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Facts
The AO allowed deduction under Section 80G for donations claimed as CSR expenditure. The PCIT revised the order under Section 263, holding it erroneous as the donations were mandatory and not voluntary, leading to a double deduction.
Held
The Tribunal held that the PCIT's order under Section 263 was not valid. It found that the AO had applied his mind and followed one of the possible views, thus the order was not erroneous nor prejudicial to the interest of the revenue.
Key Issues
Whether the PCIT's order under Section 263 was valid when the AO had considered the issue and allowed the deduction under Section 80G for CSR expenditure, and if the donation was voluntary and not leading to double deduction.
Sections Cited
263, 143(3), 144B, 80G, 37(1)
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Income Tax Appellate Tribunal, Mumbai “A” Bench, Mumbai.
Before: Shri Pawan Singh(JM) & Shri Omkareshwar Chidara(AM) Dr. Annie Besant Road
Per Omkareshwar Chidara (AM) :- The only issue to be adjudicated in this case is whether the Ld. PCIT is correct in passing an order under section 263 of the I.T. Act holding that the order of Ld. AO under section 143(3) read with section 144B of the Act is not valid in the eyes of law. The appellant being aggrieved, challenged the order of Ld. PCIT before the ITAT by stating that the Ld. AO passed the order correctly determining the income of appellant company and followed correct law by giving deduction under section 80G of the Act as the conditions mentioned under section 80G of the Act are fulfilled.
The appellant company’s case was selected for scrutiny to verify the deductions claimed under chapter VIA. Accordingly, the Ld. AO called for details of various deductions claimed by the appellant and held that the appellant company’s claims are correct after carefully examining the same, as mentioned in the assessment order paragraph 7 page 3 of the same. After that, the Ld. PCIT held that the order of Ld. AO is erroneous and prejudicial to the interest of Revenue because of following reasons :- a) The 80G deduction of donation claimed is not made out of voluntariness. The Corporate Social Responsibility (CSR) expenditure
2 Almoard Private Limited was made mandatory by Government and “donation” has to be “voluntary”. b) Allowing 80G and CSR expenditure would lead to double deduction. c) The CSR expenditure concept was introduced to see that bigger companies share the burden of importing the economic conditions of society.
Hence, the Ld. PCIT held that the order of Ld. AO is incorrect and set aside the same, because the order of Ld. AO is erroneous. The Ld. AR of the appellant challenges the order of Ld. PCIT with the following arguments before the ITAT during hearing proceedings:-
a) For invoking section 263, the Ld. PCIT should satisfy both conditions – i.e., erroneous order and there should be prejudice to interest of Revenue. The Ld. AR of the appellant relied on the decision of Societe General Securities India (P) Ltd. (157 Taxman.com 533), Mumbai Tribunal decision; JMS Mining (P) Ltd. Vs. PCIT (130 Taxman.com 118) Kolkata Tribunal decision and the Delhi Tribunal decision of Ericsson India Global Services (P) Ltd. Vs. DCIT (160 Taxman.com 599), for the proposition that even though CSR expenditure was claimed, the appellant is still entitled for deduction under section 80G if conditions of section 80G are fulfilled. Since there is no “error” in the order of Ld. AO, the Ld. PCIT cannot invoke power under section 263 of the Act. b) The Ld. AO has applied his mind and after getting all details, allowed the claim under section 80G of the Act. The same was specifically mentioned in the assessment order and in fact, the case was selected for examining the claims and deductions of chapter VIA of the I.T. Act.
The Ld. DR relied on the Order of Ld. PCIT and argued that there is no voluntariness in the donation given and 80G deduction amounts to 3 Almoard Private Limited double deduction. He has also read out the Memorandum to the explanatory note of Finance Act when the concept of CSR was incorporated under Income Tax Act, where it was specifically mentioned that the purpose for which the CRS provisions were introduced in I.T. Act is that the Corporate Companies should share the financial burden of Government in helping the poor and good causes of society at large. It was further argued that the expenses of CSR was prohibited to be allowed under section 37(1) f the I.T. Act and what was prohibited under one section cannot be allowed under other section. In other words, coupled with the objects of Memorandum to Finance Act and section 37(1) bar on allowing the CSR expenses, it was argued that what cannot be allowed directly, cannot be allowed indirectly also.
Heard both sides. Before going into the merits of allowing the deduction under section 37(1) of the Act and Memorandum to explain the provisions of CSR concept, the applicability of invoking provisions of section 263 of the I.T. Act and the powers of PCIT are to be examined in the facts and circumstances of the case. 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, the 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 the Ld. AR of the appellant holding that in the present circumstances, donation under section 80G of the act is eligible for deduction even though the same was claimed under CSR expenditure, as mentioned by Ld. AR of the appellant. More specifically, when the Ld. AO has examined the issue and mentioned the same in the Order, the assessment Order cannot be termed as “erroneous” for the purposes of section 263 of the Act. Hon'ble Supreme Court in this case, has held that “error” includes non-application of mind, whereas in this case, the Ld. AO held the issue in favour of the appellant company, after
4 Almoard Private Limited “carefully” considered the same. So, the twin conditions of “Error” and “prejudicial to the interest of Revenue” were not satisfied 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 against the law laid down by Hon'ble Apex Court. This order of Malabar Industrial Company, Hon'ble Supreme Court, was followed by Hon'ble Apex Court in the case of Max India and other cases too.
In view of the above, the appeal of appellant company is allowed.
Order pronounced in the open Court on 19/05/2025.