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Facts
The assessee claimed a deduction of Rs. 17,50,000 under section 80G for CSR expenditure. The Principal CIT invoked section 263, holding that CSR expenditure cannot be considered a voluntary donation under section 80G and that the AO had failed to make proper inquiries.
Held
The Tribunal held that CSR expenditure, if fulfilling the conditions of section 80G, retains its nature as a donation, and that the assessee's claim was not barred by opting for taxation under section 115BAA for AY 2020-21. The PCIT's assumption of jurisdiction under section 263 was not warranted.
Key Issues
1. Whether CSR expenditure qualifies for deduction under section 80G. 2. Whether opting for section 115BAA bars deduction under section 80G for AY 2020-21. 3. Whether the PCIT's invocation of section 263 was justified.
Sections Cited
263, 143(3), 144B, 80G, 115BAA, 135, 37(1), 80JJAA, 80M, 143(2), 142(1)
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Income Tax Appellate Tribunal, “B” BENCH, AHMEDABAD
Before: SHRI SIDDHARTHA NAUTIYAL & SHRI NARENDRA PRASAD SINHA
(Assessment Year: 2020-21) Vibrant Advertising Pvt. Ltd., Vs. Principal Commissioner of 701, Capstone, Surendra Mangaldas Income Tax, Road, Opp. Chirag Motors, Ahmedabad-3 Ellisbridge, Ahmedabad-380006 [PAN No.AAACV7737Q] (Appellant) .. (Respondent) Appellant by : Shri Nimesh Vora, AR Respondent by: Shri R P Rastogi, CIT-DR Date of Hearing 31.07.2025 Date of Pronouncement 06.08.2025 O R D E R
PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER:
This appeal has been filed by the Assessee against the order passed by the Ld. Principal Commissioner of Income Tax-3, (in short “Ld. PCIT”), Ahmedabad vide order dated 30.03.2025 passed for A.Y. 2020-21.
The assessee has taken the following grounds of appeal:
“Order passed u/s 263 of the Act is bad in law and without jurisdiction: 1. erred in passing the order u/s 263 of Act without providing an Opportunity of being heard on the issue for which assessment is set aside; 2. erred in setting aside the assessment completed u/s 143(3) r.w.s. 144B of the Act by the Faceless assessing officer as erroneous and prejudicial to the interest of revenue without appreciating that such an action can be taken only by PCIT having jurisdiction under Faceless regime; 3. erred in setting aside the assessment completed u/s. 143(3) rrw.s 144B of the Act for a debatable issue of allowability of deduction under section 80G on donations Vibrant Advertising Pvt. Ltd. vs. PCIT Asst. Year –2020-21 - 2– made as a part of CSR expenditure, which is outside the purview of revision proceedings under section 263 of the Act; 4. failed to appreciate that the assessment order u/s 143(3) r.w.s. 144B of the Act is neither erroneous nor prejudicial to the interest of the revenue as the same was duly passed basis requisites documents available with the AO and as supported by judicial precedents; and Disallowance of deduction u/s 80G: 5. erred in directing disallowance of deduction u/s 800 on donations made as a part of CSR expenditure of Rs. 17.50,000/- without appreciating that the claim of deduction fulfils all prescribed conditions; The Appellant craves leave to add, amend, delete, rectify, substitute, modify, or otherwise, all or any of the aforesaid grounds or add a new ground(s) at any time before or during the hearing of the above appeal.”
The brief facts of the case are that the assessee-company had originally filed its return of income on 06.02.2021 declaring a total income of ₹14,16,80,730/-, and the case was selected for complete scrutiny under CASS. The assessment was completed under section 143(3) read with section 144B of the Act, accepting the return of income filed by the assessee, without any variation. On subsequent verification of records, the Principal Commissioner of Income-Tax (Principal CIT) noticed two significant issues in the assessment order which rendered it erroneous and prejudicial to the interest of the Revenue. Firstly, it was observed that the assessee had opted for taxation under section 115BAA of the Act and computed tax at the concessional rate of 22%, which is permissible only if certain specified deductions, including those under Chapter VIA, are foregone by the assessee. However, the assessee had claimed a deduction of ₹17,50,000/- under section 80G of the Act on account of donations forming part of its CSR expenditure. The PCIT noted that CSR expenditure, being a statutory obligation under section 135 of the Companies Act, 2013, cannot be considered voluntary in Vibrant Advertising Pvt. Ltd. vs. PCIT Asst. Year –2020-21 - 3– nature and hence does not qualify as a “donation” under section 80G of the Act. Therefore, the deduction claimed by the assessee u/s 80G of the Act was not allowable under the Act. The Principal CIT further observed that the legislative intent behind CSR provisions was to impose a mandatory social responsibility on corporations, whereas section 80G of the Act covers voluntary contributions made without legal compulsion. Allowing deduction for CSR spending under section 80G of the Act would, therefore, defeat the purpose of the CSR legislation by effectively shifting the burden to the exchequer through tax benefits. Secondly, the PCIT held that the Assessing Officer failed to make any inquiry or verification on this issue during the original assessment proceedings. The AO neither raised any query regarding the eligibility of deduction under section 80G of the Act nor examined whether the claimed deduction pertained to CSR spending. The Principal CIT noted that there was a lack of inquiry by the AO on this issue during assessment proceedings, which renders the assessment order as being erroneous and prejudicial to the interest of the Revenue, necessitating revision under section 263 of the Act. Accordingly, the Principal CIT set aside the assessment order and directed the Assessing Officer to frame a fresh assessment after disallowing the deduction claimed under section 80G of the Act for the CSR expenditure.
On hearing both the parties before us, we note that there are two primary issues for consideration before us. Firstly, whether once the assessee has opted for being taxed u/s 115BAA of the Act (concessional rate of taxation @22%), then whether the assessee could also claim benefit of deduction u/s 80G of the Act for the Impugned year under consideration.
Vibrant Advertising Pvt. Ltd. vs. PCIT Asst. Year –2020-21 - 4– Secondly, whether the CSR activities can be claimed as a deduction u/s 80G of the Act and the nature of donations relating to CSR expenditure did not fall into any of the exceptions provided u/s 80G of the Act. As regards the first issue of deduction under section 80G being claimed despite the assessee opting for taxation under section 115BAA, we note that the relevant provision of section 115BAA as introduced by the Taxation Laws (Amendment) Act, 2019, was applicable for AY 2020–21 and did not bar deductions under Chapter VI-A in its entirety. The restriction, as originally enacted, applied only to deductions under Chapter VI-A “under the heading C-Deductions in respect of certain incomes” and not to Chapter VI-A as a whole. Section 80G falls under Part B-“Deductions in respect of certain payments”-and thus did not fall within the scope of prohibited deductions as per the then prevailing version of section 115BAA for the relevant year. It was only by way of an amendment introduced through the Finance Act, 2020 with effect from AY 2021–22 that all deductions under Chapter VI-A, except sections 80JJAA and 80M of the Act, were barred for a Company opting for the concessional rate under section 115BAA of the Act. The present assessment year being AY 2020–21, the restriction on deduction under section 80G was not applicable. Further, on the second issue regarding the allowability of CSR expenditure under section 80G of the Act, we note that several judicial authorities have categorically held that statutory CSR contributions, if otherwise fulfilling the conditions prescribed under section 80G of the Act do not lose their nature as donations merely because they are mandated under section 135 of the Companies Act. Further, we note that during the course of argument, the Counsel for the specified that the case of the assessee is not falling under the exceptions provided under Section 80G(2)(iiihk) & (iiihl) so as to deny the Vibrant Advertising Pvt. Ltd. vs. PCIT Asst. Year –2020-21 - 5– claim in respect of CSR activity. The Ahmedabad Bench of the ITAT in AIA Engineering Ltd. vs. Principal CIT (ITA Nos. 309 & 310/Ahd/2024), the Delhi Bench in Interglobe Technology Quotient Ltd (2024) 163 taxmann. com 542 (Del), the Mumbai Benches in Alubond Dacs India P Ltd. vs. DCIT (2024) 163 taxmann. com 536 (Mum) and Societe General Securities India P Ltd - (2023) 157 taxmann. com 533 (Mum), and the Kolkata Bench in JMS Mining (P.) Ltd. vs. PCIT (2021) 130 taxmann.com 118 (Kol) have consistently held that CSR expenses, though statutory in nature, do not ipso facto disentitle the assessee from availing deduction under section 80G of the Act, provided all other statutory requirements under that section are met. These decisions have clarified that Explanation 2 to section 37(1), which bars CSR expenses as deductible business expenditure, does not extend to disallowance under section 80G of the Act, and that such donations still retain their voluntary and philanthropic character in the eyes of section 80G of the Act. Moreover, we observe that the AO, during the original assessment proceedings, had examined the return and submissions made by the assessee and accepted the claim. There is no material on record to suggest that the AO acted arbitrarily or without application of mind. The assessment order was passed after due notice and reply under sections 143(2) and 142(1) of the Act, and the assessee had furnished all necessary details and disclosures. Merely because the PCIT holds a different legal view on the interpretation of section 80G of the Act in the context of CSR contributions, it does not render the assessment order erroneous. In the present case, the AO's view allowing the deduction under section 80G of the Act cannot be said to be patently erroneous given the legal position applicable to the relevant assessment year and the plausible view taken by various coordinate benches of the Tribunal. Accordingly, in light of the applicable legal provisions for AY 2020–21, the judicial precedents on the allowability of CSR-related donations under section 80G of the Act, and the absence of any material to suggest non-application of mind by the AO, we are of the considered view that the assumption of jurisdiction under section 263 by the PCIT was not warranted. The revisionary order passed under section 263 is therefore liable to be quashed.
In the result, the appeal of the assessee is allowed and the order passed under section 263 of the Act by the Principal CIT is quashed.
In the result, the appeal of the assessee is allowed. This Order is pronounced in the Open Court on 06/08/2025