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Facts
The assessee filed its return of income for AY 2020-21, which was accepted by the AO. The PCIT initiated proceedings under Section 263, citing two issues: non-disallowance of interest under Section 201(1A)/206C(7) and inadmissible deduction under Section 80G due to opting for Section 115BAA.
Held
The Tribunal held that the PCIT's order under Section 263 was unsustainable. The interest amount of Rs. 98,791/- was already disallowed by the assessee. Regarding the Section 80G deduction, the restriction under Section 115BAA(2) was applicable from AY 2021-22, not AY 2020-21.
Key Issues
Whether the PCIT's order under Section 263 was justified concerning the disallowance of interest and the eligibility of Section 80G deduction for AY 2020-21 when Section 115BAA was opted for.
Sections Cited
263, 143(3), 144B, 201(1A), 206C(7), 80G, 115BAA, 40(a)(ii)
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Income Tax Appellate Tribunal, “B” BENCH, AHMEDABAD
Before: SHRI SIDDHARTHA NAUTIYAL & SHRI NARENDRA PRASAD SINHA
(Assessment Year: 2020-21) Hester Biosciences Ltd., Vs. Principal Commissioner of Village Mead-Adraj, Taluka Kadi, Income Tax-1, District-Mehsana, Gujarat-384441 Ahmedabad [PAN No.AAACH2863B] (Appellant) .. (Respondent) Appellant by : Shri Dhinal Shah, AR Respondent by: Shri R P Rastogi, CIT-DR 28.07.2025 Date of Hearing Date of Pronouncement 04.08.2025 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-1, (in short “Ld. PCIT”), Ahmedabad vide order dated 05.03.2025 passed for A.Y. 2020-21.
The assessee has taken the following grounds of appeal:
“1. The Learned Principal Commissioner of Income-tax (“Ld. Pr. CIT”) has erred in passing the order under section 263 of the Income-tax Act, 1961 (the “Act”) on the ground that the assessment order under section 143(3) read with section 144B of the Act passed by the Faceless Assessing Officer (“FAO”) is erroneous and prejudicial to the interest of the revenue inasmuch as there is no error by the FAO while passing the impugned assessment order and the order is not prejudicial to the interest of the revenue.
2. 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 jurisdiction 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.
Hester Biosciences Ltd. vs. PCIT Asst. Year –2020-21 - 2– 3. 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 Appellant craves leave to add, alter, amend or withdraw any of the above grounds at or before the hearing of the appeal.”
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– 115BAA(2), which bars certain deductions under Chapter VI-A, applied only from A.Y. 2021-22 onwards, pursuant to amendments made by the Finance Act, 2020. Since the relevant year under consideration was A.Y. 2020-21, the assessee submitted that the deduction under section 80G was legally admissible and in accordance with the provisions then in force. After considering the submissions, of the assessee, the Principal CIT restored the matter regarding the interest under section 201(1A)/206C(7) to the file of the A.O. for limited verification. The A.O. was directed to confirm whether the amount of ₹98,791/- was disallowed by the assessee. If already disallowed, no further action was required; however, if not, the A.O. was instructed to add it back to the total income. On the issue of the 80G deduction, the A.O. was also directed to examine the allowability of the claim under the provisions of section 115BAA as they stood during A.Y. 2020-21, and to consider whether any retrospective amendments impacted the validity of the deduction under section 80G of the Act.
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 Hester Biosciences Ltd. vs. PCIT Asst. Year –2020-21 - 4– regarding this issue. With regard to the disallowance of deduction under section 80G of the Act, the ld. counsel for the assessee submitted that that the basis of the Principal Commissioner’s objection was factually and legally incorrect. It was submitted that the restriction on deductions under Chapter VI-A for companies opting for taxation under section 115BAA of the Act, as originally enacted by the Taxation Laws (Amendment) Act, 2019, was limited only to deductions under the heading “C-Deductions in respect of certain incomes,” excluding section 80JJAA. The ld. counsel for the assessee clarified that section 80G falls under a different heading, namely “B-Deductions in respect of certain payments,” and was not covered by the restriction applicable to A.Y. 2020-21. The assessee further pointed out that the amendment to section 115BAA made by the Finance Act, 2020-which substituted the broader restriction “Chapter VI- A other than section 80JJAA or section 80M”-was only effective from 01.04.2021, and therefore applicable from A.Y. 2021-22 onward, not to the year under review. Thus, the deduction under section 80G claimed in A.Y. 2020-21 was in accordance with the law as it at the relevant time. Accordingly, the ld. counsel for the assessee submitted that that the entire premise of the notice under section 263 was based on a misreading of the applicable provisions of section 115BAA. Since both the disallowance under section 40(a)(ii) and the claim under section 80G were correctly dealt with during the assessment, and the A.O. had not committed any error or caused any prejudice to the Revenue, the initiation of revisionary proceedings under section 263 was unjustified and not legally sustainable.
In response, Ld. DR placed reliance on the observations made by the PCIT in the 263 order.
We have heard the rival contentions and perused the material on record.
Hester Biosciences Ltd. vs. PCIT Asst. Year –2020-21 - 5– 8. 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 under section 115BBA of the Act. No specific infirmity has been pointed by PCIT as to the eligibility of claim of deduction under section 80G of the Act. In our considered view, initiation of proceedings under section 263 of the Act is on a misplaced understanding of the provisions of the Act as applicable to the assessee and accordingly, order passed by PCIT under section 263 of the Act is not sustainable in law.
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