ITAT quashes CIT revision order on CSR expenditure claimed as Section 80G donations

The ITAT Kolkata quashed the CIT's revision order under Section 263 regarding CSR expenditure claimed as donations under Section 80G. The assessee had suo moto disallowed CSR expenditure but claimed it under Section 80G, arguing the recipient institutions had valid Section 80G registration. The CIT rejected this, distinguishing between CSR expenditure and donations. However, the ITAT found the CIT failed to verify whether recipients had Section 80G registration and did not establish the twin conditions for Section 263 action - that the assessment order was erroneous and prejudicial to revenue. The appeal was allowed.

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Issues Involved:
1. Exercise of powers u/s 263 of the Income Tax Act, 1961.
2. Admissibility of donations claimed u/s 80G of the Act.

Summary:

Exercise of Powers u/s 263 of the Income Tax Act, 1961:
The appeal was directed against the order of the Principal Commissioner of Income Tax (Pr. CIT) passed u/s 263 of the Income Tax Act, 1961 for the Assessment Year 2017-18. The Pr. CIT exercised the powers u/s 263, remitting the issue regarding the admissibility of donations claimed u/s 80G of the Act for re-verification by the Assessing Officer. The Pr. CIT issued a showcause notice, observing that the assessee had claimed a deduction of Rs.3,75,000/- u/s 80G on CSR expenditure, which is not allowable u/s 37 of the Act. The assessee contended that CSR expenditures were deductible u/s 80G, citing various judicial precedents supporting their claim.

Admissibility of Donations Claimed u/s 80G of the Act:
The assessee claimed that donations made to trusts and institutions enjoying benefits of registration u/s 80G qualify for deduction u/s 80G, even if they are CSR expenditures. The Pr. CIT argued that CSR expenditures are obligatory under Company Law, whereas donations u/s 80G are voluntary. The Pr. CIT directed the Assessing Officer to verify the claim. The Tribunal noted that the Pr. CIT did not verify whether the recipients were registered u/s 80G and failed to provide valid reasons for considering the assessment order erroneous.

Judgment:
The Tribunal emphasized that for action u/s 263, the order must be erroneous and prejudicial to the revenue. The Pr. CIT did not record a finding that the recipients were not registered u/s 80G, nor did he verify this fact. The Tribunal cited the Hon'ble Delhi High Court's ruling in DG Housing Projects Ltd., stating that the Pr. CIT should have recorded a categorical finding about the error. Therefore, the Tribunal quashed the order passed u/s 263 by the Pr. CIT, allowing the appeal of the assessee.

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