TaxTMI 
TaxTMI 
TaxTMI 
2025 (8) TMI 1675
X X X X Extracts X X X X
X X X X Extracts X X X X
....on. 2. The Ld. Principal Commissioner of Income-tax-3, Mumbai erred in directing the Assessing Officer to disallow the claim of deduction of Rs. 29,00,000/- under Section 80G of the Act on the ground that the donation classified as 'Corporate Social Responsibility' expenditure is not eligible for deduction under Section 80G of the Act. 3. The Appellant craves leave to add to, alter, amend or delete the grounds of appeal" Brief facts of the case are as under: 2. The assessee is a Non-banking Financial Company with the Reserve Bank of India, carrying on the business of Finance and Investments. The assessee is engaged primarily into giving loans and advances and filed its return of income on 01/02/2021, declaring total income at Rs. 13,76,54,420/-. The case was selected for scrutiny under CASS and notice u/s. 143(3) r.w.s. 144B was issued on 06/09/2022. 2.1 On examination of the records, Ld.PCIT found that the faceless Assessing Officer (FAO) did not verified certain issues while passing the assessment order. 2.2 The Ld.PCIT noted that, the assessee debited Rs. 61,00,000/- on account of CSR Expenditure and added the same to the total income in its computation of incom....
X X X X Extracts X X X X
X X X X Extracts X X X X
....1/2021 and decision of Inter Gold India Pvt. Ltd. Vs. PCIT in ITA No. 4400/Mum/2023 dated 05/08/2024 and Societe Generale Securities India Pvt. Ltd. Vs. PCIT in ITA no. 1921/Mum/2023 dated 20/11/2023 wherein it was held that claim of deduction u/s. 80G in respect of expenditure classified as CSR was valid considering the fact that, assessing officer took up plausible view, section 263 of the Act could not be invoked. 4. The Ld.PCIT after considering the submissions of the assessee was of the opinion that the assessment order is passed without application of mind as the assessing officer has not made any inquiries into the issue of the claim of deduction u/s. 80G of the Act in respect of expenditure incurred on CSR the relevant extract of the observations of PCIT are as under : "6. The order passed u/s. 143(3) r.w.s 1448 of the Act dated 06.09.2022 is erroneous as the AO has not made enquiries into the issue of claim of deduction u/s 80G of the Act in respect of expenditure incurred on CSR. The assessing officer has not examined the issue of allowability of deduction claimed u/s. 80G of the Act, when the donations are made out of CSR expenditure. The AO has not specifically enqui....
X X X X Extracts X X X X
X X X X Extracts X X X X
....43(3) r.w.s. 1448 of the Act dated 06.09.2022 is erroneous so far as it prejudicial to the interests of revenue. 6.4 The assessee has mainly contended that there is no reference regarding inadmissibility or restriction for claiming deduction under section 80G for any donation made which qualifies as CSR expenditure. 6.5 In none of the assessee's submission before the assessing officer also, the assessee made any reference to this issue and argued that the donations being part of CSR expenditure are still eligible for deduction u/s 80G. So, it cannot be inferred that the assessing officer has applied his mind on this aspect. In any case, the assessing officer's failure to consider this issue despite it being in contravention of the provisions of the Act in view of the Explanation 2 to section 37(1) read with Explanatory notes to the Finance Bill 2014, caused erroneous allowance of deduction u/s 80G and made the order prejudicial to the interests of revenue. 6.6 It is important to note that CSR expenditure has to be mandatorily incurred by certain specified companies as per provisions of Section 135 of the Companies Act. It is a statutory obligation cast upon certain compan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y. Moreover, the objective of CSR is to share burden of the Government in providing social services by companies having net worth/turnover/profit above a threshold. If such expenses are allowed as tax deduction, this would result in subsidizing of around one-third of such expenses by the Government by way of tax expenditure." 6.9 As may be seen, it is made clear at the beginning itself that it is an application of income. Though called as expenditure, as it being an outflow for the company, it is strictly not an expenditure. Therefore, no deduction what so ever can be allowed for appropriation of profits. It is trite law that what cannot be allowed in view of specific provisions cannot be allowed indirectly unless specifically provided in the Act, thereby defeating the purpose of the section. The other argument that only two funds mentioned in section 80G to which donations given as part of CSR expenditure are not eligible, is also not tenable. It does not imply that donations to other funds towards CSR are eligible for deduction. Further, it is to be noted that in the orders relied upon by the assessee there is no discussion on the Explanatory Notes to the Finance Bill 2014, whe....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the CSR Expenditure, as deduction u/s. 80G of the Income Tax Act. Further, in the computation of income the assessee has added back an amount of Rs. 2,50,000/- towards donations. Hence, deduction u/s. 80G of the Act was claimed at Rs. 29,00,000/-, which was out of the CSR expenditure. 5.1 Ld.AR submitted that, the documents evidencing the genuiness of donation being the bank statement reflecting the payment and certificate under 80G were filed before the Ld.PCIT. He also placed reliance on circular no. 1/2016 dated 12/01/2016 being the frequently asked question(FAQ) issued by Ministry of Corporate Affairs (MCA) that clarifies the issue as follows : ""Question No. 6: What tax benefits can be availed under CSR? Answer: No specific tax exemptions have been extended to CSR expenditure per se. The Finance Act, 2014 also clarifies that expenditure on CSR does not form part of business expenditure. While no specific tax exemptions have been extended to expenditure incurred on CSR, spending on several activities like Prime Minister's Relief Fund, scientific research, rural development projects, skill development projects, agriculture extension projects etc, which fund place in Sc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ation 2(a) to Section 263 to the effect that an order is deemed to be "erroneous and prejudicial to the interests of the revenue" when Commissioner is of the view that "the order is passed without making inquiries or verification which should have been made". 20. Undoubtedly, the expression used in Explanation 2 to Section 263 is "when Commissioner is of the view," but that does not mean that the view so formed by the Commissioner is not subject to any judicial scrutiny or that such a view being formed is at the unfettered discretion of the Commissioner. The formation of his view has to be in a reasonable manner, it must stand the test of judicial scrutiny, and it must have, at its foundation, the inquiries, and verifications expected, in the ordinary course of performance of duties, of a prudent, judicious and responsible public servant- that an Assessing Officer is expected to be. If we are to proceed on the basis, as is being urged by the learned Departmental Representative and as is canvassed in the impugned order, that once Commissioner records his view that the order is passed without making inquiries or verifications which should have been made, we cannot question such a v....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... but an objective finding that the Assessing Officer has not conducted, at the stage of passing the order which is subjected to revision proceedings, inquiries and verifications expected, in the ordinary course of performance of duties, of a prudent, judicious and responsible public servant that the Assessing Officer is expected to be. 21. That brings us to our next question, and that is what a prudent, judicious, and responsible Assessing Officer is to do in the course of his assessment proceedings. Is he to doubt or test every proposition put forward by the assessee and investigate all the claims made in the income tax return as deep as he can? The answer has to be emphatically in negative because, if he is to do so, the line of demarcation between scrutiny and investigation will get blurred, and, on a more practical note, it will be practically impossible to complete all the assessments allotted to him within no matter how liberal a time limit is framed. In scrutiny assessment proceedings, all that is required to be done is to examine the income tax return and claims made therein as to whether these are prima facie in accordance with the law and where one has any reasons to do....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ything coming to the Assessing Officer's notice in the assessment proceedings cannot be said to be lacking bona fide, and as long as the path adopted by the Assessing Officer is taken bona fide and he has adopted a course permissible in law, he cannot be faulted- which is a sine qua non for invoking the powers under section 263. In the case of Malabar Industrial Co Ltd. v. CIT [2000] 109 Taxman 66/243 ITR 83, Hon'ble Supreme Court has held that "Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the ITO is unsustainable in law." The test for what is the least expected of a prudent, judicious and responsible Assessing Officer in the normal course of his assessment work, or what constitutes a permissible course of action for the Assessing Officer, is not what he ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ct to lack of proper inquiries and verifications. The first situation could be this. Even if necessary inquiries and verifications are not made, the Commissioner can, based on the material before him, in certain cases straight away come to a conclusion that an addition to income, or disallowance from expenditure or some other adverse inference, is warranted. In such a situation, there will be no point in sending the matter back to the Assessing Officer for fresh inquiries or verification because an adverse inference against the assessee can be legitimately drawn, based on material on record, by the Commissioner. In exercise of his powers under section 263, the Commissioner may as well direct the Assessing Officer that related addition to income or disallowance from expenditure be made, or remedial measures are taken. The second category of cases could be when the Commissioner finds that necessary inquiries are not made or verifications not done, but, based on material on record and in his considered view, even if the necessary inquiries were made or necessary verifications were done, no addition to income or disallowance of expenditure or any other adverse action would have been wa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion, this would result in subsidizing of around one-third of such expenses by the Government by way of tax expenditure. The existing provisions of section 37(1) of the Act provide that deduction for any expenditure, which is not mentioned specifically in section 30 to section 36 of the Act, shall be allowed if the same is incurred wholly and exclusively for the purposes of carrying on business or profession. As the CSR expenditure (being an application of income) is not incurred for the purposes of carrying on business, such expenditures cannot be allowed under the existing provisions of section 37 of the Income-tax Act. Therefore, in order to provide certainty on this issue, it is proposed to clarify that for the purposes of section 37(1) any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to have been incurred for the purpose of business and hence shall not be allowed as deduction under section 37. However, the CSR expenditure which is of the nature described in section 30 to section 36 of the Act shall be allowed deduction under those sections subject to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e cannot be considered for deduction u/s. 80G of the Act. 5.11 In the counter to the above agreement of the Ld.DR, the Ld.AR placed reliance on a recent decision of coordinate bench of this Tribunal in case of ACIT vs. Sikka Port and Terminal Ltd. reported in (2025) 173 taxmann.com 366. He submitted that, the decision relied by the Ld.DR has been distinguished by observing as under: "5. We heard the parties and perused the material on records. The assessee during the year disallowed a sum of Rs. 33,85,00,000 under section 37 of the Act towards the CSR Spend in compliance with section 135 of the Act. Since the institutions to which the said amounts are given are registered under section 80G of the Act, the assessee claimed 50% i.e. 16,92,50,000 of the same as deduction. The argument of the revenue is that the payment are made to comply with the mandate under the Companies Act, and therefore it cannot be treated as donations which are "voluntary" payments. The further argument of the revenue is that when the statute has denied the direct claim of the CSR spend under section 37, the assessee claiming the deduction indirectly under section 80G is against the intention of the legisla....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the contribution made. The reliance placed by the Id DR on the decision of Agilent Technologies (International) Pvt. Ltd (supra) is factually distinguishable. The DRP whose order was upheld in the said case, had placed reliance on the decision of the Hon'ble High Court in the case of DCIT v. Hindustan Darr Oliver Ltd (1994) 45 TTJ Mumbai 552 where the payment made was held as not a donation since it was found that the intention behind making the donation was to get reserved seats in the college run by the institute to whom the payments are made as part of CSR spending. As already mentioned, the revenue is not contending that the assessee in the present case has made payments to get something material in return" We have perused the submissions the advance by both sides in the light of record placed before us. 6. The limited issue for consideration is, whether the assessment order passed by the Ld.AO without verifying the claim of deduction u/s. 80G leads the assessment order to be erroneous in so far as prejudicial to the interest of the revenue. 6.1. Admittedly notice u/s. 143(2) was issued to the assessee to verify large squared up loans during the year, the notice thoug....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person." (Emphasis added) 6.3. Therefore, while deciding the question as to whether or not the jurisdiction was rightly exercised by the Ld.PCIT under Section 263 of the Act, we would have to take into consideration the provisions of Section 263 of the Act, sans Explanation 2 ( inserted by Finance Act 2015 w.e.f. 1/04/2015) that elucidated the circumstances when an assessment order can be held to be erroneous and prejudicial to the interests of the Revenue. 6.4. We also note that even before the said amendment, it stipulated the mandatory requirement of the order being "erroneous" as well as "prejudicial to the interests of the Revenue". Therefore, what manifests from the above is the fact that, the twin conditions have to be met before assuming jurisdiction under Section 263 of the Act, and the PCIT has to form an opinion that the order passed by the assessing officer is "erroneous"....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... meaning to the word "erroneous" for the purposes of section 263. In present facts of the case, the return was picked up for complete scrutiny, as per the notice issued under section 143(2). It is thus incumbent on the assessing Officer to investigate the facts stated in the return, and circumstances would make prudent that the word "erroneous" in section 263 includes the failure to make such an inquiry. The order becomes erroneous because no inquiry was made, and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct. 6.8. Now the question arises is whether the assessing officer still applied his mind on the issue of deduction claimed by the assessee under section 80G of the Act. Admittedly, the Ld.AO did not issue any specific query regarding the deduction claimed by the assessee. The details filed by the assessee was not verified by the Ld.AO. Further, it cannot be lost out of mind that, the notice issued under section 143(2) of the act was for a complete scrutiny. The Ld.AO was under the mandate to verify every claim made in the return of income. Thus the test under Explanation 2(a) to section 263 of the Act needs to be inv....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... On the issue of the allowability of deduction under section 80G of the Act out of the CSR spending, the Ld.PCIT during the revisionary proceeding had sufficient documents to conclude that the proceedings should be dropped. Section 263 is not enacted to facilitate a mere escape of revenue, which is addressed in other provisions of the Act. The prejudice contemplated under section 263 is the prejudice to the income-tax administration as a whole. Section 263 should be proceeded not as a jurisdictional corrective or as a review of a subordinate's order in exercising supervisory power, but for correcting distortions and prejudices to the revenue. This is a unique concept that must be understood in the context of and in the interests of the revenue administration. 7.1. The Ld.DR relied on the decision of Hon'ble Delhi Tribunal in case of Agilent Technology (international) Pvt. Ltd. vs. ACIT(supra) and submitted that no deduction is allowable under section 80G on the amount incurred for the purposes of CSR. He submitted that the assessment order was prejudicial, and the order passed under section 263 corrected such prejudice caused to the Revenue administration. 7.2. We note that the d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is clear that under Income tax Act, certain provisions explicitly state that deductions for expenditure would be allowed while computing income under the head, 'Income from Business and Profession" to those, who pursue corporate social responsibility projects under following sections. * Section 30 provides deduction on repairs, municipal tax and insurance premiums. * Section 31, provides deduction on repairs and insurance of plant, machinery and furniture * Section 32 provides for depreciation on tangible assets like building, machinery, plant, furniture and also on intangible assets like knowhow, patents, trademarks, licenses. * Section 33 allows development rebate on machinery, plants and ships. * Section 34 states conditions for depreciation and development rebate. * Section 35 grants deduction on expenditure for scientific research and knowledge extension in natural and applied sciences under agriculture, animal husbandry and fisheries. Payment to approved universities/research institutions or company also qualifies for deduction. In-house R&D is eligible for deduction, under this section. * Section 35CCD provides deduction for skill development projects, whic....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g "Total Taxable Income" cannot be denied to assessee, subject to fulfillment of necessary conditions therein. 18. We therefore do not agree with arguments advanced by Ld.Sr.DR. 19. In present facts of case, Ld.AR submitted that all payments forming part of CSR does not form part of profit and loss account for computing Income under the head, "Income from Business and Profession". It has been submitted that some payments forming part of CSR were claimed as deduction under section 80G of the Act, for computing "Total taxable income", which has been disallowed by authorities below. In our view, assessee cannot be denied the benefit of claim under Chapter VI A, which is considered for computing 'Total Taxable Income". If assessee is denied this benefit, merely because such payment forms part of CSR, would lead to double disallowance, which is not the intention of Legislature. 7.3. The above decision analyses the ambit of exemption available under section 80G of the Income Tax Act and the specific exceptions in respect of payments forming part of CSR (Corporate Social Responsibility) expenditure, on which deduction is not available under the said section. Accordingly, in respe....