2024 (10) TMI 1694 - AT - Income Tax

Revision under Section 263 not valid if AO's legal view is sustainable; CSR expenses deductible under Section 80G

AIA Engineering Ltd. Versus Principal Commissioner of Income Tax, Ahmedabad-1, Ahmedabad

The ITAT Ahmedabad held that revision under section 263 is not justified when the Assessing Officer (AO) adopts a legally permissible view, even if it ... Revision u/s 263 - deduction u/s. 80G in respect of CSR expenses - HELD THAT:- Hon'ble Supreme Court in the case of Malabar Industries Co. Ltd. [2000 (2) TMI 10 - SUPREME COURT] held that this phrase i.e. 'prejudicial to the interest of the revenue' has to be read in conjunction with an erroneous order passed by the AO. Their Lordship held that it has to be remembered that every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue. When the AO adopted one of the courses permissible in law and it has resulted in loss to the 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 interest of the Revenue 'unless the view taken by the AO is unsustainable in law'. Thus in our considered view following Apex Court ruling the Revision orders passed by Ld. PCIT are not sustainable in law. CSR expenditure allowable u/s. 80G - Delhi Tribunal in the case of Interglobe Technology Quotient (P.) Ltd. [2024 (6) TMI 8 - ITAT DELHI] held that mandatory nature of CSR expenditure does not justify disallowance of same u/s. 80G, if other conditions of Section 80G are fulfilled. Similarly Mumbai Bench of the Tribunal in the case of Societe Generale Securities India (P.) Ltd. [2023 (11) TMI 1257 - ITAT MUMBAI] and FDC Ltd. [2023 (10) TMI 191 - ITAT MUMBAI] held that Revision proceedings are not justified on the claim of deduction u/s 80G on CSR expenditure. Appeals filed by the assessee are hereby allowed. ISSUES: Whether Corporate Social Responsibility (CSR) expenditure is allowable as a deduction under section 80G of the Income Tax Act, 1961.Whether the Principal Commissioner of Income Tax (PCIT) was justified in invoking revisional jurisdiction under section 263 of the Act to revise the assessment order allowing deduction under section 80G on CSR expenditure.Whether the assessment order passed by the Assessing Officer (AO) was erroneous and prejudicial to the interest of the Revenue within the meaning of section 263.Whether the mandatory nature of CSR expenditure affects its eligibility for deduction under section 80G. RULINGS / HOLDINGS: The deduction claimed under section 80G in respect of CSR expenditure is allowable if other conditions of section 80G are fulfilled; the mandatory nature of CSR expenditure does not justify disallowance under section 80G.The revisional jurisdiction under section 263 can be exercised only if the AO's order is both erroneous and prejudicial to the interest of the Revenue; since the AO took a plausible view after detailed examination, the revision orders are not sustainable in law.The AO's order allowing deduction under section 80G on CSR expenditure is not erroneous as it was passed after application of mind and detailed inquiry, and is therefore not prejudicial to the interest of the Revenue.The Explanation 2 to section 37(1) of the Act disallows CSR expenditure as business expenditure but does not affect the claim of deduction under section 80G, which is a separate provision applicable after computation of gross total income. RATIONALE: The Court applied the twin conditions for exercise of revisional jurisdiction under section 263 as laid down by the Supreme Court: (i) the order must be erroneous and (ii) such error must be prejudicial to the interest of the Revenue.The Court relied on a series of coordinate bench decisions holding that CSR expenditure, though mandatory under section 135 of the Companies Act, 2013, qualifies for deduction under section 80G if the donee institutions fulfill the conditions prescribed therein.The Court distinguished the disallowance under Explanation 2 to section 37(1), which pertains to business expenditure, from the deduction under section 80G, which relates to donations and is computed after gross total income.The Court emphasized that loss of revenue due to adoption of a plausible view by the AO does not amount to an order prejudicial to the interest of the Revenue unless such view is unsustainable in law.The Court noted absence of any concrete finding by the PCIT that the AO's order was erroneous or prejudicial, and observed that the PCIT did not conduct any inquiry or investigation before passing the revision orders.