WORLEY INDIA PRIVATE LIMITED,MUMBAI vs. PRINCIPAL COMMISSION OF INCOME TAX 2, MUMBAI

3. Subsequently, the Pr.CIT on perusal of the records and information found that, the order passed by the AO under section 143(3) r.w.s 143(3A) & 143(3B) of the Act is erroneous and prejudicial to the interest of the revenue and has issued revision notice U/sec 263 of the Act as under:

“Subject: Notice for Hearing in respect of Revision proceedings u/s 263 of the THE INCOME TAX ACT, 1961-Assessment Year 2018-19 In this regard, a hearing in the matter is fixed on 11/12/2023 at 11:00 AM. You are requested to attend in person or through an authorized representative to submit your representation, if any alongwith supporting documents/information in support of the issues involved (as mentioned below). If you wish that the Revision proceeding be concluded on the basis of your written submissions/representations filed in this office, on or before the said due date, then your personal attendance is not required. You also have the option to file your submission from the e-filing portal using the link: incometaxindiaefiling.gov.in

(A.Y.: 2018-19) Worley India Pvt Ltd, Mumbai .

4. In compliance to the notice, the assessee has filed the detailed submissions vide letter dated 22.12.2023 referred at Page 2 Para 4 of the revision order as under:

“4. In response the assessee submitted written submissions in respect of its claim vide its letter dated 22.12.2023. The relevant extract of the submissions is as under:-

2.30 Your honours attention is invited to Memorandum of Finance Bill, 2015 wherein it was provided that expenditure on account of CSR expenditure will not be allowed as deduction u/s.80G of the Act for donation to Swatch Bharat Kosh and Clean Ganga fund only. Relevant extract of the Act of Memorandum to Finance Bill, 2015 is reproduced below:-

It is proposed to provide that donations made by any donor to the Swachh Bharat Kosh and donations made by domestic (A.Y.: 2018-19) Worley India Pvt Ltd, Mumbai . donors to Clean Ganga Fund will be eligible for a deduction of 100% from the total income. However, any sum spent in pursuance of Corporate Social Responsibility under sub- section (5) of Section 135 of the Companies Act, 2013 will not be eligible for deduction from the total income of the donor.

2.31 Hence, it would not be out of case to mention that if the intent of legislature was that any expenditure towards CSR is not eligible for deduction u/s.80G of the Act, then restriction would not have been made specifically for donation to SwachhKosh and Clean Ganga Fund only. Consequently, where the donation (other than contribution made to Swachh Bharat Kosh and Clean Ganga Fund) is made to the trust/institution covered u/s.80G(5) of the Act, deduction for such donation is allowable to the assesse even if such donation also qualifies as CSR payments u/s. 135(5) of the Companies Act, 2013.

2.50 It is submitted that expenditure incurred towards CSR is not allowable as deduction u/s.37 of the Act while computing the income chargeable under the head income from business and profession. However, where such CSR expenses is covered by any other specific section of the Act (i.e. other than section 37 of the Act), the same is allowable as deductible item to the assessee against the income of the assesse in accordance with provisions of such specific section. Consequently, where the donation made by the assessee is squarely covered by section 80G of the Act: and there is no embargo on claiming of such donation by the assesse unlike contribution made to Swachh Bharat Kosh and Clean Ganga Fund, the assesse is eligible to claim the deduction of such donation under section 80G of the Act while computing its total income even if such donation also qualifies as CSR payment u/s.135(5) of the Companies Act, 2013.

2.51 Admittedly, the assesse did not claim any deduction for the said donation u/s.37 of the Act while computing its income chargeable under the head income from business or profession. The said donation of INR 97,18,340/- Was paid by the assessee to institutions/trust registered u/s.80G of the Act, which is also evident from donation receipts enclosed as Annexure-5. Hence in view of the aforesaid submissions and precedents, it is submitted that the assesse is eligible for (A.Y.: 2018-19) Worley India Pvt Ltd, Mumbai . deduction of Rs.48,59,170/- (i.e. 50% of Rs.97, 18,340/-) u/s.80G of the Act

5. Whereas the Pr.CIT was not satisfied with the explanations and submissions and is of the opinion that the order passed by the AO is erroneous and prejudicial to the interest of the revenue, and accordingly issued directions to the AO observing at Page 14 to 17 of the order as under:

“On perusal of the case records, it is observed that none of these donation receipts are on record. These donation receipts were not asked for by the AO from the assessee. These receipts have been produced during the course of 263 proceedings. The AO during the course of assessment proceedings has not enquired into the nature of the donations made and no enquiry has been made regarding the nature of the donee. It is therefore, seen that no such enquiry has been conducted by the AO during the course of assessment proceedings. This is therefore, a case of no enquiry by the AO and hence the assessment order is erroneous and prejudicial to the interest of revenue as per Explanation 2(a) to section 263 of the IT Act.

(v) It would be pertinent to point out that provisions of eligibility of CSR expenses as business expenses u/s.37(1) of the IT Act was amended by the Finance Act, 2014, wherein it was clarified that CSR expenses will be deemed not to have been incurred for the purposes of business. In the said Memorandum to the Finance Act, it has been clearly stated that these expenses, if allowed as tax deduction would result in an anomalous situation of Government subsidising the said expenditure incurred by the tax payers. The relevant extract of the Memorandum is as follows:-

13.2 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 (A.Y.: 2018-19) Worley India Pvt Ltd, Mumbai . deduction for computing the taxable income of the company. Moreover, the objective of CSR is to share burden 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 subsidising of around one-third of such expenses by the Government by way of tax expenditure This is, both, a case of no enquiry on the issue and also non application of mind on the issue with respect to the clarifications given in the Memorandum to the Finance Act explaining the very basis of bringing the amendment.

'Explanation 2 - For the purpose of this section, it is hereby declared that an order passed by the AO shall be deemed to be erroneous in so far as it is prejudicial to the interest of the revenue, if, in the opinion of the Principal Commissioner or Commissioner,- (a) the order is passed without making inquiries or verification which should have been made.' It is therefore, observed that the AO has made no enquiry on the issue involved.

The ITAT further stated that the word 'erroneous' u/s.263 included a failure on the part of the AO to make proper enquiry as warranted and that the order becomes erroneousmerely for the fact that proper and effective enquiry has not been made.

9. The Hon'ble Calcutta High Court in the case of Maithan International [381 ITR 375] has held as follows:-

16. The power under section 263 of the Act can be exercised where the order of the Assessing Officer is erroneous and prejudicial to the interest of the revenue. When an order is erroneous, then the order is also deficient and in order to remedy the situation, power under section 263 of the Act has been given. Therefore, the view that the power could not have been exercised to allow the Assessing Officer to make up the deficiency is altogether an incorrect impression of the law. Further, incorrect impression of law of the Ld. Tribunal is to be found from the following sentence.

If there is an enquiry, even inadequate, that would not by itself give occasion to the Ld. CIT to pass order u/s.263 of the Act.

From the above, it can be inferred that inadequate enquiry by the Assessing Officer would make the order erroneous and prejudicial to the interest of Revenue. Incorrect assumption of facts and improper application of mind would also make the order erroneous and prejudicial to the interest of revenue.

7. At the time of hearing, the Ld. AR submitted that the Pr. CIT has erred in considering the order passed by the AO is erroneous and prejudicial to the interest of the revenue, irrespective of the fact that the assessee has complied with the information and the notices through ITBA and the A.O. having verified and examined the facts has accepted the information. The Ld. AR submitted that the asssessee has contributed to seven institutions/trusts in the F.Y.2017- 18 under the CSR Expenditure aggregating to Rs.97,18,340/- and these institutions were granted exemption U/sec80G of the Act. The Assessee has not (A.Y.: 2018-19) Worley India Pvt Ltd, Mumbai . claimed the deduction of CSR expenditure in the computation of income for the A.Y.2018-19 but the amount debited to the Audited Profit & Loss account was disallowed under the Head “Income From Business” and the assessee has alternatively claimed deduction @50% of contributions u/sec80G of the Act under Chapter VIA Act of Rs.48,59,170/-. Whereas the AO having considered these facts reflected in the Return of Income has applied his mind and was satisfied with the genuineness of claim and accepted in compliance with the scrutiny guidelines. Further the assessee has submitted the evidences/donation receipts in support of claim of deduction U/sec80G of the Act in the detailed submissions filed vide letter dated22.12.2023 in the revision proceedings U/sec263 of the Act. The Pr.CIT has overlooked these factual aspects and evidences and dealt on the provisions of section 37(1) of the Act and without considering the merits of claim has issued directions to the Assessing officer to conduct enquiries. Further Ld. AR has substantiated the submissions with the factual paper book and judicial decisions and prayed for allowing the assessee appeal.

8. Per Contra, the Ld. DR submitted that the AO has not dealt on the facts that the assessee has made donations and no enquiry was conducted and the Ld.DR relied on the order of the Pr.CIT.

(A.Y.: 2018-19) Worley India Pvt Ltd, Mumbai .

1. Malbar Industrial Co. Ltd Vs. CIT, (SC), 109 taxman 66 2. CIT Vs. Jain Construction Co., 34 taxmann.com 84 (Raj HC) 3. Bajaj Electricals Ltd Vs. Pr. CIT,

4. FDC Ltd Vs. PCIT, 157 taxmann.com 387 (Mum Trib) 5. JMS Mining (P.) Ltd Vs. Pr. CIT, 130 taxmann.com 118 (Kol Trib) 6. Naik Seafoods Pvt Ltd Vs. PCIT, ITA No. 490/Mum/2021 7. Synergia Lifesciences Pvt Ltd Vs. DCIT, ITA No. 938/Mum/2023 8. ACIT Vs. M/s Rustomjee Realty Pvt Ltd., ITA No. 1585/Mum/2023 9. Societe Generale Securities Ind Pvt Ltd Vs. Pr. CIT, ITA No. 1921/Mum/2023. 10. National Seeds Corp Ltd., Vs ACIT, ITA No. 6794/Del/2014 11. Goldman Sachs Services Pvt Ltd Vs. JCIT, TS-331-ITAT- 2020(Bang) 12. Allegis Services (Ind) Pvt Ltd Vs. ACIT, ITA No. 1693/Bang/2019 13. First American (Ind) Pvt Ltd Vs. ACIT, ITA No. 1762/Bang/2019 14. P. C. Chandra Holding Pvt Ltd Vs. Pr. CIT, ITA No. 256/Kol/2022. 10. The AO dealt on the facts in the proceedings but there are no observations in the assessment order. Further the Pr.CIT has erred in overlooking the facts that the assessee has filed the written submissions along with the evidences of claim of deduction u/sec80G of the Act in the revision proceedings and hence the action of the Pr. CIT (A.Y.: 2018-19) Worley India Pvt Ltd, Mumbai . is not acceptable. Whereas the AO has applied the mind and accepted the assessee’s submissions in the complete scrutiny under the E-assessment. We rely on the decision of the Honble High Court of Bombay in the case of M/S Grasim Industries Ltd Vs CIT (321 ITR 92) considered the law laid down by the Honble Supreme Court on the scope of the revisionary proceedings initiated under sec263 of the Act and the observations are read as under:

“Section 263 of the Income-tax Act, 1961 empowers the Commissioner to call for and examine the record of any proceedings under the Act and, if he considers that any order passed therein, by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, to pass an order upon hearing the assessee and after an enquiry as is necessary, enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment. The key words that are used by section 263 are that the order must be considered by the Commissioner to be “erroneous in so far as it is prejudicial to the interests of the Revenue”. This provision has been interpreted by the Supreme Court in several judgments to which it is now necessary to turn. In Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83, the Supreme Court held that the provision “cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer” and “it is only when an order is erroneous that the section will be attracted”. The Supreme Court held that an incorrect assumption of fact or an incorrect application of law, will satisfy the requirement of the order being erroneous. An order passed in violation of the principles of natural justice or without application of mind, would be an order falling in that category. The expression “prejudicial to the interests of the Revenue”, the Supreme Court held, it is of wide import and is not confined to a loss of tax. What is prejudicial to the interest of the Revenue is explained in the judgment of the Supreme Court (headnote) “The phrase ‘prejudicial to the interests of the Revenue’ has to be read in conjunction with an erroneous order passed by the (A.Y.: 2018-19) Worley India Pvt Ltd, Mumbai . Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer, cannot be treated as prejudicial to the interests of the Revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law.” The principle which has been laid down in Malabar Industrial Co. Ltd. [2000] 243 ITR 83 (SC) has been followed and explained in a subsequent judgment of the Supreme Court in CIT v. Max India Ltd. [2007] 295 ITR 282.”

11. Further In the case of Nagesh Knitwears P Ltd (2012)(345 ITR 135), the Hon’ble Delhi High Court has elucidated and explained the scope of the provisions of sec. 263 of the Act and the same has been extracted by the Delhi High court in the case of CIT Vs. Goetze (India) Ltd (361 ITR 505) as under:-

Thus, in cases of wrong opinion or finding on merits, the Commissioner of Income tax has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under section 263 is passed. In such cases, the order of the Assessing Officer will be erroneous because the order is not sustainable in law and the said finding must be recorded. The Commissioner of Income tax cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the Commissioner of Income tax must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the Commissioner of Income tax and he is able to establish and show the error or mistake made by the Assessing officer, making the order unstainable in law. In (A.Y.: 2018-19) Worley India Pvt Ltd, Mumbai . some cases possibly though rarely, the Commissioner of Income tax can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the Assessing officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under section 263 of the Act. In such matters, to remand the matter to the Assessing Officer would imply and mean the Commissioner of Income tax has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question….

Similar view has been expressed by Hon’ble Madras High Court in the case of CIT Vs. Amalgamations Ltd (238 ITR 963).

Order pronounced in the open court on 03.06.2024.