Section 263 Revision Upheld for Erroneous Assessment; Section 80G Deduction Verified and Allowed if Eligible

The ITAT Chennai upheld the PCIT's revision under section 263, finding the AO's assessment erroneous and prejudicial for failing to verify the claim of deduction under section 80G. The matter was remitted to the AO with directions to verify receipts and allow the deduction if eligible. However, the tribunal disagreed with the PCIT's disallowance of section 80G deduction relating to CSR expenditure, referencing precedents that such deductions cannot be denied. The AO was directed to verify the donee's eligibility and allow the deduction accordingly. The assessee's appeal was partly allowed.

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ISSUES:

Whether the assessment order passed by the Assessing Officer (A.O.) is erroneous and prejudicial to the interest of revenue under Explanation 2 to Section 263 of the Income Tax Act for allowing deduction under Section 80G without proper verification.Whether deduction under Section 80G of the Act is allowable on donations made as Corporate Social Responsibility (CSR) expenditure.Whether the Assessing Officer erred in not verifying the claim of deduction under Section 35(2AB) relating to Research and Development (R&D) expenditure.

RULINGS / HOLDINGS:

The Principal Commissioner of Income Tax (PCIT) correctly invoked jurisdiction under Explanation 2 to Section 263 of the Act holding the assessment order erroneous and prejudicial to the interest of revenue for allowing Section 80G deduction without verification; the matter was rightly remitted back to the A.O. with directions to verify receipts before allowing the claim.The direction of the PCIT to disallow Section 80G deduction on CSR expenditure was not upheld; consistent tribunal decisions establish that "80G deduction on such donation cannot be denied," and therefore the A.O. is directed to verify eligibility and allow the deduction under Section 80G as per law.The PCIT's direction to remit the issue of Section 35(2AB) R&D expenditure deduction back to the A.O. for verification and allowance as per law was upheld, as the A.O. had not examined the claim adequately.

RATIONALE:

The Court applied Explanation 2 to Section 263 of the Income Tax Act, which states that an order is deemed erroneous and prejudicial to the interest of revenue if passed without making necessary enquiry or verification that should have been made.The Court relied on precedents from multiple ITAT benches (Mumbai, Delhi, Hyderabad) holding that Section 80G deduction on donations qualifying as CSR expenditure is allowable, rejecting the PCIT's contrary direction.The Court recognized the statutory framework under Section 35(2AB) for R&D expenditure deduction and emphasized the necessity of proper verification by the A.O. before disallowance or allowance.No dissenting or concurring opinions were recorded; the judgment reflects a consistent application of statutory provisions and tribunal precedents without doctrinal shifts.

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