TaxTMI 
TaxTMI 
2021 (7) TMI 907
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.... revisional jurisdiction by Ld. PCIT is bad in law and therefore all consequent actions should be held as void in the eyes of law. 3. For buttressing this legal issue the Ld. A.R. drew our attention to the show cause notice (SCN) issued by the Ld. PCIT which is placed at page 1 and 2 of PB wherein the Ld. PCIT observes that the assessee has claimed deduction of CSR expenses u/s 80G of the Act which the AO has allowed which action of AO according to Ld. PCIT was erroneous because CSR expenditure could not have been allowed as per express prohibition given by Explanation 2 of Sub-section (1) of Section 37 of the Act. For appreciating the factual and legal aspects deliberated by the Ld. PCIT in respect of this fault pointed out, it would be convenient to reproduce the show cause notice issued by him to assessee. The relevant portion of show cause notice is reproduced as under: "Sub: Show cause notice u/s 263(1) of the I.T. Act in respect of assessment order for AY 2016-17- Matter regarding. Whereas the undersigned had called for and examined the record of your case and it is considered that the impugned assessment order passed u/s 143(3) of the I T Act, 1961 by th....
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....rvice provider engaged in the business of management and operation of mines. According to Ld. AR, the return of income for the relevant assessment year was filed on 17.10.2016 declaring total income of Rs. 56,04,96,630/- under the normal computation provision and Rs. 78,49,34,237/- under MAT provision. According to Ld. A.R, the assessee's case was selected for scrutiny through CASS and in response to the notice issued by the AO u/s 143(2) and 142(1) of the Act, the assessee had filed all the requisite details, information and documents as per requisitions/questionnaire which fact has been acknowledged by the AO at Para 2 of the assessment order dated 03.12.2018. Elaborately on the fault pointed out by the Ld. PCIT in the SCN (supra), the Ld. A.R. brought to our notice that in the return of income, the assessee company had claimed deduction of Rs. 67,50,000/- (50% of Rs. 1,35,00,000/-) under Chapter VIA of the Act on account of CSR (Corporate Social Responsibility) expenses/donation made to eligible/approved Charitable Trusts u/s 80G(5)(vi) of the Act. According to Ld. A.R. during the course of scrutiny proceedings vide notice u/s 142(1) of the Act dated 01.08.2018 placed at pages 3....
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....ew of the above, the amount of Rs. 1,35,00,000 is allowable under Chapter VIA of the Income Tax Act, 1961." 6. According to Ld. A.R. the assessee brought to the notice of the AO that claim is allowable u/s 80G and for which he relied upon the decision of the Bangalore Tribunal (ITAT) in the case of Goldman Sachs Services Pvt. Ltd. vs. JCIT in IT(TP) A No. 2355/Bang/2019 wherein it was held as under : 16. The last ground of appeal argued by the learned Authorized Representative in respect of disallowance of deduction under Section 80G of the Act. In the financial year 2014-15, the assessee has incurred expenditure of Rs. 4,72,00,024/- to meet the CSR (Corporate Social Responsibility) as per Policy formulated under Section 135 of the Companies Act, 2013. Out of the said amount, a sum of Rs. 2,25,21,500 qualified for deduction under Section 80G of the Act and therefore the assessee claimed of 50% of amount being Rs. 1,12,60,750/- as deduction under Section 80G of the Act. The TPO/A.O. has disallowed substantial portion of donation under Section 80G of the Act on the ground that donations were not in the nature of voluntary contribution as required under CSR Policy....
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....essee in pursuance of Corporate Social Responsibility under sub-section (5) of Section 135 of the Companies Act, 2013 (18 of 2013); or (iiihl) the Clean Ganga Fund, set up by the Central Government, where such assessee is a resident and such sum is other than the sum spent by the assessee in pursuance of Corporate Social Responsibility under sub-section (5) of Section 135 of the Companies Act, 2013) (18 of 2013)." Where these two exceptions are provided in Section 80G of the Act, it can be inferred that the other contributions made u/s. 135(5) of the Companies Act are also eligible for deduction u/s. 80G of Income Tax Act subject to assessee satisfying the requisite conditions prescribed for deduction u/s.80G of the Act. In the present case the A.O. has not dealt on these aspects, prima facie, considered the contributions as not voluntary but a legal obligation and has accepted the genuineness of the contributions. We are of the opinion, that the matter has to be considered for examination and verification of facts subject to the assessee satisfying the requirements of claim u/s.80G of the Act. Accordingly, we restore the entire disputed issues to the file of A.O. for fres....
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...., subject to fulfillment of necessary conditions therein............ authorities below have erred in denying claim of assessee under section 80G of the Act......." 9. By taking note of the aforesaid orders/ ratio-decidendi of the Tribunal in similar case [CSR expenditure allowed u/s 80G of the Act] the assessee's claim of donation of a sum of Rs. 1,25,00,000/- which was given to Shree Charity Trust and a sum of Rs. 10,00,000/- which was given to Pt. Jasraj Music Academy Trust as contribution for CSR activities and since both these trusts are approved and are eligible for deduction u/s 80G(5)(vi) of the Act, the AO has allowed the claim of the assessee. This action of the AO is found fault by the AO, which according to Ld. A.R is erroneous both on fact as well as law because the AO's view on the issue is a plausible view and at any rate was in line with the decision of the Tribunal (supra). 10. Further the Ld. A.R. contended that CSR expenses are required to be mandatorily incurred by companies as per section 135 of Companies Act and accepted the fact that the assessee was aware that deduction u/s 37(1) of the Act, was not available from assessment year 2015-16 as per Explanat....
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....after enquiring about it, the AO has rightly allowed the deduction which is in line with the Tribunal's order cited (supra) and therefore it is a plausible view and since the AO has enquired about the issue on which the Ld. PCIT finds fault with has been enquired into and after going through the reply of the assessee has taken a plausible view the A.O's order on this issue cannot be termed as erroneous as well as prejudicial to the revenue. And therefore according to Ld. A.R., the impugned action of the Ld. PCIT to have invoked jurisdiction u/s 263 of the Act without satisfying the condition precedent is an act without jurisdiction and therefore the impugned order passed by the Ld. PCIT is bad in law and should be quashed. 13. Per contra, Ld. CITDR Shri Dinesh Aibor Jayal Sawkuie vehemently opposing the submission of the Ld. A.R. contended that when there is an express prohibition u/s 37 of the Act against allowing CSR expenditure, the A.O could not have given deduction u/s 80G of the Act. Therefore the order of the A.O was erroneous and prejudicial to the revenue and therefore the Ld. PCIT has correctly invoked the jurisdiction. Therefore we should not interfere in the impugned....
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.... every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue. When the Assessing Officer adopted one of the courses permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue "unless the view taken by the Assessing Officer is unsustainable in law". 15. Keeping the aforesaid judicial dictum in mind let us examine the legal issue raised by the assessee against the impugned action of the Ld. PCIT to exercise the revisional jurisdiction u/s 263 of the Act. So we have to see whether the Ld. PCIT was correct in finding fault with the order of the AO. For that we have to examine and find out whether the issue/fault on the basis of which the Ld. PCIT has interfered with the order of the A.O dated 03.12.2018 was erroneous or not i.e. whether the AO had erroneously allowed the claim of the assessee under Chapter VIA in respect of CSR expenditure amounting to Rs. 67,50,000/- i.e. [50% of Rs. 1,35,00,000/-] u/s 80G of....
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....R expenses amounting to Rs. 1.35 crores under Chapter VIA and from the perusal of the reply of the assessee it is clear that the assessee has given explanation as to how the assessee had claimed such a deduction along with case laws (supra). Thereafter considering the same only the A.O has allowed the deduction claim and thereby allowed the claim of 50% of the claim u/s. 80G of the Act. In such a scenario, the Ld. PCIT's findings/allegation that the A.O has not made any enquiry/verification on this issue is factually incorrect. And therefore, his assertion that clause (a) of Explanation 2 to Section 263 is attracted is clearly erroneous. From the query raised by the AO on this issue and the reply given by the assessee we are of the opinion that the A.O. has discharged his dual role of an investigator as well as an adjudicator. The Ld. PCIT's action of brushing aside the reply given by the assessee and his finding that the A.O has not verified/enquired into the issue smacks of arbitrariness and non-application of mind making the impugned order bad in law. 17. Coming next to the legality/correctness of the deduction allowed by the AO in respect of CSR/donation u/s. 80G of the Act,....
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....the "Total Income" in terms of Chapter VI of the Act, and AO has allowed it, which action of AO has been found fault by Ld PCIT, which issue need to be examined. For examining the same let us look in to the relevant provisions which we need to be taken in to consideration. 20. The provisions of Section 135(5) of the Companies Act, 2013 read as under: "The Board of every company referred to in sub-section (1), shall ensure that the company spends, in every financial year, at least two per cent. of the average net profits of the company made during the three immediately preceding financial years or where the company has not completed the period of three financial years since its incorporation, during such immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy:" 21. Let us also look at section 80G of the Act (relevant portions) which reads as under: Section 80G : Deduction in respect of donation to certain funds, charitable institution, etc. (1) In computing the total income of an assessee, there shall be deducted in accordance with and subject to the provision of this section (i) ..... (ii) ....
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....tion even if shown as CSR expenditure. The reason for saying so is that in section 80G of the Act certain restrictions in respect of deduction in respect of two (2) donations are expressly seen in this Section. So the Parliament has expressed its intention clearly by bringing in restriction in respect of expenditure classified by an assessee company while claiming deduction u/s. 80G of the Act i.e. CSR expenditure related to Swachh Bharat Kosh and Clean Ganga Fund. So if an assessee makes some donation to these projects and include/classify it as CSR expenditure while claiming deduction u/s. 80G of the Act then it will be allowed only the amount that is other than the sums spent by the assessee in pursuance of CSR u/s. 135 of the Companies Act. In other words, if an assessee company spends only the mandatory expenditure of 2% of net profit for CSR activity, which includes the amount of donation to Swach Bharat Kosh & Clean Ganga Fund (iiihk) and (iiihi) of clause (a) of sub-section (2) of section 80G of the Act, then deduction u/s. 80G of the Act is not allowable, which can be illustrated by giving certain examples (infra). However, in a case scenario, wherein the assessee expen....
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....135(5) of the Act works out to be Rs. 2 crores. Situation 1 : The company has been spent the required minimum CSR contribution of Rs. 2 crores towards construction of roads & schools in the vicinity of the backward area where the factory is located. Tax Treatment: The entire CSR expenditure of Rs. 2 crores is to be disallowed and added back in terms of Explanation 2 to Section 37(1) of the Act. Situation 2 : The company has contributed Rs. 3 crores to Swach Bharat Kosh. Tax Treatment: The entire CSR expenditure of Rs. 3 crores is to be disallowed and added back in terms of Explanation 2 to Section 37(1) of the Act. In terms of Section 135(5) of the Act read with Section 80G(iiihk) only the excess sum paid amounting to Rs. 1 crores [ 3 crores - 2% of 100 crores] can be availed as deduction u/s 80G of the Act. Situation 3 : The company has contributed Rs.l crore to Swach Bharat Kosh and Rs. 1 crore to any other charitable trust registered u/s 80G(5) of the Act. Tax Treatment: The entire CSR expenditure of Rs. 2 crores is to be disallowed and added back in terms of Explanation 2 to Section 37(1) of the Act. In terms of Section 135(5) of the Act read....