2025 (7) TMI 1801 - AT - Income Tax

Donations from CSR Expenses Not Deductible Under Section 80G; AO's View Upheld, No Error Under Section 263

Jashan Jewels Pvt. Ltd. Versus PCIT, Mumbai-5, Mumbai

The ITAT Mumbai held that deduction claimed under section 80G for donations made from CSR expenditure is not allowable. The AO's view on this issue was ... Revision u/s 263 - deduction claimed u/s 80G for donations made to eligible charitable institutions out of Corporate Social Responsibility (CSR) expenditure is not allowable - HELD THAT:- Where the AO adopts one such plausible view, the mere fact that the Commissioner prefers an alternative view does not render the assessment erroneous. In this context, reference may be made to the decision of Max India Ltd. [2007 (11) TMI 12 - SUPREME COURT] wherein it is laid down that where two views are reasonably possible on a particular issue, and the Assessing Officer has taken one such view, the mere preference of the Commissioner for an alternative interpretation does not justify the invocation of revisionary jurisdiction under section 263 of the Act. PCIT, in the present case, has not invoked Explanation 2 to Section 263 of the Act so as to contend that the assessment order is deemed to be erroneous due to lack of proper enquiry. On the contrary, the record indicates that the AO had raised a specific query and the assessee had responded in detail, providing the requisite information. There is, thus, no material to support the conclusion that the AO failed to conduct the enquiry that was warranted in the facts of the case. The jurisdiction u/s 263 cannot be exercised merely because the Commissioner has a different understanding of the law or prefers an alternate interpretation. In absence of any demonstrable error in the assessment order, or failure of the AO to apply his mind to the relevant issue, the essential preconditions for invoking Section 263 are not satisfied - Assessee appeal allowed. ISSUES: Whether the revisionary jurisdiction under Section 263 of the Income-tax Act, 1961 can be invoked where the Assessing Officer adopts a plausible legal view on the allowability of deduction under Section 80G in respect of Corporate Social Responsibility (CSR) expenditure.Whether deduction under Section 80G of the Act is allowable for donations made as part of mandatory CSR expenditure.Whether CSR expenditure, being statutorily mandated and lacking voluntariness, qualifies as a deductible donation under Section 80G of the Act.Whether Explanation 2 to Section 37(1) of the Act, which disallows CSR expenditure as business expense, precludes claiming deduction under Section 80G for the same expenditure.Whether the Assessing Officer's order can be held erroneous and prejudicial to the interests of the Revenue solely because the Principal Commissioner of Income-tax prefers a different legal interpretation. RULINGS / HOLDINGS: The revisionary jurisdiction under Section 263 cannot be invoked merely because the Commissioner prefers an alternative view; where two views are reasonably possible and the Assessing Officer adopts one such plausible view, the order is not erroneous or prejudicial to the Revenue.Deduction under Section 80G is not allowable for CSR expenditure as such expenditure is statutorily mandated and lacks the essential element of voluntariness required for claiming deduction under Section 80G.Explanation 2 to Section 37(1) of the Act specifically disallows CSR expenditure as a business expense, and allowing deduction under Section 80G for the same would render this provision nugatory, conflicting with the legislative intent.The Assessing Officer had conducted proper enquiry and raised specific queries; hence, the order cannot be deemed erroneous for lack of enquiry under Explanation 2 to Section 263.The revisionary order passed under Section 263 is not sustainable in law and is quashed. RATIONALE: The Court applied the principle that where two views are reasonably possible on a tax issue, the Assessing Officer's adoption of one view cannot be overturned merely because a superior officer prefers another, following the precedent that revisionary jurisdiction under Section 263 requires demonstrable error or failure to apply mind.Explanation 2 to Section 37(1) of the Act, introduced by the Finance (No. 2) Act, 2014, expressly disallows CSR expenditure as a deduction, reflecting legislative intent to impose CSR obligations without tax benefit and avoid subsidizing CSR expenditure by the Government.Section 80G provides deduction only for voluntary donations to charitable institutions; CSR contributions being mandatory lack voluntariness, a core requirement established by judicial precedent including the Supreme Court's ruling that donations must be voluntary.The provisions of Sections 37(1) (including Explanation 2) and Section 80G must be read harmoniously to avoid rendering any statutory provision redundant, consistent with the principle of harmonious construction as laid down by the Supreme Court.The Ministry of Corporate Affairs Circular No. 01/2016 clarifies that CSR expenditure is not eligible for tax deductions under Section 37(1) and by extension should not qualify as voluntary donations under Section 80G.Pending appeals before the jurisdictional High Court on the issue indicate the matter is sub judice, reinforcing that the Assessing Officer's view is a plausible legal position.