2025 (8) TMI 203 - AT - Income Tax

Section 80G allows CSR deductions; revision under section 263 to cancel AO's order was unjustified

ITAT Pune held that the Assessing Officer's allowance of deduction under section 80G for Corporate Social Responsibility (CSR) expenditure was justified, ... Revision u/s 263 - validity of order passed by AO u/s 143(3) - AO allowed deduction u/s 80G which includes deduction in respect of expenditure on account of Corporate Social Responsibility (CSR) - HELD THAT:- We find in the case of Advik Hi Tech (P.) Ltd.[2014 (7) TMI 1270 - ITAT PUNE] has held that the deduction u/s 80G on account of CSR expenses deserve to be allowed. Pune Bench of the Tribunal in the case of Dana Anand India (P.) Ltd. [2025 (4) TMI 537 - ITAT PUNE] has held that the deduction claimed by the assessee u/s 80G of the Act on account of CSR expenditure deservers to be allowed. When the issue is a debatable one and the Assessing Officer has taken a possible view, the Ld. PCIT cannot invoke the jurisdiction u/s 263 of the Act. As relying on Dalal and Broacha Stock Broking (P.) Ltd.[2025 (6) TMI 1712 - ITAT MUMBAI] and Advik Hi Tech (P.) Ltd. [2014 (7) TMI 1270 - ITAT PUNE] and Dana Anand India (P.) Ltd. [2025 (4) TMI 537 - ITAT PUNE] we hold that the Ld. PCIT was not justified in invoking the jurisdiction u/s 263 of the Act and thereby partly setting aside the order of the AO for the limited purpose of examining the claim of deduction u/s 80G of the Act. We, therefore, set aside the order passed by the Ld. PCIT and the grounds raised by the assessee are accordingly allowed. ISSUES: Whether deduction claimed under section 80G of the Income Tax Act, 1961 is allowable in respect of expenditure incurred towards Corporate Social Responsibility (CSR) activities mandated under section 135 of the Companies Act, 2013.Whether the Assessing Officer's order allowing deduction under section 80G without detailed verification or examination of CSR-related expenses is erroneous and prejudicial to the interests of revenue, justifying revision under section 263 of the Income Tax Act.Whether invocation of jurisdiction under section 263 of the Income Tax Act is justified where the Assessing Officer has taken a possible view on allowability of deduction under section 80G.Whether expenditure incurred under CSR provisions, disallowed under section 37(1) of the Income Tax Act, can be claimed as deduction under section 80G.Whether the element of voluntariness is essential for claiming deduction under section 80G, and if CSR expenditure mandated by law can satisfy this requirement. RULINGS / HOLDINGS: The court held that the Assessing Officer's allowance of deduction under section 80G on CSR expenditure without proper verification rendered the assessment order 'erroneous and prejudicial to the interests of revenue,' but subsequent judicial decisions support the allowability of such deduction subject to fulfillment of conditions under section 80G.It was held that the element of voluntariness is a prerequisite for deduction under section 80G, and CSR expenditure mandated under section 135 of the Companies Act is not voluntary; however, judicial precedent establishes that CSR-related donations to institutions registered under section 80G are eligible for deduction under section 80G.The court ruled that invocation of revisionary jurisdiction under section 263 is not justified where the Assessing Officer has taken one of the possible views on a debatable issue like allowability of deduction under section 80G.The court concluded that CSR expenditure disallowed under section 37(1) does not preclude claiming deduction under section 80G, as these provisions operate at different stages-section 37(1) for business income computation and section 80G for total taxable income computation.The appeal against the revision order under section 263 was allowed, and the Assessing Officer's order allowing deduction under section 80G was upheld subject to verification of donee institutions' registration and other statutory conditions. RATIONALE: The court applied the statutory framework of the Income Tax Act, 1961, particularly sections 37(1), 80G, and 263, alongside the Companies Act, 2013 (section 135) and Finance Act, 2014 amendments.The Finance Act, 2014 inserted Explanation 2 to section 37(1) clarifying that CSR expenditure is not allowable as business expenditure, reflecting legislative intent to treat CSR as appropriation of profit after tax, preventing double benefit.However, no corresponding amendment was made to section 80G, which allows deduction for donations to registered institutions, creating a legal distinction between disallowance under section 37(1) and allowability under section 80G.Judicial precedents from various benches of the Tribunal (including Pune and Mumbai) consistently held that CSR-related donations to institutions registered under section 80G qualify for deduction under section 80G, emphasizing the different nature and stage of these provisions.The court noted that the Assessing Officer had issued notices under section 142(1) seeking details of Chapter VI-A deductions and that the assessee had submitted relevant receipts, which were accepted by the Assessing Officer, indicating examination of the claim.The court emphasized that section 263 jurisdiction cannot be invoked merely on a change of opinion or where the Assessing Officer has taken a possible view on a debatable question of law or fact.The court followed the principle of judicial consistency and the doctrine of possible views, citing multiple coordinate bench decisions supporting the allowability of deduction under section 80G for CSR-related donations.No dissenting opinion was recorded; the decision reflects a doctrinal affirmation of the distinction between disallowance under section 37(1) and allowance under section 80G, and limits the scope of revisionary jurisdiction under section 263.