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2020 (1) TMI 1324 - AT - Income TaxRevision u/s 263 - allowability of CSR expenses borne by a PSU controlled by the Government of India u/s 37 since incurred wholly and exclusively for the purpose of business - HELD THAT - This assessee has admittedly incurred its corporate social responsibility expenditure as per the Government of India s guidelines only. It has been further subjected to statutory audits as well qua all the expenses incurred from time to time. The question as to whether the relevant assessment order must expressly discuss the issues in question or not so as to attract sec 263 revision proceedings stands settled long back in Commissioner of Income Tax vs. Gabrial India Ltd. 1993 (4) TMI 55 - BOMBAY HIGH COURT that mere non-discussion on an issue in the assessment order does not render it an erroneous causing prejudice to the interest of the Revenue. Hon ble apex court s landmark decisions in Malabar Industrial Co. Ltd. 2000 (2) TMI 10 - SUPREME COURT and Commissioner of Income Tax vs. Max India 2007 (11) TMI 12 - SUPREME COURT also hold that before an assessment is sought to be revised as erroneous causing prejudicial to the interest of the revenue these twin conditions must exist simultaneously. Even if it is held that the AO had erred in not carrying out the necessary enquiry / factual verification on the assessee s claim of its CSR the same could not have caused any prejudice interest of the revenue in case of a public sector undertaking bound by the Government of India s directions issued on the subject. More particularly before the insertion of Explanation-2 in sec. 37 of the Act in assessment year 2013-14 since the amended legal position carries prospective effect only - CIT s assumption of revision jurisdiction in these facts and circumstances is not sustainable - Decided in favour of assessee.
Issues Involved:
1. Validity of the revisionary jurisdiction exercised by the Commissioner of Income Tax (CIT) under Section 263 of the Income Tax Act, 1961. 2. Allowability of Corporate Social Responsibility (CSR) expenditure as a deductible business expense under Section 37 of the Income Tax Act, 1961 for the assessment year 2013-14. Issue-wise Detailed Analysis: 1. Validity of the Revisionary Jurisdiction under Section 263: The primary issue revolves around the CIT invoking Section 263 to revise the Assessing Officer's (AO) order, which had allowed CSR expenditure deduction without detailed enquiry or discussion. The CIT argued that the AO's failure to scrutinize the CSR expenditure claim rendered the assessment order erroneous and prejudicial to the interests of the Revenue. However, the tribunal observed that the assessee, a public sector undertaking, had incurred CSR expenses following the Government of India's guidelines. The tribunal referenced the landmark case of Commissioner of Income Tax vs. Gabrial India Ltd. (1993) 203 ITR 108 (Bom), which established that mere non-discussion of an issue in the assessment order does not make it erroneous or prejudicial to the Revenue. The tribunal also cited the Supreme Court's decisions in Malabar Industrial Co. Ltd. v. Commissioner of Income Tax (2000) 243 ITR 83 (SC) and Commissioner of Income Tax vs. Max India (2007) 295 ITR 282 (SC), emphasizing that both conditions—erroneous and prejudicial to the Revenue—must coexist for Section 263 to be invoked. The tribunal concluded that even if the AO did not conduct a detailed enquiry, it did not cause prejudice to the Revenue, as the CSR expenditure was mandated by the Government of India. Therefore, the CIT’s assumption of revision jurisdiction under Section 263 was deemed unsustainable and was reversed. 2. Allowability of CSR Expenditure under Section 37: The tribunal examined whether CSR expenditure incurred by the assessee, a public sector undertaking, could be allowed as a business expense under Section 37 for the assessment year 2013-14. The CIT had relied on Explanation-2 to Section 37, inserted by the Finance Act, 2014, effective from April 1, 2015, which states that CSR expenditure shall not be deemed as incurred for business purposes. The tribunal noted that the assessment year in question was 2013-14, and the relevant financial year was 2012-13, which predates the amendment. The tribunal referred to its co-ordinate bench decisions, including Assistant Commissioner of Income Tax Circle-1(1), Bilaspur vs. Jindal Power Limited (2016) and M/s HLL Lifecare Limited vs. The Asstt. Commissioner of Income Tax, Circle-1(1), Trivandrum (2018), which held that the amendment is prospective and not applicable to prior years. Additionally, the tribunal cited the Kerala High Court's decision in Travancore Titanium Products Ltd., which held that a government undertaking must comply with government orders, and such compliance-related expenses should be allowed as business expenses. The tribunal also referenced the ITAT Mumbai bench’s decision in Hindustan Petroleum Corporation Ltd. (96 ITD 186), which allowed CSR expenditure as a business expense for government undertakings. Given that the CSR expenditure was incurred per the Government of India's guidelines and the statutory audit, the tribunal concluded that the AO's allowance of CSR expenditure did not result in an erroneous order prejudicial to the Revenue's interests. Therefore, the CIT’s order under Section 263 was set aside, and the AO’s original assessment order dated January 29, 2016, was restored. Conclusion: The tribunal allowed the assessee’s appeal, reversing the CIT’s revisionary order under Section 263 and restoring the AO’s original assessment order, thereby allowing the CSR expenditure as a deductible business expense for the assessment year 2013-14.
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