Assessment Order Allowing Deduction on CSR Expenditure is Not Erroneous: ITAT deletes Revision Order [Read Order]

The Income Tax Appellate Tribunal (ITAT) Bench at Mumbai has held that when the Assessing Officer (AO) has taken one of the possible views on allowability of Corporate Social Responsibility (CSR) expenditure under Section 80G of the Income Tax Act, 1961, the Principal Commissioner of Income Tax (PCIT) cannot invoke revisional jurisdiction under Section 263 of the Act merely because a different view is possible.

The assessee, Fortrea Scientific Private Limited, engaged in providing IT-enabled business process outsourcing services in drug safety data management, clinical data management, biostatistics, and medical writing, filed its return of income declaring a total income of ₹28.39 crore. During the year, the assessee incurred CSR expenditure amounting to ₹61.58 lakh and claimed a deduction of ₹30.79 lakh (50%) under Section 80G of the Act.

The Assessing Officer, after detailed scrutiny and verification of documents, accepted the claim while completing assessment under Section 143(3) read with Section 144B of the Act.

Subsequently, the PCIT invoked revisionary powers under Section 263 on the ground that the order was erroneous and prejudicial to the interests of the Revenue, as the AO had allegedly failed to disallow the CSR expenditure claimed under Section 80G. The PCIT directed the AO to disallow ₹30.79 lakh, contending that CSR expenses are statutory in nature and not voluntary donations eligible for deduction under Section 80G.

Step by Step Guide of Preparing Company Balance Sheet and Profit & Loss Account Click Here

The Bench comprising Kavitha Rajagopal (Judicial Member) and Omareshwar Chidara (Accountant Member) observed that the AO had made due enquiries regarding CSR expenditure during assessment and had taken a plausible view in line with settled judicial precedents.

Relying on the Supreme Court ruling in Malabar Industrial Co. Ltd. v. CIT, the Tribunal reiterated that for invoking Section 263, the following twin conditions must be satisfied: the assessment order should be both “erroneous” and “prejudicial to the interests of the Revenue.” When the AO has adopted one of the possible views after due enquiry, the order cannot be considered erroneous merely because the PCIT disagrees with it.

The Tribunal noted that several Coordinate Benches had consistently held that CSR expenditure, except those specifically disallowed under clauses (iihk) and (iiihl) of Section 80G (pertaining to Swachh Bharat Kosh and Clean Ganga Fund), is eligible for deduction under Section 80G. Following these judicial precedents, the AO’s view was deemed reasonable and sustainable in law.

Holding that the assessment order was neither erroneous nor prejudicial to the interest of the Revenue, the ITAT quashed the PCIT’s revision order and allowed the assessee’s appeal.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates