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Facts
The assessee company engaged in electricity transmission claimed deduction under section 80G for Corporate Social Responsibility (CSR) expenses. The Assessing Officer allowed this claim. However, the Principal Commissioner of Income Tax (PCIT) initiated revision proceedings under section 263, holding the assessment order erroneous and prejudicial to revenue, directing a fresh assessment.
Held
The Tribunal held that the PCIT's invocation of revision proceedings under section 263 was unjustified. The assessment order allowing the deduction for CSR expenses under section 80G was a plausible view, and the Revenue did not demonstrate that the order was erroneous or prejudicial to its interest. The PCIT's order was quashed.
Key Issues
Whether the revision proceedings initiated by the PCIT under section 263 were justified for allowing deduction of CSR expenses under section 80G, and whether the deduction itself is allowable.
Sections Cited
143(3), 144B, 263, 80G, 37(1)
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Income Tax Appellate Tribunal, AHMEDABAD “B” BENCH
Before: DR. BRR Kumar & Shri T. R. Senthil Kumar
Torrent Power Grid Ltd. The Principal Samanvay, 600, Commissioner of Tapovan, Ambawadi, Vs Income Tax-3, Ahmedabad-380015 Ahmedabad PAN: AACCT2930M (Appellant) (Respondent) Assessee Represented: Shri Dhrunal Bhatt, A.R. Revenue Represented: Shri R P Rastogi, CIT-DR Date of hearing : 04-11-2025 Date of pronouncement : 16-12 -2025 आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:-
This appeal is filed by the Assessee as against the Revision order dated 30.03.2025 passed by the Principal Commissioner of Income Tax, Ahmedabad-3 arising out of the assessment order passed under section 143(3) read with section 144B of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year 2020-21.
Brief facts of the case, the assessee is engaged in the business of transmission of electricity filed its original Return of Income declaring income of Rs.2,04,97,280/-. Regular scrutiny assessment I.T.A.No.1191/Ahd/2025 2 A.Y. 2020-21 Page No Torrent Power Grid Ltd. vs. PCIT was completed on 09-09-2022 accepting the returned income after calling for various details. Perusal of the above assessment order by Ld. PCIT, the assessee claimed higher rate of depreciation on motor car purchased during the year and the assessee company has debited Rs.40,47,714/- in the Profit & Loss account towards Corporate Social Responsibility (CSR) expenses and also claimed deduction u/s.80G of Rs. 10,78,804/- against the same donation to M/s Tornascent Care Institute, whereas the amount of donation which included in the CSR expenses was not allowable. Thus the Ld. A.O. during assessment proceedings allowed the same which has resulted in under assessment of income resulting in erroneous order and is prejudicial to the interest of Revenue. Therefore, a show cause notice dated 22-01-2025 was issued to the assessee as to why not to revise u/s. 263, the assessment order passed by the Assessing Officer. The assessee made a detailed reply, after considering the same Ld. PCIT set-aside the assessment order with a direction to pass fresh assessment order by giving proper opportunity of hearing to the assessee.
Aggrieved against the Revision order, assessee is in appeal before us raising the following Grounds of Appeal:
In law and in the facts and in the circumstances of the case, the order passed by the learned Pr. C.I.T. u/s 263 of the IT. Act is ab initio void being bad in law.
2. In law and in the facts and in the circumstances of the case, the learned Pr. CIT has erred in setting aside the assessment order dated 9th September 2022, passed u/s 143(3) of the Act and directing the Assessing Officer to pass a fresh assessment order.
I.T.A.No.1191/Ahd/2025 3 A.Y. 2020-21 Page No Torrent Power Grid Ltd. vs. PCIT
3. In law and in the facts and in the circumstances of the case, the learned Pr CIT has erred in stating that assessment order dated 09.09.2022 passed u/s 143(3) of the Act, is erroneous and prejudicial to the interest of the revenue on the ground that the claim of excess depreciation on motor vehicle should have been examined and claim of deduction u/s 80G on account of CSR expenditure should have been disallowed by the AO more particularly, when she herself, in para 4.3 of the order u/s 263, has noted that "on the issue of claim of higher rate of depreciation on motor car purchased during the year the assessee has furnished evidence of purchase on 25-10-2019 to clarify that the depreciation has been correctly claimed as per law. The explanation is considered acceptable and so far as deduction u/s 80G is concerned, the appellant has already furnished all details on inquiry from the Assessing Officer 4. The appellant craves leave to add alter amend and/or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal.
At the outset, Ld. Counsel appearing for the assessee brought to our notice that the Ld. PCIT in paragraph no. 4.3 made it clear higher rate of depreciation on motor car were purchased on 25-10- 2019, therefore the claim of depreciation correctly claimed as per law. To this extent, the Revision order passed by Ld. PCIT is against the provisions of law.
On the second issue of CSR expenses and claim of donation u/s. 80G of the Act, Ld. Counsel submitted all details regarding donations were furnished in the Tax Audit Report as well as in the Return of Income and the A.O. has verified the claim during the assessment proceedings following CBDT Circular No. 1/2015 dated 21-01-2015 and General Circular No.01/2016 dated 12-01-2016. Ld. Counsel drawn our attention to the reply filed in response to the notice issued by the A.O. under section 142(1) of the Act which are available at Page Nos. 39 to 41 of the Paper Book.
I.T.A.No.1191/Ahd/2025 4 A.Y. 2020-21 Page No Torrent Power Grid Ltd. vs. PCIT 5.1. Further Ld. Counsel relied upon Co-ordinate Benches of this Tribunal in the case of M/s. Sequel Logistics Pvt. Ltd. in M/s. TTEC India Customer Solutions Pvt. Ltd. in and M/s. Gujarat Mineral Development Corporation Ltd. in wherein the issue of claim of CSR expenses u/s.80G have been dealt with and held that where an enquiry was made by the A.O. during assessment proceedings on the same subject, Revision proceedings cannot be instituted. Thus Ld. Counsel pleaded that the Revision order is liable to be quashed.
Per contra, Ld. CIT-DR appearing for the Revenue fairly conceded on the first issue namely claim of higher rate of depreciation is well within the provisions of law, however the claim of donation u/s 80G on CSR expenses, the same is to be upheld and in support of the same relied on the decision of Delhi Bench ITAT in the case of M/s. Agilant Technologies (International) Pvt. Ltd. –Vs- ACIT, NFAC Delhi reported in (2024) 140 Taxmann.com 238 (Del. Trib.) and sustain the revision order.
We have given our thoughtful consideration and perused the materials available on record including the Paper Book and Case Laws filed by the assessee counsel. It is undisputed fact that during the assessment proceedings, the Assessing Officer issued detailed notice u/s.143(2) calling for the details of donations made to M/s. Tornascent Care Institute and satisfied with the reply filed by the assessee. It is seen from Nos.39 to 41 of the Paper Book, during the assessment proceedings, the assessee filed the details of I.T.A.No.1191/Ahd/2025 5 A.Y. 2020-21 Page No Torrent Power Grid Ltd. vs. PCIT the donation and the 80G exemption certificate granted by Director of Income Tax (Exemption). It is thereafter the assessing officer passed the assessment order dated 10-03-2022 and allowed the claim of deduction u/s. 80G in respect of CSR expenses, which is a plausible view taken by the Ld. A.O. In the above circumstances, the Ld. PCIT is not correct in invoking Revision proceedings u/s. 263 of the Act.
7.1. The Hon’ble Supreme Court in the case of Malabar Industries Ltd. v. CIT [2000] 109 Taxman 66/243 ITR 83 (SC) wherein their Lordship have held that twin conditions needs to be satisfied before exercising revisional jurisdiction u/s. 263 of the Act by the PCIT. The twin conditions are that the order of the Assessing Officer must be erroneous and 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 issue before him; [because AO has to discharge dual role of an investigator as well as that of an adjudicator) then in aforesaid any event the order passed by the Assessing Officer can be termed as erroneous order.
7.2. Coming next to the second limb, which is required to be examined as to whether the actions of the AO can be termed as prejudicial to the interest of Revenue. When this aspect is I.T.A.No.1191/Ahd/2025 6 A.Y. 2020-21 Page No Torrent Power Grid Ltd. vs. PCIT examined one has to understand what is prejudicial to the interest of the revenue. The Hon'ble Supreme Court in the case of Malabar Industries Co. Ltd. (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 Assessing Officer. Their Lordship held that it has to be remembered that every loss of revenue as a consequence of an order of AO cannot be treated as prejudicial to the interest of the revenue. When the AO 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 AO has taken one view with which the PCIT 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". Thus, in our considered view following Apex Court ruling the Revision order passed by Ld. PCIT is not sustainable in law.
On merits of the case, the intention of the Legislature was clear when the same was clarified by the Finance (No.2) Act, 2014 that CSR expenses will not fall under the business expenditure and also there has been an express bar specified in sub clause (iii hk) and (iii hl) of section 80G(2)(a) of the Act that any sum paid by the assessee as donation to Swatch Bharat Kosh and Clean Ganga Fund will not come under the purview of deduction u/s.80G of the Act subject to certain conditions. This justifies the fact that the other donations specified u/s.80G of the Act would be entitled to deduction provided the conditions stipulated u/s. 80G of the Act are satisfied. In the present case in hand, the contributions made I.T.A.No.1191/Ahd/2025 7 A.Y. 2020-21 Page No Torrent Power Grid Ltd. vs. PCIT by the assessee would not fall under the two exceptions specified above which clearly mandates that the assessee is entitled to claim deduction for the donations contributed during the year under consideration u/s. 80G of the Act.
8.1. Thus the CSR expenditure is allowable u/s. 80G of the Act is also no more res integra by a series of decisions by various Co- ordinate Benches of the Tribunal. In the case of M/s. Sequel Logistics Pvt. Ltd. in wherein it was held as follows:
“… 8.1. The Delhi Tribunal in the case of Interglobe Technology Quotient (P.) Ltd. (cited supra) held that mandatory nature of CSR expenditure does not justify disallowance of same u/s. 80G, if other conditions of Section 80G are fulfilled by observing as follows: “7.3 As we take notice of the fact that Parliament legislated that CSR expenses would not be eligible for deduction as business expenditure under section 37 of the Act by inserting Explanation 2 to section 37(1) vide the Finance (No.2) Act, 2014 (applicable from the assessment year 2015- 16), which provided that any expenditure incurred by an assessee on the activities relating to CSR referred to in section 135 of the CA 2011, shall not be deemed to be an expenditure incurred by an assessee for the purpose of business or profession and shall not be allowed as deduction under section 37(1) of the IT Act. The intent of Parliament in bringing the aforesaid provision is given in the Explanatory Memorandum to the Finance (No.2) Bill, 2014 and is reproduced as under; "CSR expenditure, being an application of income, is not incurred wholly and exclusively for the purposes of carrying on business. As the application of income is not allowed as deduction for the purposes of computing taxable income of a company, amount spent on CSR cannot be allowed as deduction for computing the taxable income of the company. Moreover, the objective of CSR is to share burden I.T.A.No.1191/Ahd/2025 8 A.Y. 2020-21 Page No Torrent Power Grid Ltd. vs. PCIT of the Government in providing social services by companies having net worth/turnover/profit above a threshold. If such expenses are allowed as tax deduction, this would result in subsidizing of around one-third of such expenses by the Government by way of tax expenditure.” 7.4. The aforesaid explanatory memorandum categorically expresses the legislative intent and the rationale of disallowance of CSR expenditure referred to in section 135 of the Companies Act, that such expenditure is application of income and not incurred for the purposes of business. We are of considered view that this in itself justifies the grant of deduction u/s 80G. As CSR expenditure is application of income of the assessee under the Income Tax Act, that means it continues to form part of the Total income of the assessee. Section 80G(1) of the Act provides that in computing the total income of an assessee, there shall be deducted, in accordance with the provisions of this section, such sum paid by the assessee in the previous year as a donation. Further, section 80G(2) lists down the sums on which deduction shall be allowed to the assessee. Section 80G falls in Chapter VIA, which comes into play only after the gross total income has been computed by applying the computation provisions under various heads of income, including the Explanation 2 to section 37(1) of the Act. Thus, there is no correlation between suomoto disallowance in section 37(1) and claim of deduction under section 80G of the Act. 7.5 As with regard to the reasoning that CSR expenditure are not voluntary but mandatory in nature due to penal consequences, we are of considered view that voluntary nature of donation is by nature of fact that it is not on the basis of any reciprocal promise of donee. The CSR expenditures are also without any reciprocal commitment from beneficiary being philanthropic in nature. The Act permits deduction of donations as per Section 80G of the Act, even though, assessee is not gaining any benefit out of any reciprocity from donee. Similar is the case of CSR expenditure. Thus the reasoning of learned Tax Authority, the CSR expenditure is mandatory, does not justify disallowance of these expenditures u/s 80G, if other conditions of section 80G are fulfilled. There is no allegation of Revenue that other conditions of Section 80G are not fulfilled. We, thus sustain the ground.”
I.T.A.No.1191/Ahd/2025 9 A.Y. 2020-21 Page No Torrent Power Grid Ltd. vs. PCIT 8.2. The Mumbai Bench of the Tribunal in the case of Alubond Dacs India (P.) Ltd. (cited supra) considered the provisions of Companies Act and I.T. Act and held as follows: “11. We have heard the rival submissions and perused the materials available on record. The only morn question to be decided here is whether the expenditure towards CSR activities are an allowable deduction u/s.80G of the Act. The CSR expenses are governed by section 135 of the Companies Act, 2013, Schedule VII of the Act and Companies (CSR) Policy Rules, 2014 where companies having net worth of Rs 500 crores of more or turnover of Rs. 1000 crores or more or net profit of Rs 5 crores of more have to mandatorily comply with the CSR provisions specified us. 135(1) of the Companies Act, 2011. The above mentioned companies are liable to spend atleast 25% of its average net profit for the immediately preceding three financial years on CSR activities. In the present case, the assessee has contributed Rs 30 lacs to various educational and charitable trust for which the assessee has claimed 50% of the total donation paid as deduction u/s. 800 of the Act. Prior to the Finance (No.2) Act, 2014, the said expenditure was claimed as 'business expenditure' u/s. 37(1) of the Act where after the insertion of Explanation 2 to section 37(1) of the Act, the CSR expenses 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 business or profession. It is observed that the said expenses pertaining to CSR has been claimed as deduction u/s. 80G of the Act which claim was perennially rejected by the Revenue for the reason that only donations which are voluntary in nature will come under the purview of section 80G of the Act and donation towards CSR was merely a statutory obligation on companies as per section 135 of the Companies Act, 2013. It is pertinent to point out that the intention of the legislature was clear when the same was clarified by the Finance (No.2) Act, 2014 that CSR expenses will not fall under the business expenditure and also there has been an express bar specified in sub clause (iiihk) and (iiihl) of section 80G(2)(a) of the Act that any sum paid by the assessee as donation to Swatch Bharat Kosh and Clean Ganga Fund will not come under the purview of deduction u's 80G of the Act subject to certain conditions. This justifies the fact that the other donations specified u/s. 80G of the Act would be entitled to deduction provided the conditions stipulated u/s. 80G of the Act I.T.A.No.1191/Ahd/2025 10 A.Y. 2020-21 Page No Torrent Power Grid Ltd. vs. PCIT are satisfied. In the present case in hand, the contributions made by the assessee would not fall under the two exceptions specified above which clearly mandates that the assessee is entitled to claim deduction for the donations contributed during the year under consideration u/s. 80G of the Act. The decision relied upon by the ld. A.O in the case of PVG Raju (supra) is distinguishable on the facts of the present case where there is no requirement of proving the voluntariness of the donation contributed by the assessee for claiming deduction u/s. 80G of the Act. The amendment brought about by Finance Act, 2015 to section 80G of the Act which had inserted the sub clauses (iiihk) and (iiihl) to be the exception for qualifying a donation for claiming us. 80G of the Act could also be an evidencing factor to substantiate that CSR expenditures which falls under the nature specified in section 30 to 36 of the Act are an allowable deduction u/s 80G of the Act.
On the above observation, we deem it fit to hold that the assessee is entitled to deduction claimed u/s. 80G of the Act towards the CSR expenditure incurred by it. We, therefore, direct the Id. A.O, to allow the claim of the assessee subject to the condition that the assessee has satisfied the other requirements warranted u/s.80G of the Act. Hence, ground no. 2 raised by the assessee is allowed.” 8.3. The Kolkata Bench of the Tribunal in the case of JMS Mining (P.) Ltd (cited supra) held that invocation of revision proceedings under section 263 itself unjustified in denying deduction u/s. 80G on CSR expenditure by observing as follows: “Section 80G, read with section 263, of the Income-tax Act, 1961- Deductions - Donations to certain funds, charitable institutions, etc. (Revision) - Assessment year 2016-17-Assessee- company was a mining service provider engaged in business of management and operation of mines - It claimed deduction under section 80G in respect of donation of certain amount made to Shree Charity Fund and a sum of certain amount given to Pt. Jasraj Music Academy Trust as contribution towards corporate social responsibility (CSR) - Assessing Officer allowed same - Principal Commissioner invoked revision jurisdiction under section 263 on ground that action of Assessing Officer in allowing such claim of assessee for deduction under section 80G was erroneous because CSR I.T.A.No.1191/Ahd/2025 11 A.Y. 2020-21 Page No Torrent Power Grid Ltd. vs. PCIT expenditure could not be allowed as per express prohibition laid down in Explanation 2 of section 37(1). Whether Explanation 2 to section 37(1) which denies deduction for CSR expenses by way of business expenditure is applicable only to extent of computing 'business income' under Chapter IV-D and; it could not be extended or imported to CSR contributions which was otherwise eligible for deduction under Chapter VI, to say, donations made to charitable trusts registered under section 80G-Held, yes Whether, therefore, since said donation on account of CSR was made by assessee to charitable trusts which were duly registered under section 80G(5)(vi), assessee was entitled to claim deduction under section 80G in respect of such contribution - Held, yes - Whether since action of Assessing Officer in allowing claim under section 80G was a plausible view, impugned invocation of revision jurisdiction under section 263 was unjustified-Held, yes [Para 23] [In favour of assessee) Section 37(1), of the Income-tax Act, 1961 Business expenditure Allowability of (Explanation 2) - Assessment year 2016-17 - Whether corporate social responsibility (CSR) expenses which are required to be mandatorily incurred by assessee-company as per section 135 of Companies Act are not entitled to deduction under section 37(1) by virtue of fetter placed by Explanation 2 to section 37(1), which was inserted by Finance (No. 2) Act, 2014-Held, yes [Para 23] [In favour of assessee]” 8.4. Similarly Mumbai Bench of the Tribunal in the case of Societe Generale Securities India (P.) Ltd. and FDC Ltd. held that Revision proceedings are not justified on the claim of deduction under section 80G on CSR expenditure.
Respectfully following the above judicial precedents, we have no hesitation in quashing the Revision order dated 27-03-2024 passed by Ld. PCIT for the Asst. Years 2017-18 and thereby allow the grounds of appeal
raised by the assessee.
10. In the result, the appeal filed by the assessee is hereby allowed.”
9. Regarding the case law relied by the Revenue namely M/s. Agilent Technologies (International) Pvt. Ltd. [cited supra], the same I.T.A.No.1191/Ahd/2025 12 A.Y. 2020-21 Page No Torrent Power Grid Ltd. vs. PCIT was considered by the Mumbai Bench of the Tribunal in the case of ACIT -Vs- M/s. Sikka Ports and Terminals Ltd in dated 30-12-2024 and distinguished the Delhi Tribunal decision in the case of M/s. Agilent Technologies by observing as follows:
7. … The reliance placed by the ld DR on the decision of Agilent Technologies (International) Pvt. Ltd. [supra] is factually distinguishable. The DRP whose order was upheld in the said case, had placed reliance on the decision of the Hon’ble High Court in the case of DCIT vs Hindustan Darr Oliver Ltd [1994] 45 TTJ Mumbai 552 where the payment made was held as not a donation since it was found that the intention behind making the donation was to get reserved seats in the college run by the institute to whom the payments are made as part of CSR spending. As already mentioned, the Revenue is not contending that the assessee in the present case has made payments to get something material in return.
Respectfully following the above judicial precedents, we have no hesitation in quashing the Revision order dated 30-03-2025 passed by Ld. PCIT for the Asst. Years 2020-21 and thereby allow the grounds of appeal raised by the assessee.
In the result, the appeal filed by the assessee is hereby allowed.