2025 (6) TMI 1128 - AT - Income Tax

Corporate Tax Dispute: Section 263 Limits Revisional Powers When Original Assessment Follows Established Judicial Precedents

Elan Pharma (India) Pvt. Ltd. Versus PCIT, Mumbai

The SC/Tribunal addressed the legality of invoking section 263 regarding CSR expenditure and section 80G deduction. The court ruled that the PCIT could ... Revision u/s 263 - CSR expenditure claimed as donation u/s 80G -HELD THAT:- The issue raised by the PCIT is a highly debatable issue. The coordinate benches of the Tribunal have taken a consistent view that CSR expenditure can be claimed as donation u/s 80G in the cases of Motilal Oswal Securities Ltd.[2023 (8) TMI 924 - ITAT MUMBAI], Allegis Services India Pvt. Ltd. [2020 (5) TMI 378 - ITAT BANGALORE] and JMS Mining Pvt. Ltd. [2021 (7) TMI 907 - ITAT KOLKATA] As the issue is highly debatable, any view taken by the AO during the course of the original assessment proceedings has to be considered as a plausible view, and the view taken by the PCIT is nothing but a change of opinion for which jurisdiction u/s 263 of the Act cannot be assumed - Assessee appeal allowed. Issues Presented and ConsideredThe core legal questions considered by the Tribunal are:1. Whether the Principal Commissioner of Income-tax (PCIT) was justified in invoking jurisdiction under section 263 of the Income-tax Act, 1961 ('the Act') to revise the assessment order dated 09.09.2022 for Assessment Year 2020-21 on the ground that the order was erroneous and prejudicial to the interests of the revenue.2. Whether the disallowance of Corporate Social Responsibility (CSR) expenditure of Rs. 15,00,000 under section 37(1) of the Act and the simultaneous claim of 50% deduction under section 80G on the same expenditure was legally sustainable.3. Whether the claim of deduction under section 80G on CSR expenditure, which is not an allowable business expenditure under section 37(1), renders the assessment order erroneous and under-assessment of income to the extent of Rs. 7,50,000, thereby justifying revision under section 263.Issue-wise Detailed AnalysisIssue 1: Jurisdiction of PCIT to invoke section 263 for revision of assessment orderLegal Framework and Precedents: Section 263 of the Income-tax Act empowers the PCIT to revise an assessment order if it is found to be erroneous and prejudicial to the interests of the revenue. However, the scope of this jurisdiction is limited and cannot be invoked merely on a change of opinion. The settled legal principle is that if the Assessing Officer (AO) has taken a plausible view based on the facts and law, then the revisionary power under section 263 cannot be exercised.Court's Interpretation and Reasoning: The Tribunal examined the reasons cited by the PCIT for assuming jurisdiction under section 263, which primarily related to the treatment of CSR expenditure and the claim of deduction under section 80G. The Tribunal noted that the issue was 'highly debatable' and that coordinate benches of the Tribunal have consistently held that CSR expenditure can be claimed as donation under section 80G in certain circumstances.Key Evidence and Findings: The Tribunal referred to precedents from coordinate benches such as Motilal Oswal Securities Ltd., Allegis Services India Pvt. Ltd., and JMS Mining Pvt. Ltd., which supported the view that CSR expenditure may qualify for deduction under section 80G.Application of Law to Facts: Given the existence of divergent judicial opinions and the fact that the AO had taken a plausible view in allowing the deduction under section 80G despite disallowing the same under section 37(1), the Tribunal held that the PCIT's action amounted to a change of opinion rather than correction of an erroneous order.Treatment of Competing Arguments: The PCIT argued that since CSR expenditure is not allowable under section 37(1), the deduction under section 80G should have been disallowed, making the assessment erroneous. The assessee countered by relying on judicial precedents supporting the claim of deduction under section 80G on CSR expenditure. The Tribunal favored the assessee's position, emphasizing the debatable nature of the issue.Conclusion: The Tribunal concluded that the PCIT's jurisdiction under section 263 could not be invoked on the ground of a mere change of opinion where the AO's view was plausible and supported by judicial precedents.Issue 2: Legality of claiming deduction under section 80G on CSR expenditure disallowed under section 37(1)Legal Framework and Precedents: Section 37(1) disallows expenses not incurred wholly and exclusively for business purposes, and CSR expenditure is generally considered non-deductible under this section. Section 80G provides deductions for donations made to specified funds or charitable institutions, subject to conditions. The Finance Act, 2014 clarified that CSR expenditure is not allowable under section 37(1), but did not explicitly negate the possibility of deduction under section 80G.Court's Interpretation and Reasoning: The Tribunal recognized the Finance Act, 2014 amendment disallowing CSR expenditure under section 37(1), but noted that the issue of eligibility for deduction under section 80G on CSR expenditure remains open and debatable. The Tribunal relied on recent decisions by coordinate benches that allowed such deduction under section 80G, treating CSR expenditure as qualifying donations.Key Evidence and Findings: The Tribunal examined the assessment order and the PCIT's show cause notice which pointed out the inconsistency in disallowing CSR expenditure under section 37(1) but allowing 50% deduction under section 80G. However, the Tribunal found that the AO's approach was supported by judicial precedents and was a plausible interpretation of the law.Application of Law to Facts: The Tribunal applied the legal principles and precedents to hold that the claim of deduction under section 80G on CSR expenditure, despite disallowance under section 37(1), was not per se erroneous or prejudicial to the revenue. The Tribunal emphasized that the issue involves interpretation of the law and hence cannot be treated as an error warranting revision under section 263.Treatment of Competing Arguments: The PCIT's contention was that since CSR expenditure is not allowable under section 37(1), the deduction under section 80G must also be disallowed. The assessee argued that section 80G operates independently and CSR expenditure qualifies as donation for this purpose. The Tribunal accepted the assessee's argument based on the precedents and the debatable nature of the issue.Conclusion: The Tribunal concluded that the deduction claimed under section 80G on CSR expenditure was a plausible view and did not render the assessment order erroneous or prejudicial to the revenue.Significant Holdings'As the issue is highly debatable, any view taken by the AO during the course of the original assessment proceedings has to be considered as a plausible view, and the view taken by the PCIT is nothing but a change of opinion for which jurisdiction u/s 263 of the Act cannot be assumed.'The Tribunal established the core principle that the jurisdiction under section 263 cannot be exercised merely because the PCIT disagrees with the AO's plausible interpretation of the law, especially where the issue is debatable and supported by judicial precedents.Final determination:The PCIT's order invoking section 263 to revise the assessment order on the ground of CSR expenditure and deduction under section 80G was set aside.The assessment order dated 09.09.2022 framed under section 143(3) read with section 144B of the Act was restored.The appeal of the assessee was allowed accordingly.