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Facts
The assessee company made a CSR contribution of Rs. 67,50,000 to the Prime Minister's National Relief Fund. While disallowing this as business expenditure under Section 37(1), the Assessing Officer allowed it as a deduction under Section 80G. The Principal Commissioner of Income Tax (PCIT) initiated proceedings under Section 263, holding the assessment order to be erroneous and prejudicial to revenue, stating that CSR expenditure, once disallowed under Section 37, cannot be claimed under Section 80G.
Held
The Tribunal held that the PCIT's order under Section 263 was not sustainable. The Assessing Officer had examined the issue of deduction under Section 80G during the assessment, and the deduction for CSR contribution to the Prime Minister's National Relief Fund was allowable under Section 80G(2)(a)(iiia) as there was no specific ineligibility for this particular fund, unlike contributions to Swach Bharat Kosh and Clean Ganga Fund. The Tribunal noted that Section 37 and Section 80G are distinct and mutually exclusive.
Key Issues
Whether the Principal Commissioner of Income Tax was justified in invoking Section 263 to revise the assessment order, considering the Assessing Officer had already examined the deduction claim under Section 80G for CSR contribution.
Sections Cited
Section 263, Section 143(3), Section 37(1), Section 80G, Section 80G(2)(a)(iiia), Section 80G(2)(a)(iiihk), Section 80G(2)(a)(iiihl), Section 135 of Companies Act, 2013
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Income Tax Appellate Tribunal, JAIPUR BENCHES,”A” JAIPUR
Before: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, vk;dj vihy la-@ITA No. 362/JP/2023
the assessment order passed by NeAC on 01.02.2021 may not be revised u/s. 263 and may not be treated as erroneous and prejudicial to the interest of the revenue. In response, the assessee has filed a reply on 03.03.2023 agitating the proposed revision of the assessment order passed u/s. 143(3) of the Act. The ld. PCIT considered the submissions filed by the assessee and in the facts and circumstances of the case he find that the contentions of the assessee are not tenable and therefore, he exercised the power u/s. 263 of the Act and directed the ld. AO to examine the issue and pass suitable order after affording opportunity of being heard to the assessee.
The assessee has challenged the invocation of power u/s. 263 of the Act stating that the issue that the ld. PCIT has raised has already been matter that is raised by the PCIT and therefore, the law does not empower the ld. PCIT to review the order of the NeAC(ld.AO). On the aspect of the matter the bench noted from the submission of the assessee that the ld. NeAC(ld. AO) has called for the computation of income of the assessee and also called for the details of the deduction claimed u/s. 80G of the Act specifying the (i) stamped payment receipt with details like name, address and PAN of the trust, amount donated and name of the doner, (ii) Evidence of proof of donation by non cash means and (iii) Proof of donee’s registration under 80G. This information was provided and verified by the ld. AO and thereafter he applied mind on the issue and has allowed the claim of the assessee. The bench also noted from the observation of the ld. PCIT that she has raised the objection on the count that the assessee had incurred expenditure under the head corporate social responsibility and further the same was claimed as a deduction u/s. 80G of the Act. She further noted that as per explanation 2 to sub section (1) of section 37, any expenditure incurred by an assessee on the activities relating to corporate social responsibility 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 the business or profession. Thus, the expenditure of �67,50,000 80G, since the expenditure was disallowed under a particular section could not have been allowed under another section. Further it is seen that the faceless assessing officer has not examined or verified the deduction claimed under section 80G and allowed the same without verification. As against these observations the ld. AR of the assessee submitted that the issue being verified by raising the specific query and has taken a view that is a plausible view of the matter. Thus, on this issue the ld. FAO has taken a plausible view of the matter and ld. PCIT failed to observe any error on the claim of the assessee. The assessee in the proceeding before her categorically deal with the aspect of the matter that why even though the claim is disallowable u/s. 37(1) of the Act the same is allowable u/s. 80G of the Act so far as it relates to the contribution made to the Prime Minister Relief Fund. The assessee also in support of the contention relied upon the decision in the case of M/s. INFINERA India P. Ltd. Vs JCIT and JMS Mining P. Ltd. Vs. PCIT 62 CCH 352. The ld. PCIT has not dealt with the important aspect of the matter raised by the assessee and has the order passed by the ld. AO as erroneous and prejudicial to the interest of the revenue. Thus, without doing so we are of the considered view that the issue has been carefully examined by the FAO while passing the order u/s scheme framed by the Board. There are plethora of decisions that when the Assessing Officer has considered the issue on hand and has taken a plausible view of the matter merely the Assessing Officer ought to have been verified the other facet on the issue and same is not mentioned in the order it does not tantamount that order is erroneous and prejudicial to the interest of the revenue and thus cannot support the invocation of provisions of Section 263 of the Act. In fact the provision of section 263 of the Act nowhere allow to challenge the judicial wisdom of the ld. AO or to replace the wisdom of the PCIT in the guise of revision unless the view taken by the ld. AO is not at all sustainable in the law. The extent of the enquiry can be stretched to any level by forcing the AO to go through the assessment process again and again and that case there cannot be a finality of the issue. Here in this case it is noted by the bench that on the issue raised the judicial precedent are in favour of the assessee when the assessment is completed and the ld. AO has taken a plausible of the matter and concluded the limited assessment the order of the FAO cannot be considered as erroneous or prejudicial. The co-ordinate bench of this tribunal in the case of Annu Agrotech Private Limited in already taken a view that in case of limited scrutiny, scope of examination assessee was selected. AO cannot proceed to examine the issues, which are beyond the scope of the limited scrutiny. The bench also noted that the assessee has cited the judicial precedent stating that the view taken by the ld. AO is not erroneous or prejudicial and the claim of the assessee is withing the four corner of the law. Therefore, we are of the view that the issues which are already settled on those issues there cannot be applied the provision of the section 263 of the Act. Not only that, the order has been passed in this case by NeAC where there are as much as four units i.e. Assessment unit, Verification unit, Technical unit and Review unit.
The prerequisite for exercising the jurisdiction by the learned Principal CIT under section 263 of the Act is that the order of the AO is established to be erroneous in so far as it is prejudicial to the interest of the Revenue. The ld. PCIT has to be satisfied of twin conditions, namely (i) the order of the AO sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If any one of them is absent i.e., if the assessment order is not erroneous but it is prejudicial to the Revenue, provision of section 263 cannot be invoked. This provision cannot be invoked to correct each and every type of mistake or error committed by the AO; it is only when an order be attracted. An incorrect assumption of the fact or an incorrect application of law will satisfy the requirement of the order being erroneous. The phrase 'prejudicial to the interest of the Revenue has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue as a consequence of the order of the AO cannot be treated as prejudicial to the interest of the Revenue. It is pertinent to mention that if the AO has adopted one of the two or more courses permissible in law and it has resulted in loss of revenue, or where two views are possible and AO has taken one view with which the Pr. CIT does not agree, it cannot be treated as an erroneous order and it is prejudicial to the interest of the Revenue, unless the view taken by the AO is totally unsustainable in law. In this process even the AO has no power to review his own. In this regard, we draw strength from the decision of the Hon'ble Supreme Court in the case of Malabar Industrial Co.
Ltd. vs. CIT (2000) 159 CTR (SC) 1: (2000) 243 ITR 83 (SC). We also draw strength from the decision of the Hon'ble Supreme Court in the case of CIT vs. Max India Ltd. (2007) 213 CTR (SC) 266: (2007) 295 ITR 282 (SC) wherein it was held that:
"The phrase 'prejudicial to the interests of the Revenue' in s. 263 of the IT Act, 1961, has to be read in conjunction with the expression 'erroneous' order passed by the AO. Every loss of revenue as a consequence of an order of the AO cannot be treated as prejudicial to the interests of the Revenue. For example, when the 19 Gangaur Exports Private Ltd. vs. PCIT-2 AO adopts one of two courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the AO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the Revenue, unless the view taken by the AO is unsustainable in law."
Thus, based on this decision it is also noteworthy to mention that one of the pre-requisite before invoking S. 263 and the allegation of the Ld. PCIT is that there has been incorrect assumption of fact and law by the Assessing Officer. However, despite our deep and careful consideration of the material on record and the findings recorded in the order under challenge, we do not find any incorrectness and incompleteness in the appreciation of facts made by the ld. AO. In the light of these observations, we do not agree on this aspect to this extent with Ld. Pr. CIT.
As pointed out by the ld. AR of the assessee that on the similar set of facts the order passed u/s. 263 of the Act has been quashed by the co- ordinate bench of Mumbai in the case of Societe Generale Securities India P. Ltd. Vs. PCIT [ 177 taxmann.com 533] by holding that ; 5. It is observed that Explanation 2 to section 37(1) of the Act says that any expenditure relatable to the discharge of CSR is not business expenditure and cannot be allowed as such. On this aspect, there is no contradiction of the fact submitted by the assessee that in compliance with this requirement, the assessee does not claim any deduction of such amount spent as CSR under any of the provisions between sections 30 and 36 of the Act, and suo moto disallowed the same by adding it back to the profit and loss account. It is only thereafter the business income of the assessee is computed in accordance with the 20 Gangaur Exports Private Ltd. vs. PCIT-2 principles laid down for computation of the profits and gains of business or profession in sections 28 to 44DB of the Act. By this, the assessee seeks compliance with Explanation 2 of section 37 of the Act and, therefore, the revenue shall not have any grievance. Whether or not the assessee suo moto disallowed the amount spend towards the CSR while computing the business income is a verifiable fact.
After computing the business income, while computing the total income of the assessee, the assessee is invoking the benefit under Chapter VIA by claiming deduction of the sums under section 80G of the Act. According to the revenue, when once such sum went to satisfy the requirement of section 135 of the Companies Act, the benefit gets exhausted and such an amount is no more available for the purpose of claiming deduction under section 80G of the Act. There is no express provision to support the contention of Revenue. On the other hand, section 80G (2) (iiihk) and (iiihl) of the Act expressly provide that such sums donated for Swatch Bharath Kosh and Clean Ganga Fund shall be the amounts other than the sums spent by the assessee in pursuance of CSR, meaning thereby the donations made towards Swatch Bharath Kosh and Clean Ganga Fund spent as a part of CSR are not qualified for deduction under section 80G of the Act. Out of so many entries under section 80G(2) of the Act, only donations in respect of two entries are restricted if such payments were towards the discharge of the CSR. The Legislature could have put a similar embargo in respect of the other entries also, but such a restriction is conspicuously absent for other entries. The irresistible conclusion that would flow from it is that it is not the legislative intention to bar the payments covered by section 80G(2) of the Act which were made pursuant to the CSR, and other than covered by section 80G(2)(iiihk) and (iiihl) of the Act. As stated above, clue can be had from the restrictions by way of section 80G (2) (iiihk) and (iiihl) of the Act. Explanation 2 to section 37(1) of the Act which denies deduction for CSR expenses by way of business expenditure is applicable only to extent of computing 'business income' under Chapter IV-D of the Act and; it could not be extended or imported to CSR contributions which was otherwise eligible for deduction under Chapter VI-A of the Act.
Where the deduction under section 80G of the Act is also disallowed, since CSR qualifying donations are not 'voluntary contributions', it will be a double jeopardy in the case of assessee. Assessee cannot be denied the benefit of claim under Chapter VIA of the Act, which is considered for computing 'Total Taxable Income". If assessee is denied this benefit, merely because such payment forms part of CSR, it would lead to double disallowance, which is not the intention of Legislature at all. Legislature on this matter simply dealing with the computation of total income under chapter IVD pertaining to "Income under the head Business and Profession" and not at all dealt with the eligibility of assessee to claim deduction u/s. 80G of the Act, falling in chapter VIA of the Act. It is further observed that genuineness of the transactions and identity of the donees are also not under challenge. All the payments were made through proper banking channel and appropriate donation receipts were also produced before the lower authorities and before us also.
As discussed and observed (supra), there is no bar for the assessee to claim benefit u/s. 80G of the Act, falling in Chapter VIA of the Act, we found observations of the Ld. PCIT
21 Gangaur Exports Private Ltd. vs. PCIT-2 as untenable in law, in the result grounds raised by the assessee are allowed and order of Ld. PCIT passed u/s. 263 of the Act is set-aside.
9. In the result, appeal of the assessee is allowed.
Before us the ld. DR did not placed on record any other contrary decision on the issue and therefore, on being consistent to the view already taken we are of the considered view that the law and does not attract the clause (a) or (b) to explanation 2 of section 263 of the Act and thus, it is nothing but a change of opinion which is not permitted in the eyes of the law. In the light of the aforesaid discussion, we hold that the order of the PCIT is not in accordance with the provisions of section 263 of the Act as the twin conditions failed in this case and therefore, we vacate the order of the PCIT passed u/s. 263 of the Act.
In the result, appeal of the assessee is allowed.
Order pronounced in the open court on 30/05/2024.