HESTER BIOSCIENCE LIMITED,MEHSANA vs. THE PR.CIT-1, AHMEDABAD

The Ld. Pr. CIT has erred in giving direction to the assessing officer (“AO”) to verify the position of law as it stood for assessment year (“AY”) 2020-21, inasmuch as it is the juri iction of the Pr. CIT to decide first whether the assessment order is erroneous i.e. not in accordance with the position of law as applicable for the year under consideration, or not, and Ld. Pr. CIT cannot shift such responsibility to the AO. Asst. Year –2020-21 - 2–

The Ld. Pr. CIT has erred in passing the order under section 263 of the Act inasmuch as both the issue of granting deduction under section 80G of the Act and computing income as per the provision of section 115BAA of the Act are adjudicated by the FAO at the time of assessment proceedings and hence same is not erroneous and prejudicial to the interest of revenue and that it amounts to change of opinion which is not permitted.

The brief facts of the case are that the assessee filed its return of income for the Assessment Year 2020-21 on 15.02.2021, declaring a total income of ₹42,11,75,240/-. The assessment was completed under section 143(3) read with section 144B of the Income-tax Act, 1961 (Act) on 10.09.2022, wherein the Assessing Officer (A.O.) accepted the income as returned, without making any adjustments or disallowances. Upon examination of the records, the Principal Commissioner noted two key issues that rendered the assessment order erroneous and prejudicial to the interests of the Revenue. First, it was observed that the assessee’s auditor had certified in the tax audit report that interest under section 201(1A) or 206C(7) amounting to ₹98,791/- was payable. However, this amount was not disallowed while computing the total income, nor was it disallowed by the A.O. during assessment. Second, the assessee had claimed a deduction of ₹1,32,40,376/- under section 80G of the Act, which appeared inadmissible to Principal CIT due to the assessee’s having opted for taxation under section 115BAA of the Act. Principal CIT was of the view that since the A.O. failed to disallow either of these items, the order was erroneous and prejudicial to the interest of the Revenue. In response, the assessee submitted that it had already disallowed interest on TDS under section 40(a)(ii) of the Act amounting to ₹1,75,61,505/- and this included the interest amount of Rs. 98,791/-, which is in question. Regarding the deduction under section 80G of the Act, the assessee submitted that that the restriction under section Hester Biosciences Ltd. vs. PCIT Asst. Year –2020-21 - 3–

Before us, the Counsel for the assessee primarily reiterated the submissions made before PCIT.

On the issue of interest under section 201(1A), the ld. counsel for the assessee submitted that the assessee had already disallowed a total sum of ₹1,75,61,505/- under section 40(a)(ii) of the Act, which includes the interest amount of Rs. 98,791/- reported in the Tax Audit Report. This disallowance was reflected in the computation of income filed along with the return, and supporting documents including ledger copies and computation extracts were placed on record before us. Since the interest amount was already added back while computing taxable income, the ld. counsel for the assessee argued that there was no omission on this front, and thus no error in the assessment order Asst. Year –2020-21 - 4–

During the course of hearing before us, we asked the Counsel for the assessee to submit a table to substantiate that the sum of Rs. 98,791/- was disallowed by the assessee while computing it’s taxable income in the return of income. The Counsel for the assessee has submitted a chart giving the details of total disallowance under Section 40(a)(ii) of the Act amounting to Rs. 1,75,61,505/- and has also highlighted that a sum o fRs. 98,791/- has been suo moto disallowed by the assessee and duly offered by the assessee in the return of income. From the details placed on record, since the assessee has demonstrated that a sum of Rs. 98,791/- has been duly disallowed and offered to tax by the assessee in the return of income, in our considered view 263 proceedings cannot be initiated on this ground. So far as initiation of proceedings under section 263 of the Act with respect to deduction claimed under section 80G of the Act on the ground that since the assessee has opted for provisions of section 115BAA of the Act, then such claim of deduction under section 80G was not admissible is concerned, we observe that from a bare reading of provisions of section 115BAA of the Act, it is evident that such restriction to claim of deduction under section 80G of the Act came into effect from A.Y. 2021-22 and so far as deduction under section 80G of the Act for the impugned assessment year is concerned, there is no restriction / prohibition in the Act. We note that the relevant part of the Statute was brought to the attention of PCIT, and yet the PCIT proceeded to set-aside the assessment order as being erroneous in so far as prejudicial to the interest of the Revenue. We are of the considered view that the order passed by the PCIT on this issue is clearly unsustainable in law. This is for the simple reason that even on a bare reading of 115BAA of the Act, as it stood for the impugned assessment year under consideration, there is no prohibition / restriction on the assessee to claim deduction under section 80G of the Act even if assessee has opted to be taxed Asst. Year –2020-21 - 6–

In light of our observations, we are of the considered view that order passed by PCIT under section 263 of the Act is not sustainable in law and hence liable to be set-aside.

In the result, the appeal of the assessee is allowed. This Order is pronounced in the Open Court on 04/08/2025 (NARENDRA P. SINHA) JUDICIAL MEMBER Ahmedabad; Dated 04/08/2025