TaxTMI 
TaxTMI 
2025 (8) TMI 1675
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....ssed u/s. 263 of the Act is without jurisdiction. 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....
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....n the decision of coordinate bench of this Tribunal in case of Naik Sea Foods Pvt. Ltd. Vs. PCIT in ITA no. 490/Mum/2021 dated 26/11/2021 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 ....
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....certainly be prejudicial to the interests of t Revenue. 6.3 Therefore, considering the facts, the judicial pronouncements, it is held that the ord passed u/s 143(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 th....
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.... purposes of carrying on business. As the application of income is not allowed deduction for the purposes of computing taxable income of a company, amount spent on CSR cannot be allowed as deduction for computing the taxable income of the company. 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 ....
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....SR expenses. The Ld.AR submitted that, assessee had debited Rs. 61,00,000/-as expenditure on CSR activities in its profit and loss account. The same amount was added back while computing taxable income as the same was not allowable u/s. 37(1) of the Act. However, the assessee claimed Rs. 31,50,000/- out of 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 f....
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.... the Assessing Officer and whether these inquiries were so deficient as to render the order 'erroneous and prejudicial to the interests of the revenue', within meanings of that expression assigned under section 263. 19. The question that we also need to address is as to what is the nature of scope of the provisions of Explanation 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 servan....
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....legitimately form the view that "the order is passed without making inquiries or verification which should have been made". The true test for finding out whether Explanation 2(a) has been rightly invoked or not is, therefore, not simply existence of the view, as professed by the Commissioner, about the lack of necessary inquiries and verifications, 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 w....
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....notice in the course of the assessment proceedings. When the facts as emerging out of the scrutiny are apparently in order, and no further inquiry is warranted in his bona fide opinion, he need not conduct further inquiries just because it is lawful to make further inquiries in the matter. A degree of reasonable faith in the assessee and not doubting everything 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 a....
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....ay indeed have the powers to invoke his powers under section 263 but that it does not necessarily follow that in all such cases the matters can be remitted back to the assessment stage for such inquiries and verifications. There can be three mutually exclusive situations with regard to exercise of powers under section 263, read with Explanation 2(a) thereto, with respect 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. ....
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....lowed as deduction for the purposes of computing taxable income of a company, amount spent on CSR cannot be allowed as deduction for computing the taxable income of the company. 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. 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 r....
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....ss is not satisfied in respect of the expenditure incurred under CSR. He submitted that, under 80G the claim of deduction is assuming the character of donation and the thus any payment made voluntarily can only be considered for deduction u/s. 80G subject to the necessary conditions being satisfy therein. He emphasis that, the payment made under CSR lacks the character of it be a donation and therefore 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 ....
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....ontention of the revenue is that the contributions are made as part of a mandate and not voluntary. However, the Hon'ble Supreme Court in the above case has laid down the basic principle that a payment made without any material return and without any consideration and not for quid pro quo is a donation. Therefore in our considered view, the payment made whether voluntarily or as part of a mandate does not negate the intention 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....
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....y the Assessing Officer [or the Transfer Pricing Officer, as the case may be, shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner,- (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in 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 circumstance....
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....order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the revenue - Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 (SC) and in Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC). 6.7. Thus the Income-tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in respect of a return which is picked up for complete scrutiny. The assessing officer must ascertain the truth of the facts stated in the return. It is in this context that Hon'ble Supreme Court assigns such 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 assess....
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....al in the above case also held similarly as observed by various decisions of Hon'ble Supreme Court, including Malabar Industrial Co. Ltd. Vs. CIT (supra). 6.10. Considering the totality of the facts and the decisions relied by both sides as discussed herein above, we concur with the invoking provisions of section 263by the Ld.PCIT as the assessing officer failed to carry out any inquiry, failed to apply his mind while passing the assessment order in respect of the deduction claimed under section 80 G of the Act. Accordingly the ground 1 raised by the assessee stands partly dismissed. 7. 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 c....
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....rder 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 fulfilment of conditions, if any, specified therein." 14. From the above it 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 build....
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.... an expenditure being claimed under above sections to be exempt, as long as it satisfies necessary conditions under section 30 to 36 of the Act, for computing income under the head, "Income from Business and Profession". 17. For claiming benefit under section 80G, deductions are considered at the stage of computing "Total taxable income". Even if any payments under section 80G forms part of CSR payments( keeping in mind ineligible deduction expressly provided u/s. 80G), the same would already stand excluded while computing, Income under the head, "Income form Business and Profession". The effect of such disallowance would lead to increase in Business income. Thereafter benefit accruing to assessee under Chapter VIA for computing "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 par....
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....deed, many rich people out of diverse motives make donations to political parties. The hope of spiritual benefit or political goodwill, the spontaneous affection that benefaction brings, the popularization of a good cause or the prestige that publicized bounty fetches -these and other myriad consequences or feelings may not mar a donation to make it a grant for a quid pro quo. Wholly motiveless donation is rare, but material return alone negates a gift or donation.' 7. Therefore to examine if CSR spending of the assessee would be a donation it is essential to examine whether the donations given by the assessee to M/s. Reliance Foundation and M/s Shyam Kothari Foundation without any material return and without any consideration and whether it was a grant for quid pro quo. It is not the case of the revenue that the assessee has made contributions to these institutions with an intention get something in return. The only contention of the revenue is that the contributions are made as part of a mandate and not voluntary. However, the Hon'ble Supreme Court in the above case has laid down the basic principle that a payment made without any material return and without any ....
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....at the Revision proceeding De concluded on inis basis of your written submissions/representations filed in this office, on or before the said due date, thien your personal atteridance is not required. You also have the option to file your .. from the e-filing " portal using the link: Incometaxindiastiling.gov.In- ME TAX DEP The assessee has filed its Return of Income for the AY 2020-21 on 01.02.2021 declaring total income of Rs. 133,76,54,420/- under normal provisions of the Act. The same was processed u/s. 143(1) of the Act. Subsequently, the case of the assessee company was selected for scrutiny under CASS and the Scrutiny assessment was completed on 06.09.2022 u/s. 143(3) r.w.s. 1448 of the Act determined the assessed Income at Rs.13,76,54,420/- under normal provisions and Rs.13,44,62,894/- book profit u/s. 115JB of the Act. 2. From perusal of the financials of the assesseo company, it is noticed that the assessce had debited an amount of Rs.61.00.000/- as expenditure on CSR activities in its profit and loss account. The same amount was added back while computing taxable income as the same is not allowable o/s. 37(1) of the Act. However, the assessee has claimed Rs.31,50,0....
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....ital Signature at the bottom of the page) R Document 2 ANNEXURE In connection with the ongoing scrutiny assessment in your case for the Assessment year:2020-21, you are requested to furnish the below specified details :- Detailed note on nature of business activities carried out during the year as well as during last three years. 2. Detailed statement of computation of total income for the financial year:2019-20. 3. With respect to the unsecured loan kindly submit the below specified details: a) Business purpose for which each of the loans were taken and income earned by utilization of funds. c) Provide documentary evidence to substantiate the identity of the lenders and ITR of last 3 years of the lenders to substantiate the creditworthiness of the lenders. d) Kindly provide documentary evidence to substantiate the genuineness of the above specified transaction. e) Kindly provide the bank statements highlighting the loan transactions including acceptance and repayment during the year and also interest payment during the year. f) Copy of the confirmation in respect of claim of unsecured loan from Cheay Investments Pvt. Ltd. Yours faithfully. Addi....
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....¤¾ है, जिनके कारण आपकी à¤à¤¾à¤¯ विवरणिका को समà¥à¤ªà¥‚रà¥à¤£ संवीकà¥à¤·à¤¾ (जांच) के लिठचà¥à¤¨à¤¾ गया है। While acknowledging the care you may have taken in preparing the return of income, there are certain issues, on which further clarification is required, therefore, return of income has been selected for complete scrutiny किन मà¥à¤¦à¥à¤¦à¥‹à¤‚ पर à¤à¤¾à¤°à¤®à¥à¤ में और सà¥à¤ªà¤·à¥à¤Ÿà¥€à¤•à¤°à¤£ की आवशà¥à¤¯à¤•à¤¤à¤¾ है? What Is/are the Issue(s) on which further clarification is required initially ? S No Issue 1. Unsecured Loans चूंकि यह समà¥à¤ªà¥‚रà¥à¤£ संबीकà¥à¤·à....
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....t or cause to submit: (1) Any evidence on which you may rely in support of your return of income: Reply to the above-mentioned issue(s): electronically in 'e-Proceedings' facility through your account in e-Filing website (www.incometax.gov.in) at your convenience within 15 (fifteen) days from the date of receipt of the notice. चूंकि यह à¤à¤• समà¥à¤ªà¥‚रà¥à¤£ संवीकà¥à¤·à¤¾ कारà¥à¤¯à¤µà¤¾à¤¹à¥€ है, आपको उपरोकà¥à¤¤ संदरà¥à¤à¤¿à¤¤ मà¥à¤¦à¥à¤¦à¥‹à¤‚ à¤à¤µà¤‚ विचाराधीन निरà¥à¤§à¤¾à¤°à¤£ वरà¥à¤· के दौरान आपके दà¥à¤µà¤¾à¤°à¤¾ किठगये विà¤à¤¿à¤¨à¥à¤¨ वितà¥à¤¤à¥€à¤¯ लेन-देन से संà....