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Income Tax Appellate Tribunal, KOLKATA BENCH “C”, KOLKATA
Before: SHRI RAJPAL YADAV, VICE- & SHRI GIRISH AGRAWAL
O R D E R
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:
This appeal by the assessee is arising out of the order of Pr. CIT, Kolkata-2 vide Order No. ITBA/REV/F/REV5/2021-22/104144167(1) dated 24.03.2022 passed u/s 263 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) for A.Y. 2017-18.
Through this appeal, the assessee has essentially challenged the assumption of jurisdiction by the learned Principal Commissioner of Income-tax for invoking the impugned revisionary proceedings u/s 263 of the Act and passing the order thereunder for which, the assessee has taken as many as eight grounds of appeal which are not reproduced for the sake of brevity. The two issues which have been considered by the ld. Pr. CIT for the purpose of invoking the revisionary proceedings and referred in the grounds of appeal are (i) Deduction u/s 80G of the Act amounting to Rs. 20,000/- for which no evidence in support of payment of donation is produced to ascertain its veracity (ii) Deduction u/s 80G
P.C. Chandra Holding Pvt. Ltd. A.Y. 2017-18 of the Act amounting to Rs. 15,37,987/- on account of CSR expenses which is not allowable in terms of Explanation to section 37 of the Act and is required to be added back in the computation of income.
Brief facts of the case are that assessee is engaged in the business of manufacturing and selling of jewellery. Return was filed on 30.10.2017 reporting total income of Rs. 25,16,27,420/-. Case was selected for scrutiny through CASS for which statutory notices were issued and served on the assessee and were replied by the assessee by filing all the required details, information and documents as per questionnaire issued by the ld. AO. Assessment was completed u/s 143(3) of the Act vide order dated 03.12.2019 with assessed income equal to income returned by the assessee. Subsequently, ld. PCIT called for the assessment records and on the basis of verification of the material available on record, initiated the revisionary proceedings by issuing notice u/s 263 of the Act, dated 07.03.2022, by raising the two issues described above.
Before us, Shri Ravi Tulsiyan, FCA represented the assessee. On the first issue of donation of Rs. 40,000/- made to Ramakrishna Mission for which deduction of Rs. 20,000/-was claimed u/s 80G of the Act, ld. Counsel pointed to various documents which were furnished in support of its claim as placed in the Paper Book containing 32 pages. The list of documents along with the submissions made is enumerated as under:
“1. Two Payment Vouchers for Rs.20,000/- each. 2. Two Acknowledgment of Receipt from Ramakrishna Mission of Rs.20,000/- each 3. Letter from Ramkrishna Mission Ashram to the assessee appealing to award scholarship and distribution of text books. 4. Corrigendum by Government of India dated 24-03-2008 for approval u/s 10(23C)(iv) of the Act from AY 2009-10 onwards..
P.C. Chandra Holding Pvt. Ltd. A.Y. 2017-18 5. Letter by Ramkrishna Mission to all the Heads of Mission Centres in India wherein it was stated: The disclosure of section 80G and PAN in our donation receipt may please be written as given below: Donations are exempt from income tax under section 80G(5)(vi) of the Income Tax Act, 1961, vide order no. DIT(E)/848/8E/109/69-70 dated 12.01.2009 which has been further extended in perpetuity by letter no. DIT(E)/2923/8E/109/69-70 dated 26.09.11. Our income tax PAN is AAAARI077P.
6. Certificate of exemption u/s 80G(5)(vi) to Ramkrishna Mission dated 12-01-2009 by DIT(Exemption) wherein it was stated that the exemption is valid for AYs 2010-11 to AY 2014-15.
7. PAN of Ramkrishna Mission.” 4.1. Ld. Counsel pointed out that certificate of registration granted to Ramakrishna Mission Ashram dated 12.01.2009 was valid upto assessment year 2014-15 which was further extended in perpetuity vide letter dated DIT(E)/2923/8E/109/69-70 dated 26.09.2011. He also referred to the corrigendum dated 24.03.2008 issued by the then CCIT, Kolkata-III and submitted that the said corrigendum stated that an approval u/s 10(23C)(iv) of the Act is granted from assessment year 2009-10 onwards. He thus submitted that ld. PCIT failed to examine all the documents submitted by the assessee and merely referred to the corrigendum to arrive at an adverse view.
4.2. On the second issue relating to deduction claimed u/s 80G of the Act amounting to Rs. 15,37,987/-, Ld. Counsel submitted that assessee had incurred CSR expenses amounting to Rs. 30,75,973/- given to Radha Madhab Institution registered u/s 80G of the Act. He submitted that assessee had on its own added back the amount of CSR expenditure while computing income under the head ‘income from business’ of Rs. 25,31,85,411/-. To corroborate this, Ld. Counsel
P.C. Chandra Holding Pvt. Ltd. A.Y. 2017-18 referred to computation of taxable income and tax payable placed in the paper book at page 31 and 32. He further stated that this sum of Rs. 30,75,973/- was claimed as deduction @ 50% u/s 80G which was reduced from the gross total income as computed in the computation of taxable income. Ld. Counsel stated that acknowledgement receipt of payment of Rs. 30,75,973/- to Radha Madhab Institution along with approval u/s 80G(5)(vi) of the Act dated 05.01.2015 issued by the office of CIT(E), Kolkata vide order no. DIT(E)/303/8E/54/82-83 were submitted before the ld. AO and are placed in the paper book at page no. 21 to 23. He submitted that the approval granted to Radha Madhab Institution was deemed to be extended in perpetuity as stated in the letter of approval referred above.
4.3. Ld. Counsel further submitted that ld. PCIT has referred to Explanation 2 to Section 37 which has no co-relation with claim of deduction u/s 80G of the Act. According to him, Explanation 2 to section 37(1) of the Act does not in any way debar an assessee to claim an amount as deduction in any other provision of the Act when the said deduction is expressly allowable under other provision of the Act. He further submitted that u/s 80G of the Act, there are only two instances namely section 80G(2)(a)(iiihk) and (iiihl) i.e. contributions towards Swacha Bharat Kosh and Clean Ganga Fund, respectively, where CSR expenditure is not allowable as deduction u/s 80G. According to him, such a prohibition does not apply to any other CSR expenditure when no such explicit prohibition has been mentioned except for the two instances as stated herein. Ld. Counsel placed reliance on the decision of co-ordinate bench of ITAT, Kolkata in JMS Mining (P) Ltd. vs Pr. CIT (2021) 130 taxmann.com 118 (Kol) where in similar issues were dealt by the Hon’ble Bench and was held in favour of the assessee.
P.C. Chandra Holding Pvt. Ltd. A.Y. 2017-18 4.4. Ld. Counsel further stated that present case is not a case of lack of enquiry by the ld. AO in the assessment proceedings since specific query was raised by the ld. AO in the questionnaire issued along with notice u/s 142(1) of the Act dated 02.11.2019 wherein at question no. 5 “It was found from the computation that the assessee has claimed deduction @ 50% amounting to Rs. 15,37,987/- and furnishing the certificate of deduction u/s 80G. You are also requested to explain why the full amount will not be added back to the total income.” Assessee has furnished its reply vide submission dated 06.11.2019, copy of which is placed in Paper Book at page 24 & 25. Ld. Counsel thus submitted that ld. AO has taken a plausible view that CSR expenses are allowable u/s 80G of the Act and has allowed the claim of the assessee while completing the assessment. He thus stated that this issue was examined by the ld. AO in the course of assessment proceeding and after having satisfied himself with the explanation/justification offered by the assessee, duly supported by the relevant documentary evidences placed on record, a plausible view was taken by the ld. AO accepting the claim of the assessee.
4.5. Ld. Counsel further placed reliance on the decision of Hon’ble Supreme Court in the case of Malabar Industries Ltd. vs CIT 243 ITR 83 (SC), according to which the CIT has to be satisfied with twin conditions for invoking the revisionary proceedings u/s 263 of the Act. The twin conditions are that the order of the AO sought to be revised is erroneous and is prejudicial to the interest of the revenue.
Per contra, Ld. CIT(DR) placed reliance on the order of Ld. PCIT.
We have heard the rival contentions and perused the material available on record and have given thoughtful consideration to the submission made before us. We observe that in the course of proceedings u/s 263 of the Act, before the Ld. PCIT, assessee had P.C. Chandra Holding Pvt. Ltd. A.Y. 2017-18 furnished the relevant details and explained the issue raised through the show cause notice by the Ld. PCIT, supporting its contentions by various decisions as narrated above. It is well settled law that for invoking the provisions of section 263 of the Act, both the conditions, that the order must be erroneous and prejudicial to the interest of revenue needs to be satisfied. This ratio stands laid down by various Hon'ble Courts.
Before we advert on the facts and law involved in this appeal before us, it is worth apprising ourselves on the law governing the issue involved. In the first place, the assessee company has challenged the very invocation of jurisdiction by Ld. Pr. CIT of his revisional powers u/s 263 of the Act. Therefore, firstly we have to look at the rightful exercise of revisional powers by the Ld. Pr. CIT for which we have to examine whether in the first place the order of the Assessing Officer found fault by the Ld. Pr. CIT is erroneous in so far as it is prejudicial to the interest of the Revenue.
For that, let us take the guidance of judicial precedence laid down by the Hon’ble Apex Court in the case of Malabar Industries Ltd. vs. CIT [2000] 243 ITR 83 (SC) wherein their Lordships 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 in 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 P.C. Chandra Holding Pvt. Ltd. A.Y. 2017-18 issue before him; [because AO has to discharge dual role of an investigator as well as that of an adjudicator] then in aforesaid any of the events, the order passed by the AO can be termed as erroneous order. Looking at the second limb as to whether the actions of the AO can be termed as prejudicial to the interest of Revenue, one has to understand what is prejudicial to the interest of the revenue. The Hon’ble Supreme Court in the case of Malabar Industries (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 AO. Their Lordships held 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.
Admittedly, it is a fact on record that all the relevant documentary evidences relating to the donation and CSR expenses made by the assessee were placed before the authorities below and also forms part of the Paper Book placed on record before us. We have perused all the relevant documentary evidences contained in the Paper Book for which ld. PCIT in the show cause notice had observed that there is no evidence in support of such payment of donation because of which veracity of such payment could not be established. Having perused the records, we do not ascribe to such observation made by the ld. PCIT while invoking the revisionary proceedings u/s 263 of the Act.
9.1. As far as the position of law is concerned in respect of deduction claimed u/s 80G on account of CSR expenses, we note that ld. PCIT has P.C. Chandra Holding Pvt. Ltd. A.Y. 2017-18 referred to Explanation 2 to section 37 inserted by Finance Act, 2014, according to which, expenditure incurred by an assessee on the activities relating to CSR shall not be deemed to be an expenditure incurred by the assessee for the purpose of business. By referring to Explanation 2 to section 37, ld. PCIT drew his consideration that claim of deduction u/s 80G by the assessee of Rs. 15,37,987/- (50% of Rs. 30,75,973/-) is required to be added back in the computation of income. We note that assessee has rightly claimed deduction of CSR expenses u/s 80G of the Act, more importantly, in the light of the fact that it has suo moto added back the amount of CSR expenditure while computing the income under the head income from business. We note that there is no express provision u/s 80G which prohibits allowance of CSR expenses in the form of donation to approved trust except under two instances referred in section 80G(2)(iiihk) and (iiihl) for contribution to Swacha Bharat Kosh and Clean Ganga Fund respectively.
9.2. We also note that Explanation 2 to section 37(1) which denies deduction for CSR expenses by way of business expenditure is applicable only to the extent of computing business income under Chapter IV-D and it cannot be extended or imported to CSR contribution which was eligible for deduction under Chapter VI. Thus in our considered understanding, donation made by the assessee on account of CSR expenses to a trust which is duly registered u/s 80G(5)(vi) is allowable as deduction u/s 80G of the Act. Having so held, which is also fortified by the decision of Co-ordinate Bench of ITAT Kolkata in JMS Mining Pvt. Ltd. (supra), we find that ld. PCIT has not been able to make out a case on the issue raised by him that the order of ld. AO is erroneous in so far as prejudicial to the interest of the revenue.
P.C. Chandra Holding Pvt. Ltd. A.Y. 2017-18 9.3. In respect of issue relating to deduction u/s 80G of Rs. 20,000/- for donation made to Ramkrishna Mission Ashram, ld. PCIT took an adverse view for want of donation receipts and certificate of registration of the donee. Assessee has furnished all the relevant documentary evidences to substantiate its claim which ld. PCIT has failed to consider himself. As already noted above, we do not ascribe to the action taken by the ld. PCIT on this issue also.
The issue regarding whether the assessment order is erroneous or prejudicial on the ground of insufficiency of enquiry has been dealt by the Hon'ble Delhi High Court in the judgment of ITO v. DG Housing Projects Ltd. [2012] 343 ITR 329 (Del), which has been followed by various co-ordinate benches of the ITAT in various cases. Hon’ble High Court while adverting to the issue held that in cases of wrong opinion for finding on merit, the CIT has to come to the conclusion and himself decide that order is erroneous, by conducting necessary enquiry, if required and necessary before the order u/s 263 of the Act is passed. In such cases, the order of the AO will be erroneous because the order passed is not sustainable in law and the said finding must be recorded by CIT who cannot remand the matter to the assessing officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/enquiry made is erroneous. This can happen if an enquiry and verification is conducted by the CIT and he is able to establish and show the error or mistake made by the AO, making the order unsustainable in law.
We find that Ld. Pr. CIT in Para 4 of the impugned order has taken note of the amendment made in section 263 w.e.f. 01.06.2015. This amendment relates to Explanation 2 inserted in section 263 of the P.C. Chandra Holding Pvt. Ltd. A.Y. 2017-18 Act. The co-ordinate bench of Mumbai ITAT has dealt with Explanation 2 as inserted by the Finance Act, 2015 in the case of Narayan Tatu Rane v. Income Tax Officer [2016] 70 taxmann.com 227 (Mum) to hold that the said Explanation cannot be said to have overridden the law as interpreted by the Hon'ble Delhi High Court in DG Housing Projects Ltd (supra), according to which the Ld. Pr. CIT has to conduct an enquiry and verification to establish and show that the assessment order is unsustainable in law. The co-ordinate bench of Mumbai ITAT (supra) has further held that the intention of the legislature could not have been to enable the Ld. Pr. CIT to find fault with each and every assessment order, without conducting any enquiry or verification in order to establish that the assessment order is not sustainable in law, since such an interpretation will lead to unending litigation and there would not be any point of finality in the legal proceedings. The opinion of the Ld. Pr. CIT referred to in section 263 of the Act has to be understood as legal and judicious opinion and not arbitrary opinion.
Considering the above detailed discussion, both on facts and applicable law along with documentary evidences placed on record and judicial precedents relating to the issues raised by the ld. Pr. CIT in invoking the revisionary proceedings, we have no hesitation in quashing the revision order passed by the ld. Pr. CIT u/s 263 of the Act. Accordingly, grounds raised by the assessee are allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 21.12.2022.