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Facts
The assessee filed its return of income, which was initially assessed under Section 143(3). Subsequently, the assessment was reopened under Section 147 based on reasons that the assessee claimed deductions for donations under Section 80G and Section 35, which were allegedly not genuine and were intertwined with CSR expenses.
Held
The Tribunal held that the PCIT erred in assuming jurisdiction under Section 263, as the issues raised were already examined by the AO during the original assessment and reassessment proceedings, and no new facts were brought on record. This constituted a change of opinion, making the PCIT's order bad in law.
Key Issues
Whether the PCIT's assumption of jurisdiction under Section 263 was justified when the grounds were already considered by the AO, leading to a change of opinion.
Sections Cited
147, 144B, 143(3), 148, 80G, 37, 135, 35, 12AA, 151(1), 263
AI-generated summary — verify with the full judgment below
Before: SHRI SAKTIJIT DEY & SHRI NARENDRA KUMAR BILLAIYA
स िवाई की िारीख / Date of Hearing 03.06.2025 घोर्णा की िारीख/Date of Pronouncement 05.06.2025 आदेश / O R D E R PER NARENDRA KUMAR BILLAIYA [A.M.]:- This appeal by the assessee is preferred against the order of the Principal Commissioner of Income Tax, Mumbai-4 [hereinafter referred to as ‘PCIT'], dated 15.03.2024, pertaining to AY 2015-16.
P a g e | My Healthskape Medicals Pvt. Ltd.
2. The sum and substance of the grievance of the assessee is that the PCIT erred in assuming jurisdiction u/s 263 of the Income-tax Act, 1961 [hereinafter referred to as “Act”] and further erred in holding that the assessment order dated 29.03.2022 framed u/s 147 r.w.s. 144B of the Act is erroneous and bad in law.
Representatives of both the sides were heard at length, the case records carefully perused, and the documentary evidences brought on record duly considered in the light of Rule 18(6) of the ITAT Rules, 1963.
Briefly stated facts of the case are that the assessee filed its return of income on 30.09.2015, declaring total income at Rs. 6,47,35,940/-. The return was selected for scrutiny assessment, and accordingly, statutory notices were issued and served upon the assessee. Vide order dated 25.12.2017, assessment was framed u/s 143(3) of the Act, the assessment was completed at total income of Rs. 6,47,35,940/-.
5. The completed assessment was reopened by the issue of notice u/s 148 of the Act. The reasons for reopening the assessment read as under: “The assessee filed its return of income on 30.09.2015 declaring total income at Rs. 6,47,35,940/-. The assessment was completed u/s 143(3) on 25.12.2017 assessing returned income at Rs. 6,47,35,940/-.
The assessee company is dealing in medical equipments, consumables, spare parts and servicing of medical equipments which are related to ophthalmic surgeries.
3. The assessee has claimed Rs.8,88,500/- as deduction under section 80G of the Act(i.e.50% of the donation of Rs. 17,77,000/-). The list of donation of Rs.17,77,000/- entitled for under section 80G revealed that all the donations were also included in P a g e | My Healthskape Medicals Pvt. Ltd. the list of expenses incurred onwards CSR. Thus, the donations claimed under section 80G were actually CSR expenses. 3.1 The donation amounting to Rs.45,42,695/- debited in the P&L to the extent of Rs.40,19,965/-pertains to CSR expenses which incurred during the year but subsequently added back in the computation of income to the extent of Rs.25,42,695/- only as donation. The expenditure which was disallowed as donation are actually CSR expenses and again claimed (50%) through the route of 80G deduction. Since both CSR expense under two different head would defeat the very purpose of it and whereby income to the extent of Rs. 8,85,000/- has escaped assessment. 3.2 The Finance Act, 2014 inserted a new Explanation 2 in sub-section (1) of section 37 clarifying that for the purposes of sub-section (1) of the said section, 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 purpose of the business or profession. This amendment was effective from w.e.f.1.4.2015 (AY.2015-16) and subsequent years.
4. In the computation of total income the assessee has claimed Rs.15,00,000/- as deduction under section 35 of the Act. As per Annexure-5 of clause 19 of Auditors 3CD report the assessee is admissible for deduction of Rs.15,00,000/(175% on Rs.20,00,000/-) under section 35(1)(ii) of the IT Act. The deduction on amount of Rs.20,00,000/- allowed was pertaining to donation given to Bioved Research Society. The registration of Bioved Research Society was cancelled by the IT Department u/s.12AA on the basis of information received from Investigation Wing. Bogus donations are being taken vide cheque/RTGS and thereafter taking commission, the same is routed back to the donor in form to cash after bogus billing or other accommodation entries in the books of institute. 4.1 In view of the above facts the donation of Rs.20,00,000/- given to Bioved Research Society is not genuine and income to the extent of Rs. 15,00,000/- in the form of wrong claim of deduction u/s.35 has escaped assessment.
5. Since 4 years from the end of the relevant year has expired in this case, the requirement to initiate proceedings u/s.147 of the Act are reason to believe that income for the year under consideration has escaped assessment because of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the assessment year under consideration.
6. It is true that the assessee has filed a copy of audited P&L A/c and balance sheet along with return of income where various information/material were disclosed. However, the requisite full and true disclosure of all material facts necessary for assessment has not been made. It is pertinent to mention here that even though the assessee has produced books of accounts, annual report, audited P&L A/c and balance sheet or other evidence as mentioned above, the requisite material facts as noted above in the reasons for reopening were embedded in such a manner that material evidence could not be discovered by AO and could have been discovered with P a g e | My Healthskape Medicals Pvt. Ltd. due diligence, accordingly attracting provisions of Explanation 1 of section 147 of the Act.
It is pertinent to mention here that reason to believe that income has escaped assessment for the year under consideration have been recorded in the above referred paragraph. I have carefully considered the assessment record containing the submission made by the assessee in response to various notices issued during the assessment proceedings and have noted that the assessee has not fully and truly disclosed material facts necessary for his assessment of the year under consideration thereby necessitating reopening u/s. 147 of the Act.
8. In view of the above, I have reason to believe that income more than Rs. 1 lakh is chargeable to tax has escaped assessment within the meaning of section 147 of the Income-tax Act, 1961 for the A.Y. 2015-16. Hence, it is a fit case for issue of notice u/s. 148 of the I.T. Act, 1961.
In this case, more than four years have lapsed from the end of the assessment year under consideration. Hence, in accordance with the provisions of section 151(1) of the Income-tax Act, 1961, the Pr. Commissioner of Income Tax - 4, Mumbai may kindly accord approval for reopening the case in the case of assessee for A.Y. 2015-16.”
6. From the perusal of the reasons recorded for reopening the assessment, we find that the completed assessment was reopened for the following reasons: i. Claim of deduction u/s 80G of the Act. ii. Donation of Rs. 45,42,695/- debited in the P&L account to the extent of Rs 40,19,965/-. This expenditure was disallowed being CSR expenses and claimed deduction @50% u/s 80G of the Act.
7. During the course of the reassessment proceedings, the assessee furnished complete details in respect of issues which triggered the reopening of the assessment.
P a g e | My Healthskape Medicals Pvt. Ltd.
The AO extensively verified the details with supporting evidences and framed the assessment vide order dated 29.03.2022 u/s 147 r.w.s. 144B of the Act.
9. Assuming jurisdiction conferred upon him by the provisions of section 263 of the Act, PCIT issued a notice which read as under: “Subject: Notice for Hearing in respect of Revision proceedings u/s 263 of the THE INCOME TAX ACT, 1961-Assessment Year 2015-16. In this regard, a hearing in the matter is fixed on 14/02/2024 at 03:00 PM. You are requested to attend in person or through an authorized representative to submit your representation, if any alongwith supporting documents/information in support of the issues involved (as mentioned below). If you wish that the Revision proceeding be concluded on the basis of your written submissions/representations filed in this office, on or before the said due date, then your personal attendance is not required. You also have the option to file your submission from the e-filing portal using the link: incometaxindiaefiling.gov.in In your case, return of income for A.Y. 2015-16 was filed on 30.09.2015 declaring total income of Rs.6,47,35,940/-.Subsequently, your case was selected for scrutiny and Assessment Order u/s 143(3) of the IT Act was passed on 25.12.2017 accepting the return of income. Thereafter, re-assessment proceedings were initiated and accordingly, order u/s. 147 r.w.s 144B of the Act was passed on 29.03.2022 by the National Faceless Assessment Centre (NFAC), New Delhi. In the said order, no addition has been made. 2 On perusal of records, it is observed from the computation of income, you had claimed Rs. 15,00,000/- as deduction u/s. 35 of the Act. To verify the admissibility of claim of Rs. 15,00,000/-, it is noticed from Annexure 5 of clause 19 of Auditors 3CD report that you were entitled for deduction of Rs.35,00,000/- (175% on Rs.20,00,000/-) u/s, 35(1)(ii) of the Act. However, it is noticed that such deduction on amount of Rs.20,00,000/- allowed was pertaining to donation given to Bioved Research Society which was engaged in bogus donation syndicate. The registration of Bioved Research Society was also cancelled by the Income Tax Department u/s. 12AA on the basis of information received from Investigation Wing. In view of the above, the bogus donation of Rs.20,00,000/- given to Bioved ResearchSociety is required to be disallowed and added back to the total income. Further, the claim of deduction of Rs. 15,00,000/- u/s. 35 was also irregular as the claim was against the bogus expenditure. 3 It is also observed that you had claimed Rs. 8,88,500/- as deduction under section 80G of the Act (ie 50% of the donation of Rs. 17,77,000/-). Scrutiny of the list of donation of Rs. 17,77,000/- entitled for under section 80G revealed that all the P a g e | My Healthskape Medicals Pvt. Ltd. donations were also included in the list of expenses incurred towards CSR. Thus the donations claimed under section 80G were actually CSR expenses. Further, scrutiny of the donation amounting to Rs.45,42,695/- debited in P & L account revealed that out of Rs. 45,42,695/-, an amount to the extent of Rs.40,19,965/- pertains to CSR expenses which was incurred during the year but subsequently added back in the computation of income to the extent of Rs.25,42,695/-only as donation. Thus the same expenditure which was disallowed as donation are actually CSR expenses and again claimed (50%) through the route of 80G deduction. Since both CSR expenses and 80G donations are two different mode of ensuring fund for public welfare, hence treating the same expenses under two different heads would defeat the very purpose of it and hence the same was required to be disallowed in the assessment.
4. The re-assessment proceedings u/s, 147 of the Act were initiated on the basis of the reasons mentioned above in Paras 28 3. However, assessment order u/s. 147 r.w.s 144B of the Act dated 29.03.2022 was passed by the Faceless Assessment Officer without making enquiries or verifications on the issues of bogus donation given to Bioved Research Society, deduction claimed u/s. 35 of the Act on account of bogus expenditure and deduction u/s. 80G of the Act.
In view of the aforesaid reasons, it is seen that the Assessment Order dated 29.03.2022 passed is erroneous in so far as it is prejudicial to the interest of the revenue. Therefore, I, the Pr. Commissioner of Income-tax -4, Mumbai, in exercise of the powers conferred on me under the provisions of Section 263 of the IT.Act, 1961, propose to consider this matter and pass such order thereon as the facts and circumstances of the case may justify.
Before doing so, I hereby give you an opportunity of being heard to explain your stand. If you desire to be heard in person or through an authorised representative, you may please attend before me at my office at the above mentioned address on 14/02/2024 at 3:00PM. You are also requested to furnish your submissions in writing so as to reach me on or before the date mentioned above. Please note that in the event of failure to avail the opportunity as aforesaid, the matter will be decided on merits on the basis of material available on record.”
A perusal of the aforestated notice shows that the PCIT has considered both the issues which were the cause for the reopening of the assessment. The issues considered by the PCIT are identical to the issues examined by the AO, not only during the original assessment proceedings but also during the reassessment proceedings. This is nothing but a change of opinion, as the details supported by documents have already been examined thoroughly by the AO, P a g e | My Healthskape Medicals Pvt. Ltd. and no new facts have been brought on record. Therefore, the assumption of jurisdiction u/s 263 of the Act by PCIT is bad in law, and the order dated 15.03.2024 deserves to be set aside. 11. We accordingly restore the order dated 29.03.2022 framed u/s 147 r.w.s 144B of the Act. 12. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 05.06.2025.