The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) held that Section 263 of the Income Tax Act, 1961 cannot be invoked when the expenditure incurred on corporate social responsibility (CSR) is allowed by the Assessing Officer as a deduction under Section 80G of the Income Tax Act.
The assessee filed its return of income declaring a total income of ₹ 1,83,18,55,790/-. The case of the assessee was subject to scrutiny assessment and an assessment order under Section 143(3) of the Income Tax Act was passed assessing the total income at ₹ 1,89,78,83,694/-
The Principal Commissioner of Income Tax (PCIT) on examination of the assessment record noticed that an amount of ₹ 3,30,86,000/- as expenditure towards CSR and an amount of ₹ 50,000/- as a loss on doubtful debts were debited to the profit and loss account under the head other expenses.
In the income tax return filed by the assessee, the assessee has shown CSR expenditure as ₹50,376/- and allowance for doubtful debt as ₹3,30,85,839/- under the head other expenses in the profit and loss account as a part of the return of income. The PCIT also noticed that the assessee has further claimed a deduction of ₹1,51,88,545/- under Section 80G of the Income Tax Act.
The PCIT observed that the Assessing Officer has allowed a deduction under Section 80G of the Income Tax Act on the CSR expenditure incurred by the assessee, therefore, the assessment order passed under Section 143(3) of the Income Tax Act is erroneous in so far as it is prejudicial to the interest of the revenue.
The PCIT has not agreed with the submission of the assessee and stated that the deduction under Section 80G of the Income Tax Act on donations given as a part of CSR expenditure was not eligible for deduction.
The counsel contended that during the course of assessment proceedings, the Assessing Officer has examined the issue of CSR expenditure and deduction under Section 80G of the Income Tax Act claimed with respect to donations forming part of CSR expenditure and only thereafter deduction was allowed.
The counsel referred to the decision of ITAT Mumbai in the case of (B) Naik Sea Food Pvt. Ltd. v/s PCIT [ ITA No. 490/Mum/2020] on the proposition that expenditure incurred on CSR is claimed as a deduction for the purpose of Section 80G of the Income Tax Act and allowed by the Assessing Officer then Section 263 of the Income Tax Act cannot be invoked.
The Two-member bench comprising of Aby T Varkey (Judicial member) and Amarjit Singh (Accountant member) held that the Assessing Officer has considered the claim of deduction under Section 80G of the Income Tax Act on the expenditure which was part of CSR expenditure and also examined the issue that the assessee has added back the CSR expenditure in its return of income.
Therefore, the bench considered that the order passed by the PCIT under Section 263 of the Income Tax Act is not justified. Thus, the order passed under Section 263 of the Income Tax Act was set aside. And the appeal of the assessee was allowed.
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