of Goldman Sachs Services (P.) Ltd. (supra) has held that the other contributions made under section 135 (5) of the Companies Act are also eligible for deduction/s 80G of Ericsson India Global Services Pvt. Ltd. v. DCIT the Act subject to satisfying the requisite conditions prescribed for deduction u/s 80G of the Act. For this purpose, the issue is remanded to the file of AO to examine the same whether the payments satisfy the claim of donation u/s 80G of the Act. We find that the case law is fully applicable to the facts of the case. There is no restriction in the Act that expenditure when disallowed for CSR cannot be considered u/s 80G of the Act. Hence, we remit the issue to the file of AO to verify whether these payments were qualified as donations u/s 80G of the Act or not, if they qualify as donation u/s 80G of the Act then the requisite amount deserves to be allowed." 8. Before us, it is the specific contention of learned Counsel of the assessee that the institutes to whom the assessee has donated the CRS fund are registered under section 80G of the Act. Keeping in view the submissions of the assessee as well as the ratio laid down in the judicial precedents cited before us, we direct the Assessing Officer to allow assessee's claim of deduction under section 80G of the Act, subject to, factual verification of assessee's claim that the donee institutions are registered under section 80G of the Act and other conditions of section 80G of the Act are fulfilled. Ground is allowed for statistical purposes." 10. In the case of Societe Generale Securities India (P.) Ltd. vs. Principal Commissioner of Income-tax [2023] 157 taxmann.com 533 (Mumbai - Trib [20-11-2023], wherein it was held as under: Section 80G, read with sections 37(1) and 263, of the Income-tax Act, 1961 - Deductions - Donations to certain funds, charitable institutions, etc. (CSR) - Assessment year 2018-19 - Assessee contributed certain sum as part of CSR towards various charitable trusts and claimed same as deduction under section 80G - Whether Explanation 2 to section 37(1) which denies deduction for CSR A.Y. 2020-21 9 A. K. Capital Services Limited expenses by way of business expenditure is applicable only to extent of computing 'business income' under Chapter IV-D and; it could not be extended or imported to CSR contributions which was otherwise eligible for deduction under Chapter VI-A - Held, yes - Whether since genuineness of transactions and identity of donees were not under challenge, there would be no bar on assessee to claim benefit under section 80G, falling in Chapter VIA - Held, yes [Paras 6, 7 and 8] [In favour of assessee]”
In the case of AIA Engineering Ltd. vs. PCIT, Ahmedabad -1, Ahmedabad, & 310/Ahd/2024, dated 25/10/2024, wherein it was held as under: 5.1. On merits of the case, it is well settled law that deduction u/s.80G in respect of CSR expenses is permissible in the eye of law and placed reliance on the following decisions: • Interglobe Technology Quotient Ltd (2024) 163 taxmann. com 542 (Del); • Alubond Dacs India P Ltd. vs. DCIT (2024) 163 taxmann. com 536 (Mum); • Optum Global Solutions (India) P Ltd- (2023) 154 taxmann. com 651 (Hyd); • JMS Mining (P.) Ltd. vs. PCIT (2021) 130 taxmann.com 118 (Kol); • Societe General Securities India P Ltd - (2023) 157 taxmann. com 533 (Mum); • FDC Ltd. vs. PCIT-(2023) 157 taxmann.com 387 (Mumbai - Trib.); • Britannia Industries Ltd vs. DCIT-(2024) 161 taxmann.com 393 (Kolkata); 5.2. Ld. Senior Counsel further submitted that it is also not out of place to mention that genuineness of underlying expenses is not in dispute at all. The AO is an investigator and not merely an adjudicator, once a claim has been allowed by Ld. AO after threadbare examination, then PCIT must assign solid reasoning for holding that AO's order as erroneous and relied upon various case laws. Thus, the revision order is bereft of such reasoning even on this count, therefore the impugned order deserve to be quashed.
6. Per contra Ld. CIT DR Shri Sudhendu Das appearing for the Revenue supported the revision orders passed by the PCIT and requested to uphold the same, but not relied upon any case laws in support of his prayer.
We have given our thoughtful consideration and perused the materials available on record including the paper books and case laws filed by the Ld. Senior Counsel. It is seen from the Paper Book filed by the assessee at Page No. 74 during the assessment proceedings, the Ld. A.O. issued notice u/s. 142(1) dated 08-08- 2019 calling the assessee to furnish various details with supporting documentary evidences, one among them is to furnish details of deduction claimed under Chapter-VIA of the Act as per the Return of Income for the Asst. Year 2017-18. In response, the assessee filed its reply dated 14-08-2019, the details of deduction claimed under Chapter-VIA along with supporting documentary evidence as follows: Sr. Name of Party Rs. Covered @ Claim amount No. u/s. 1 AIA CSR 4,80,00,000 80G 50% 2,40,00,000 Foundation 7 Chandrakanta Kantilal 40,00,000 80G 50% 20,00,000 Foundation 2 Aastha Charitable And 20,00,000 80G 50% 10,00,000 Welfare Trust 3 School For Deaf Mutes 15,00,000 80G 50% 7,50,000 Society 4 Andh Kanya Prakash 5,00,000 80G 50% 2,50,000 Gruh 5 Samvedana 5,00,000 80G 50% 2,50,000 6 Family Planning 5,00,000 80G 100% 5,00,000 Association of India 9 Samvedna Trust 51,000 80G 50% 25,500 10 Flat Day 10,000 80G 50% 5,000 Total 57061000 28780500 7.1. The Assessing Officer issued further notice u/s. 142(1) dated 10-02-2021 since large deduction under Chapter-VIA from total income is claimed by the assessee, requested the assessee to provide (i) Section/Sub-Section wise details of deduction claimed under Chapter-VIA, (ii) details of earnings under the relevant heads against which deduction claimed, (iii) note on eligibility criteria claimed different sections of Chapter-VIA, (iv) details of bank accounts along with bank statements in support of the claim and (v) documentary evidence in respect of investment/expenditure /payment etc. made to claim the deductions. 7.2. In reply, vide assessee letter dated 18-02-2021 submitted as follows: 17. With respect to deduction under Chapter VI-A A.Y. 2020-21 11 A. K. Capital Services Limited 1. During the year under assessment Company has claimed Rs2,80.87,500 us 80G of the I Tax Act, 1961. For details please refer Annexure-9.
Above deduction has been claimed from Business Income.
During the year under assessment company has made donations to various institutions (NGOs) which are engaged in education, health & other social activities.
Please refer receipts from parties which have mentioned our bank name & payment details.
For payments made, please refer Annexure-9. 7.3. Thus, the Assessing Officer has considered the issue in detail and allowed the claim of deduction u/s. 80G in respect of CSR expenses which is a plausible view taken by the Ld. A.O. In the above circumstances, the Ld. PCIT is not correct in invoking Revision proceedings u/s. 263 of the Act. 7.4. The Hon’ble Supreme Court in the case of Malabar Industries Ltd. v. CIT [2000] 109 Taxman 66/243 ITR 83 (SC) wherein their Lordship have held that twin conditions needs to be satisfied before exercising revisional jurisdiction 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 Assessing Officer 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 Assessing Officer can be termed as erroneous order. 7.5. 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. The Hon'ble Supreme Court in the case of Malabar Industries Co. Ltd. (supra) held that this phrase i.e. "prejudicial to the interest of the revenue" has to be read in conjunction with an A.Y. 2020-21 12 A. K. Capital Services Limited erroneous order passed by the Assessing Officer. Their Lordship held that it has to be remembered that every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue. When the Assessing Officer adopted one of the courses permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer 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.
On merits of the case, whether the CSR expenditure is allowable u/s. 80G of the Act is also no more res integra by a series of decisions by various Co-ordinate Benches of the Tribunal. 8.1. The Delhi Tribunal in the case of Interglobe Technology Quotient (P.) Ltd. (cited supra) 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: “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 A.Y. 2020-21 13 A. K. Capital Services Limited 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 suomoto 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.”
A.Y. 2020-21 14 A. K. Capital Services Limited 8.2. The Mumbai Bench of the Tribunal in the case of Alubond Dacs India (P.) Ltd. (cited supra) considered the provisions of Companies Act and I.T. Act and held as follows: “11. We have heard the rival submissions and perused the materials available on record. The only morn question to be decided here is whether the expenditure towards CSR activities are an allowable deduction us 80G of the Act. The CSR expenses are governed by section 135 of 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, A.Y. 2020-21 15 A. K. Capital Services Limited 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 Id. 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.” 8.3. The Kolkata Bench of the Tribunal in the case of JMS Mining (P.) Ltd (cited supra) held that invocation of revision proceedings under section 263 itself unjustified in denying deduction u/s. 80G on CSR expenditure by observing as follows: “Section 80G, read with section 263, of the Income-tax Act, 1961- Deductions - Donations to certain funds, charitable institutions, etc. (Revision) - Assessment year 2016-17- Assessee- company was a mining service provider engaged in business of management and operation of mines - It claimed deduction under section 80G in respect of donation of certain amount made to Shree Charity Fund and a sum of certain amount given to Pt. Jasraj Music Academy Trust as contribution towards corporate social responsibility (CSR) - Assessing Officer allowed same - Principal Commissioner invoked revision jurisdiction under section 263 on ground that action of Assessing Officer in allowing such claim of assessee for deduction under section 80G was erroneous because CSR expenditure could not be allowed as per express prohibition laid down in Explanation 2 of section 37(1) Whether Explanation 2 to section 37(1) which denies deduction for CSR A.Y. 2020-21 16 A. K. Capital Services Limited expenses by way of business expenditure is applicable only to extent of computing 'business income' under Chapter IV-D and; it could not be extended or imported to CSR contributions which was otherwise eligible for deduction under Chapter VI, to say, donations made to charitable trusts registered under section 80G-Held, yes Whether, therefore, since said donation on account of CSR was made by assessee to charitable trusts which were duly registered under section 80G(5)(vi), assessee was entitled to claim deduction under section 80G in respect of such contribution - Held, yes - Whether since action of Assessing Officer in allowing claim under section 80G was a plausible view, impugned invocation of revision jurisdiction under section 263 was unjustified-Held, yes [Para 23] [In favour of assessee) Section 37(1), of the Income-tax Act, 1961 Business expenditure Allowability of (Explanation 2) - Assessment year 2016-17 - Whether corporate social responsibility (CSR) expenses which are required to be mandatorily incurred by assessee-company as per section 135 of Companies Act are not entitled to deduction under section 37(1) by virtue of fetter placed by Explanation 2 to section 37(1), which was inserted by Finance (No. 2) Act, 2014-Held, yes [Para 23] [In favour of assessee]” 8.4. Similarly Mumbai Bench of the Tribunal in the case of Societe Generale Securities India (P.) Ltd. and FDC Ltd. held that Revision proceedings are not justified on the claim of deduction under section 80G on CSR expenditure.
Respectfully following the above judicial precedents, we have no hesitation in quashing the Revision orders dated 06-02-2024 passed by Ld. PCIT for the A.Y. 2020-21 and we hereby allow the grounds of appeal
raised by the assessee.
10. In the result, the appeals filed by the assessee are hereby allowed.”
12. After having gone through the facts of the case and also taking into consideration the decisions cited above, we are of the view that the AO has considered the issue of claim of deduction u/s. 80G of the Act in respect of CSR expenditure, which is a A.Y. 2020-21 17 A. K. Capital Services Limited plausible view taken by the AO, therefore, in our view the Ld. PCIT is not correct in invoking the revision proceedings u/s. 263 of the Act.
The Hon’ble Supreme Court in the case of Malabar Industries Ltd. v. CIT [2000] 109 Taxman 66/243 ITR 83 (SC), wherein their Lordship have held that twin conditions need to be satisfied before exercising revisional jurisdiction 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 Assessing Officer 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 Assessing Officer 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 A.Y. 2020-21 18 A. K. Capital Services Limited prejudicial to the interest of Revenue. When this aspect is examined, one has to understand what is prejudicial to the interest of the revenue. The Hon'ble Supreme Court in the case of Malabar Industries Co. Ltd. (supra) held that this phrase i.e. "prejudicial to the interest of the revenue" has to be read in conjunction with an erroneous order passed by the Assessing Officer. Their Lordship held that it has to be remembered that every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue. When the Assessing Officer adopted one of the courses permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer 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.
On merits of the case, whether the CSR expenditure is allowable u/s. 80G of the Act is also no more res integra by a series of decisions by various Co-ordinate Benches of the Tribunal.
A.Y. 2020-21 19 A. K. Capital Services Limited 16. The Delhi Tribunal in the case of Interglobe Technology Quotient (P.) Ltd. (supra) 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:
“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 A.Y. 2020-21 20 A. K. Capital Services Limited 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 suomoto 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.”
The Mumbai Bench of the Tribunal in the case of Alubond Dacs India (P.) Ltd. (supra) considered the provisions of Companies Act and I.T. Act and held as follows:
“11. We have heard the rival submissions and perused the materials available on record. The only morn question to be decided here is whether the expenditure towards CSR activities are an allowable deduction us 80G of the Act. The A.Y. 2020-21 21 A. K. Capital Services Limited CSR expenses are governed by section 135 of 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 A.Y. 2020-21 22 A. K. Capital Services Limited 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.
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 Id. 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.”
18. The Kolkata Bench of the Tribunal in the case of JMS Mining (P.) Ltd (supra) held that invocation of revision proceedings under section 263 itself unjustified in denying deduction u/s. 80G on CSR expenditure by observing as follows:
Section 80G, read with section 263, of the Income-tax Act, 1961- Deductions - Donations to certain funds, charitable institutions, etc. (Revision) - Assessment year 2016-17-Assessee- company was a mining service provider engaged in business of management and operation of mines - It claimed deduction under section 80G in respect of donation of certain amount made to Shree Charity Fund and a sum of certain amount given to Pt. Jasraj Music Academy Trust as contribution towards corporate social responsibility (CSR) - Assessing Officer allowed same - Principal Commissioner invoked revision jurisdiction under section 263 on ground that action of Assessing Officer in allowing such claim of assessee for deduction under section 80G was erroneous because CSR expenditure could not be allowed as per express prohibition laid down in Explanation 2 of section 37(1) Whether Explanation 2 to section 37(1) which denies deduction for CSR expenses by way of business expenditure is applicable only to extent of computing 'business income' under Chapter IV-D and; it could not be extended or imported to CSR contributions which was otherwise eligible for deduction under Chapter VI, to say, donations made to charitable trusts registered under section 80G-Held, yes Whether, therefore, since said donation on account of CSR was made by assessee to A.Y. 2020-21 23 A. K. Capital Services Limited charitable trusts which were duly registered under section 80G(5)(vi), assessee was entitled to claim deduction under section 80G in respect of such contribution - Held, yes - Whether since action of Assessing Officer in allowing claim under section 80G was a plausible view, impugned invocation of revision jurisdiction under section 263 was unjustified-Held, yes [Para 23] [In favour of assessee) Section 37(1), of the Income-tax Act, 1961 Business expenditure Allowability of (Explanation 2) - Assessment year 2016-17 - Whether corporate social responsibility (CSR) expenses which are required to be mandatorily incurred by assessee-company as per section 135 of Companies Act are not entitled to deduction under section 37(1) by virtue of fetter placed by Explanation 2 to section 37(1), which was inserted by Finance (No. 2) Act, 2014-Held, yes [Para 23] [In favour of assessee]
Similarly, Mumbai Bench of the Tribunal in the case of Societe Generale Securities India (P.) Ltd. and FDC Ltd. held that Revision proceedings are not justified on the claim of deduction under section 80G on CSR expenditure.
Respectfully following the above judicial precedents, we have no hesitation in quashing the Revision order dated 13/03/2025 passed by Ld. PCIT for the A.Y. 2020-21 and we hereby allow the grounds of appeal
raised by the assessee.
21. In the result, the appeal filed by the assessee is allowed.