PANAMA PETROCHEM LIMITED,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME-TAX, MUMBAI

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ITA 1715/MUM/2025Status: DisposedITAT Mumbai05 May 2025AY 2020-21Bench: Shri Sandeep Gosain (Judicial Member), Shri Omkareshwar Chidara ( (Accountant Member)5 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that for a valid revision order under Section 263, the conditions of 'error' and 'prejudicial to the interest of revenue' must be satisfied. Following the Supreme Court's ratio in Malabar Industrial Company, if the AO follows one of two possible views, it cannot be termed an 'error'. The Tribunal found that the donation under Section 80G was eligible for deduction even when claimed as CSR expenditure, hence the PCIT's order was bad in law.

What were the facts?

The appellant company claimed a deduction under Section 80G for a donation to a school, which was also claimed as CSR expenditure. The PCIT initiated revision proceedings under Section 263, holding that the deduction was impermissible as it was already claimed as mandatory CSR expenditure.

What were the issues?

Whether a donation eligible for deduction under Section 80G can be disallowed if it was also claimed as CSR expenditure, and if such a revision under Section 263 is valid.

Which sections of the Income-tax Act were involved?

Section 263,Section 80G,Section 143(3),Section 144B,Section 37(1)

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(1)Show list

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Income Tax Appellate Tribunal, Mumbai “C” Bench, Mumbai.

Before: Shri Sandeep Gosain (JM) & Shri Omkareshwar Chidara (AM)

For Appellant: Shri Vinayak Bhat, Shri R.A. Dhyani
Pronounced: 05/05/2025

The only issue raised by the appellant company in the above captioned appeal is that the order passed by Ld. PCIT under section 263 of the I.T. Act with respect to allowing the deduction under section 80G of the Act by the Ld. AO, is bad in law. The relevant grounds of appeal are reproduced below :-

1. Ground No. 1: Revision order passed by the Ld. PCIT under section 263 of the I.T. Act against the assessment order passed under section 143(3) r.w.s. 144B of the Act dated 26.09.2022 is bad in law. 1.1 On the facts and in The circumstances of the case and in law, the Id. PCIT erred in invoking the revision proceedings and consequently passing the order, directing the Id. AO in revising the assessment order u/s. 143(3) r.w.s. 144B alleging it to be erroneous and prejudicial to the interest of the revenue. 1.2 The appellant prays that the revision order passed by the Id. PCIT u/s. 263 of the Act be quashed. WITHOUT PREJUDICE TO GROUND NO. 1;

2 Panama Petrochem Ltd.

2. Ground No. 2: Disallowance of Deduction of Rs. 10,50,000/- claimed u/s. 80G of the Act: 2.1 On the facts and in the circumstances of the case and in law, the ld. PCIT erred in directing the ld. AO to disallow the deduction of Rs. 10,50,000/- claimed under section 80G of the Act. 2.2 The appellant prays that the disallowance under section 80G of the Act be deleted.

2.

In this case, Ld. AO has allowed the deduction under section 80G of the Act claimed by appellant company, the donation given to a school, which was approved for 80G purposes by the Commission of Income Tax. The Ld. PCIT has passed an order under section 263 of the Act adjudicating that the donation given by appellant is not allowable under section 80G of the Act because the same amount was already claimed as Corporate Social Responsibility (CSR) expenditure, which is mandatory in nature as per the provisions of Companies Act. The Ld. PCIT quoted Explanation 2 to section 37(1) of the I.T. Act which come into effect from 1.4.2015, says CSR expenditure incurred by the appellant cannot be allowed as business expenditure. As the Ld. AO has allowed this expenditure as deduction under section 80G of the Act, Ld. PCIT held that the same is bad in law. The Ld. PCIT has directed Ld. AO to pass an order afresh.

3.

Aggrieved by the Revision Order passed by Ld. PCIT, the present appeal was filed. The Ld. AR of the appellant has argued before the ITAT that there is no prohibition in claiming the deduction under section 80G of the Act, even though the same was claimed as CSR expenditure also. The Ld. AR has relied on the following decisions of the Coordinate Benches :-

a) Savit Oil Technologies Ltd. Vs. ACIT (ITA No. 1258/Mum/2023)(Mum-Trib) b) Blue Cross Labs (P) Ltd. Vs. PCIT-3 (ITA No. 1806/Mum/2023) (Mum-Trib) c) First American (P) Ltd. Vs. ACIT (ITA No. 1762/Bang/2019(Bang-Tri) d) National Seeds Corporation Ltd. Vs. ACIT (ITA No. 6794/Del/2014)(Del- Trib)

3 Panama Petrochem Ltd. 3.1. The Ld. AR of the appellant company has submitted that the Ld. AO considered all his submissions at the time of passing the order under section 143(3) of the Act and correctly allowed the deduction under section 80G of the Act. Hence, it was pleaded that the order of Ld. PCIT may be quashed and the order of Ld. AO may be upheld.

5.

The Ld. DR relied on the order of Ld. PCIT, passed under section 263 of the Act and argued that the CSR expenditure claimed cannot be again allowed as a deduction under section 80G of the Act and hence the order of Ld. AO is incorrect and hence the Revision order of Ld. PCIT under section 263 is correct and valid.

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 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 hence quashed.

4 Panama Petrochem Ltd.

7.

The appeal of appellant company is allowed.

Order pronounced in the open Court on 05/05/2025.

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