TAMILNADU TRANSPORT DEVELOPMENT FINANCE CORPN. LTD.,CHENNAI vs. PCIT, CHENNAI-3,, CHENNAI

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ITA 1041/CHNY/2025Status: DisposedITAT Chennai25 September 2025AY 2020-21Bench: SHRI MANU KUMAR GIRI (Judicial Member), SHRI AMITABH SHUKLA (Accountant Member)6 pages

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

AI SummaryDismissed

What did the Tribunal hold?

The tribunal dismissed the assessee's appeal, affirming the PCIT's authority to invoke Section 263 as the AO's failure to inquire into CSR expenses made the order erroneous and prejudicial. However, the tribunal directed the AO not to be influenced by the PCIT's specific observations on the merits of CSR expenses during the fresh assessment, ensuring an impartial decision.

What were the facts?

The assessee's income tax return was subjected to scrutiny assessment under Section 143(3). The Assessing Officer (AO) did not disallow Corporate Social Responsibility (CSR) expenses of Rs.20.58 lakhs. Subsequently, the PCIT initiated revisionary proceedings under Section 263, holding that the AO's order was erroneous and prejudicial to the revenue for not making inquiries into these CSR expenses.

What were the issues?

The validity of the PCIT's revisionary authority under Section 263 when the AO fails to inquire into the disallowance of Corporate Social Responsibility (CSR) expenses during an assessment under Section 143(3), thereby making the order erroneous and prejudicial to the revenue.

Which sections of the Income-tax Act were involved?

Section 263,Section 143(3),Section 37(1),Section 30,Section 36,Section 43B

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI

Before: HON’BLE SHRI MANU KUMAR GIRI & HON’BLE SHRI AMITABH SHUKLA

Hearing: 08.09.2025Pronounced: 25.09.2025

Assessment Years: 2020-21 Tamil Nadu Transport Development Principal Commissioner of Income Finance Corporation Limited, Tax, Tamil Nadu Tourism Complex, Chennai-3, 4th Floor, No.2, Wallajah Road, Chennai. Anna Road, Chennai-600 002. [PAN: AAACT0747L] (अपीलार्थी/Appellant) (प्रत्यर्थी/Respondent) अपीलार्थी की ओर से/ Assessee by : Mr.N.Arjun Raj, Advocate प्रत्यर्थी की ओर से /Revenue by : Ms.R.Anitha, Addl-CIT सुनवाई की तारीख/Date of Hearing : 08.09.2025 घोषणा की तारीख /Date of Pronouncement : 25.09.2025 आदेश / O R D E R PER AMITABH SHUKLA, A.M :

This appeal is filed by the assessee against the order bearing DIN & Order No.ITBA / REV / F/ REV5 / 2024-25 / 1074641443(1) dated 18.03.2025 of the Learned Principal Commissioner of Income Tax [herein after “PCIT, Chennai-3, Chennai for the assessment year 2020-21. The reference to the word “Act” in this order hereinafter shall mean the Income Tax Act, 1961 as amended from time to time. 2.0 The only issue raised by the assessee through its grounds of appeal in this case is regarding the validity of revisionary authority exercised by the Ld.PCIT-3, Chennai u/s 263 of the Act vide his order dated 18.03.2025. The Ld.Counsel submitted that the assessee is a government entity only owned by the Government of Tamil Nadu and is engaged in providing finance to state owned transport corporation. Explaining the brief factual matrix it was submitted that Return of Income declaring income of Rs.18,66,98,250/- was filed. The Ld.AO completed scrutiny assessment u/s 143(3) vide his order dated 05.09.2022 after making an addition of Rs.31,99,000/- by disallowing provisions of even amount, made by the assessee for its standard assets. The impugned assessment order was examined by the Ld.PCIT-3, Chennai within the meanings of section 263 of the Act. It was noted that the assessee had debited an amount of Rs.20.58 lakhs as Corporate Social Responsibility (CSR) expenses in its profit and loss accounts. The Ld.PCIT held the view that the same was liable for disallowance u/s 37. (1) of the Act. Accordingly, he issued notice to the assessee for exercising his revisionary authority qua order u/s 143(3) dated 05.09.2022. A show cause notice was issued to the assessee holding that by not enquiring into the issue of CSR expenses of Rs.20.58 lakhs, the impugned order dated 05.09.2022 has fallen into the category of being an order which is erroneous in so far as it is prejudicial to the interest of the Revenue under clause(a) of explanation-2 of sub-section-1 of section 263. After

Page - 2 - of 6 considering the submissions of the assessee the Ld.PCIT in para 8.2 and para 9 on page 36 of his order held as under: “….8.2 It is seen from the return of income filed by the assessee company has debited an amount of Rs.20.58 lakhs towards CSR expenditure. This expenditure has not been added back to the total income of the assessee company. The intent of the legislature was never to allow deduction for CSR expenditure as it could result in subsidizing the expenditure proportionately. In view of explanation 2 of provision s of Sec.37(1) of the Act, the assessee is required to disallow the expenditure made on account of CSR and brought to tax. As per Section 37 of the Income Tax Act, 1961, any expenditure incurred by an assessee wholly and exclusively for the purposes of the business or profession and that is not in the nature of capital expenditure or personal expenditure and not specifically allowable under any other section from section 30 to 36, can be claimed as a deduction, subject to conditions. CSR expenses do not fall under the category of allowable business expenses and must, therefore, be disallowed.

9.

It is apparent from the records that the Assessing Officer has not considered the disallowance of CSR expenses while passing the assessment order which ahs direct implications on the income and tax liability of the assessee. Therefore, the assessment is erroneous as it is prejudicial to be interest of revenue. In view of this, I hereby partly set aside the assessment to the file of the Assessing Officer to examine the issue in detail and complete the assessment after affording reasonable opportunity of being heard to the assessee...” 3.0 The Ld.Counsel for the assessee was asked as to how and when the issue of impugned CSR expenses was enquired into by the Ld.AO. It was submitted that though the Ld.AO during the assessment Page - 3 - of 6 proceedings, initiated under complete scrutiny category, had enquired into its affairs, it did not expose the assessee to any direct question on the issue of allowance of CSR expenses. The Ld.Counsel for the assessee has however argued that the decision of Ld.PCIT extracted in para 8.2 supra reveals that he has issued directions to the assessing officer regarding inadmissibility of CSR expenses per se and that the same therefore forecloses assessee’s defense regarding allowance these expenses , available under other provisions of the Act. 4.0 Per contra the Ld.DR placed heavy reliance upon the order of PCIT-3, Chennai. 5.0 We have heard rival submissions in the light of material available on records. We have noted that the action u/s 263 were initiated by the Ld. PCIT-3, Chennai to enquire into assessee’s claim of payment of leave salary u/s 43B and of CSR expenses amounting to Rs.17,38,339/- and Rs.20,58,000/- respectively. Being satisfied with the bona-fides of assessee’s claim of payment of leave salary u/s 43B amounting to Rs.17,38,339/- the Ld. PCIT-3, Chennai dropped the charge. However, as regards the issue of CSR expenses amounting Rs.20,58,000/-, he drew his conclusions as extracted hereinabove. We find sufficient force in the argument of the Ld.AR that the Ld. PCIT-3, Chennai through his impugned observations has tried to create a prejudice in the mind of the Ld.AO regarding allowance of CSR expenses amounting Rs.20,58,000/-, Page - 4 - of 6 and that the same may act against the assessee in the course of consequent assessment proceedings. The Ld.Counsel for the assessee has submitted that the assessment proceedings consequent to the order u/s 263 are still pending. 6.0 As regards the issue of validity of exercise of revisionary authority by the Ld. PCIT-3, Chennai, we have noted that the present scrutiny case before the Ld.AO was one of complete scrutiny category and therefore it was bounden upon the Ld.AO to have enquired into each and every aspect of the claims made by the assessee. This duty of the Ld.AO was all the more necessary in respect of claims of expenses like those pertaining to CSR expenses, which had a direct impact on reduction of tax liability. Thus, it is a fit case which falls within the meanings of clause-(a) of explanation-2 of section 263(1) which mandates that an order , shall be deemed to be erroneous in so far as it is prejudicial to the interest of the Revenue, if it is passed without making enquiries or verification that should have been made. Accordingly, we are of the considered view that the Ld. PCIT-3, Chennai was well within his statutory rights to have invoked his revisionary powers u/s 263 qua order passed u/s 143(3) dated 05.09.2022. Consequently, all the grounds of appeal

raised by the assessee are dismissed. 7.0 However, we also find force in the arguments of the Ld.AR that the contents of para of 8.2 of the order of the Ld. PCIT-3, Chennai are Page - 5 - of 6. Ld.AO as far as allowance of the impugned CSR expenses of Rs.20.58 lakhs is concerned. We therefore direct the Ld.AO not to consider the comments and observations of the Ld. PCIT-3, Chennai given in para of 8.2 of the order and to consider their admissibility in accordance with law, after giving due opportunity of being heard and by passing a speaking order. 8.0 In the result, the appeal of the assessee is dismissed. Order pronounced on 25th , Sept-2025 at Chennai. Sd/- Sd/- (मनु कुमार धिरर) (अधमताभ शुक्ला) (MANU KUMAR GIRI) (AMITABH SHUKLA) न्याधयक सदस्य / Judicial Member लेखा सदस्य /Accountant Member चेन्नई/Chennai, धदनांक/Dated: 25th , Sept-2025. KB/- आदेश की प्रतितिति अग्रेतिि/Copy to: 1. अिीिार्थी/Appellant 2. प्रत्यर्थी/Respondent 3. आयकर आयुक्त/CIT - Chennai/Coimbatore/Madurai/Salem. 4. तिभागीय प्रतितिति/DR 5. गार्ड फाईि/GF

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