2024 (10) TMI 1686 - AT - Income Tax

Revision u/s 263 - allowability of deduction claimed u/s. 80G (Chapter VI-A of the Act) on the CSR expenditure paid HELD THAT - Hon ble Supreme Court in the case of Malabar Industries Co. Ltd. 2000 (2) TMI 10 - SUPREME COURT held that this phrase i.e. prejudicial to the interest of the revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer. Their Lordship held that it has to be remembered that every loss of revenue as a consequence of an order of AO cannot be treated as prejudicial to the interest of the revenue. When the AO 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 AO 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 AO is unsustainable in law . Thus in our considered view following Apex Court ruling the Revision orders passed by Ld. PCIT are not sustainable in law. Mumbai Bench of the Tribunal in the case of Societe Generale Securities India (P.) Ltd. 2023 (11) TMI 1257 - ITAT MUMBAI held that Revision proceedings are not justified on the claim of deduction under section 80G on CSR expenditure. Kolkata Bench of the Tribunal in the case of JMS Mining (P.) Ltd 2021 (7) TMI 907 - ITAT KOLKATA held that invocation of revision proceedings u/s 263 itself unjustified in denying deduction u/s. 80G on CSR expenditure Thus we have no hesitation in quashing the Revision order passed by Ld. PCIT and thereby allow the grounds of appeal raised by the assessee.

Summary

1. ISSUES:

1.1 Whether the revisional jurisdiction under Section 263 of the Income Tax Act, 1961 can be invoked when the assessment order is not erroneous and not prejudicial to the interest of Revenue.

1.2 Whether expenditure incurred towards Corporate Social Responsibility (CSR) under Section 135 of the Companies Act, 2013 is allowable as a deduction under Section 80G of the Income Tax Act, 1961.

1.3 Whether mandatory nature of CSR expenditure affects its eligibility for deduction under Section 80G.

1.4 Whether the revision order passed under Section 263 is a non-speaking order and whether proper reasoning was provided for rejecting precedents relied upon by the assessee.

1.5 Whether the Assessing Officer's order was passed without proper investigation or application of mind regarding the claim of deduction under Section 80G.

2. RULINGS / HOLDINGS:

2.1 The revisional jurisdiction under Section 263 cannot be invoked unless the order of the Assessing Officer is both "erroneous" and "prejudicial to the interest of Revenue". The assessment order in question was neither erroneous nor prejudicial to Revenue as the Assessing Officer took a plausible view in allowing the deduction under Section 80G.

2.2 CSR expenditure, though disallowed as business expenditure under Section 37(1) Explanation 2, is allowable as deduction under Section 80G if other conditions of Section 80G are fulfilled, since CSR expenditure is an application of income and Section 80G operates after computation of gross total income.

2.3 The mandatory nature of CSR expenditure does not preclude its deduction under Section 80G, as the deduction is available for donations made without any reciprocal benefit, and CSR expenditure is philanthropic in nature.

2.4 The revision order under Section 263 was held to be non-sustainable as it was a non-speaking order lacking proper reasoning for ignoring judicial precedents relied upon by the assessee.

2.5 The Assessing Officer conducted necessary inquiries, applied mind, and considered documentary evidence and exemption certificates before allowing the deduction under Section 80G; thus, the assessment order was not passed without investigation or application of mind.

3. RATIONALE:

3.1 The Court applied the twin conditions for exercise of revisional jurisdiction under Section 263 as laid down by the Supreme Court: the order must be erroneous and prejudicial to Revenue's interest. Erroneous order includes incorrect assumption of fact, incorrect application of law, violation of natural justice, lack of application of mind, or failure to investigate. Mere loss of revenue or difference of opinion does not suffice.

3.2 Explanation 2 to Section 37(1) inserted by Finance (No.2) Act, 2014 excludes CSR expenditure from business expenditure deductions, as CSR is an application of income, not wholly and exclusively for business purposes. However, Section 80G (Chapter VIA) allows deduction of donations made to eligible entities after gross total income computation, thus CSR donations to approved trusts with valid exemption certificates qualify.

3.3 The Court relied on multiple coordinate bench decisions affirming that CSR expenditure is deductible under Section 80G despite its mandatory character, as the deduction under Section 80G is not contingent on voluntariness but on fulfillment of statutory conditions.

3.4 The Court emphasized that the Assessing Officer had duly examined the claim, sought evidence, and took a plausible view, negating grounds for revision under Section 263.

3.5 No doctrinal shift was made; the judgment follows established precedent and statutory interpretation, reinforcing the separation between disallowance under Section 37(1) and allowance under Section 80G.