Section 115BAA Companies Can Claim Section 80G Deductions for CSR Expenses for AY 2020-21

The ITAT Ahmedabad held that for AY 2020-21, a company opting for taxation under section 115BAA at a concessional rate was not barred from claiming deductions under section 80G, as the restriction on Chapter VI-A deductions was introduced only from AY 2021-22. The Tribunal further ruled that CSR expenditures, although statutory under the Companies Act, do not lose their eligibility for deduction under section 80G if all conditions are met, consistent with prior decisions. The AO's acceptance of the deduction was upheld, as there was no material to show arbitrariness or lack of application of mind. The PCIT's revision direction was set aside, and the assessee's appeal was allowed, affirming the deduction claim under section 80G for CSR expenses for the relevant year.

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ISSUES:

Whether the order passed under section 263 of the Income Tax Act is valid when the Assessing Officer has not been provided an opportunity of being heard on the issue for which the assessment is set aside.Whether the Principal Commissioner of Income Tax (PCIT) has jurisdiction under the Faceless Assessment Scheme to revise an assessment completed under section 143(3) read with section 144B of the Act.Whether disallowance of deduction under section 80G of the Act on donations made as part of Corporate Social Responsibility (CSR) expenditure is justified.Whether CSR expenditure, being a statutory obligation under section 135 of the Companies Act, 2013, qualifies as a "donation" under section 80G of the Income Tax Act.Whether the restriction on claiming deductions under Chapter VI-A applies to section 80G deductions for an assessee opting for taxation under section 115BAA for the relevant assessment year.Whether the assessment order passed under section 143(3) read with section 144B of the Act is erroneous and prejudicial to the interest of revenue when the Assessing Officer accepted the claim of deduction under section 80G after due inquiry.

RULINGS / HOLDINGS:

The order passed under section 263 without providing an opportunity of being heard on the issue is erroneous and without jurisdiction.The PCIT does not have jurisdiction under the Faceless Assessment Scheme to revise an assessment completed under section 143(3) read with section 144B of the Act by the Faceless Assessing Officer unless the PCIT has jurisdiction under the Faceless regime.Disallowance of deduction under section 80G on donations made as part of CSR expenditure is not justified where the donations fulfill all prescribed conditions under section 80G of the Act.CSR expenditure, despite being a statutory obligation under section 135 of the Companies Act, 2013, does not ipso facto disentitle the assessee from claiming deduction under section 80G of the Act if all other statutory requirements are met.For AY 2020-21, the restriction on claiming deductions under Chapter VI-A for an assessee opting for taxation under section 115BAA did not apply to section 80G deductions, as the relevant amendment was effective only from AY 2021-22.The assessment order passed under section 143(3) read with section 144B of the Act is neither erroneous nor prejudicial to the interest of revenue when the Assessing Officer has examined the return and submissions and passed the order after due notice and reply.

RATIONALE:

The Court applied the statutory provisions of sections 263, 143(3), 144B, 115BAA, and 80G of the Income Tax Act, along with the Companies Act, 2013 (section 135), and relevant amendments effective from AY 2021-22.The Court relied on judicial precedents from various Benches of the Income Tax Appellate Tribunal which held that statutory CSR contributions do not lose their character as donations under section 80G if all conditions are met, and that Explanation 2 to section 37(1) barring CSR expenditure as a business deduction does not affect section 80G deductions.The Court noted that the Assessing Officer had applied mind and conducted due inquiry under sections 143(2) and 142(1) before allowing the deduction, and mere difference of opinion by the PCIT does not render the assessment order erroneous.The Court emphasized that the restriction on deductions under Chapter VI-A for companies opting for concessional tax rates under section 115BAA was not applicable for the relevant assessment year, as the amendment barring such deductions was effective only from AY 2021-22 onwards.The Court held that the assumption of jurisdiction under section 263 requires the assessment order to be "erroneous and prejudicial to the interest of the revenue" and that the AO's order allowing the deduction was a plausible view supported by judicial precedents, hence not warranting revision.

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