PCIT revision under Section 263 rejected for proper Chapter VI-A inquiry and valid CSR deduction precedent

The ITAT Mumbai allowed the assessee's appeal against a revision order under Section 263. The PCIT had challenged the AO's assessment on two grounds: failure to inquire into Chapter VI-A deductions and allowing CSR expenditure as deduction under Section 80G. The tribunal held that the AO had properly inquired into the Chapter VI-A deductions by verifying documentary evidence and took a plausible view. Regarding CSR expenditure, while the PCIT acknowledged the issue was covered by favorable jurisdictional coordinate bench decisions pending before Bombay HC, the AO was bound to follow these precedents. The tribunal found that both twin conditions for invoking Section 263 powers - the assessment being erroneous and prejudicial to revenue - were not satisfied, making the PCIT's revisionary jurisdiction invalid.

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ISSUES:

Whether the order passed under Section 263 of the Income Tax Act, 1961 is erroneous and prejudicial to the interests of the revenue when the Assessing Officer has conducted specific inquiries and taken a plausible view on the claim of deduction under Chapter VI-A.Whether deduction claimed under Section 80G for donations classified as Corporate Social Responsibility (CSR) expenditure is allowable, considering the mandatory nature of CSR under Section 135 of the Companies Act and Explanation 2 to Section 37(1) of the Income Tax Act.Whether donations made after the end of the financial year but within the extended time limit under the Taxation and other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA, 2020) are eligible for deduction under Section 80G for the relevant assessment year.Whether the proviso to Section 37(1) can be relied upon to deny deduction under Section 80G for donations made to eligible institutions such as the Prime Minister's National Relief Fund and PM CARES Fund.

RULINGS / HOLDINGS:

The revisionary jurisdiction under Section 263 requires satisfaction of the twin conditions that the assessment order is both "erroneous" and "prejudicial to the interest of the revenue"; since the Assessing Officer conducted adequate inquiry and took a plausible view, the order is not erroneous or prejudicial, and thus the Section 263 order is not sustainable.Deduction claimed under Section 80G for donations classified as CSR expenditure is allowable where the donations are made to registered and eligible charitable institutions fulfilling the conditions prescribed under the section, notwithstanding the mandatory nature of CSR expenditure under Section 135 of the Companies Act and Explanation 2 to Section 37(1).Donations made up to 30.06.2020, pursuant to the extension under TOLA, 2020, are eligible for deduction under Section 80G for the financial year 2019-20 relevant to Assessment Year 2020-21; hence, donations made on 11.04.2020 qualify for deduction in AY 2020-21.The proviso to Section 37(1) cannot be invoked to deny deduction under Section 80G where donations are validly claimed under Section 80G(2) and made to eligible institutions approved under Section 80G(5), such as the Prime Minister's National Relief Fund and PM CARES Fund.

RATIONALE:

The court applied the statutory framework of Section 263 of the Income Tax Act, emphasizing the necessity of both conditions-error and prejudice to revenue-to invoke revisionary powers, referencing the Assessing Officer's thorough inquiry and acceptance of submissions as a valid exercise of discretion.The interpretation of Section 80G was aligned with the legislative intent and relevant circulars, including the circular dated 31.03.2021, which extended the time limit for making donations eligible for deduction and clarified the eligibility of donations to PM CARES Fund for 100% deduction.The court noted the conflict with certain decisions from other benches but relied on binding jurisdictional coordinate bench precedents favoring the allowability of CSR-related donations under Section 80G, highlighting that the issue is pending adjudication before the jurisdictional High Court.The court rejected reliance on the proviso to Section 37(1) for denying deduction under Section 80G, distinguishing the nature of CSR expenditure from voluntary donations and underscoring the separate statutory provisions governing their treatment.

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