2025 (7) TMI 1283 - AT - Income Tax

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: ... Validity Revision u/s 263 - claim of deduction under Chapter VI-A - whether the assessment order is erroneous and prejudicial to the interest of the revenue, to the extent that the AO has failed to inquire into the issue of the claim of deduction under Chapter VI-A? - HELD THAT:- AO has inquired into this issue by verifying the relevant documentary evidences furnished by the assessee on this issue and has taken one of the plausible view that the assessee was entitled to claim deduction for the entire donation made up till 30.06.2020 for F.Y. 2019-20 relevant to A.Y. 2020-21. For invoking the revisionary power u/s. 263 of the Act, the ld. PCIT will have to satisfy the twin condition viz. (1) the assessment order should be erroneous. (2) and prejudicial to the interest of the revenue and unless both the conditions are satisfied, the jurisdiction assumed by the ld. PCIT u/s. 263 of the Act becomes bad in law. On this observation, we find that the first issue raised by the ld. PCIT in the revisionary order is not justifiable in our view. CSR expenditure which according to the ld. PCIT was mandatory in nature as per the provisions of Section 135 of the Companies Act and does not tantamount to an expenditure incurred wholly and exclusively for the purpose of business as per Explanation 2 to Section 37(1) and the same would not amount to the voluntary donation u/s. 80G of the Act - Admittedly, the ld. PCIT in his order has categorically stated that the said issue is covered in favour of the assessee by the decisions of the jurisdictional coordinate benches and the same is pending adjudication before the Hon'ble Jurisdictional Bombay High Court. DR has relied on the decisions of Agilent Technologies (International) (P.) Ltd. [2023 (12) TMI 1090 - ITAT DELHI], there are catena of decisions of the jurisdictional coordinate benches which has decided this issue in favour of the assessee which the ld. AO is bound to follow as precedent. Hence, we observe that the ld. AO has taken one of the views that CSR expenditure is eligible deduction u/s. 80G of the Act. On this note, we find that the ld. PCIT’s order does not hold merit on this count also as the twin conditions specified u/s. 263 of the Act is not satisfied in the present case in hand. Appeal filed by the assessee is hereby allowed. 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.