Section 263 revision without recording errors found in order is unsustainable

Diamond Beverages Private Limited Vs Pr. CIT (ITAT Kolkata)

Held that Commissioner should not simply relegate the point that the assessment order is erroneous to the AO. The Commissioner, after analyzing the record, ought to have recorded a categorical finding and provided valid reasons as to how the assessment order is erroneous. Revision unsustainable

Facts-

The assessee had incurred a sum of Rs.7,50,000/- as Corporate Social Responsibility (CSR) Expenditure. According to assessee, it suo moto disallowed the CSR expenditure but claimed it u/s. 80G of the Act because the trust and institutions to which the amounts were paid, were already enjoying benefits of registration u/s 80G. Accordingly, 50% of the expenditure was claimed as an allowable expenditure with the aid of Section 80G.

The PCIT had gone through the record carefully and formed an opinion that action u/s 263 of the Act is required to be taken. Accordingly, a notice was issued.

Conclusion-

Held that the Commissioner should not simply relegate the point that the assessment order is erroneous to the AO. The ld. Commissioner, after analyzing the record, ought to have recorded a categorical finding and provided valid reasons as to how the assessment order is erroneous. In other words, the ld. Commissioner should have recorded a finding about the error that had crept in which required action u/s 263 of the Act. There is no such finding at the end of the ld. Commissioner that recipients were not enjoying registration u/s 80G and that this fact was not enquired into by the Assessing Officer. Therefore, in the absence of this finding, we are of the view that the impugned order is not sustainable and hence the same is quashed.

FULL TEXT OF THE ORDER OF ITAT KOLKATA

The present appeal is directed at the instance of the assessee against the order of the Learned Principal Commissioner of Income Tax, Kolkata – 2, (hereinafter the “ld. Pr. CIT”) dt. 24/03/2022, passed u/s 263 of the Income Tax Act, 1961 (“the Act’), for Assessment Year 2017-18.

2. Though the assessee has taken five grounds of appeal, but the solitary grievance of the assessee is that the ld. Pr. CIT has erred in exercising the powers u/s 263 of the Act and remitting the issue regarding admissibility of donations claimed u/s 80G of the Act, for re-verification at the end of the Assessing Officer.

3. The brief facts of the case are that the assessee has filed its return of income electronically on 27/10/2017 disclosing income of Rs.2,69,70,230/-. The case of the assessee was selected for scrutiny assessment. Notice u/s 143(2) of the Act was issued and served upon the assessee.

The assessee has incurred a sum of Rs.7,50,000/- as Corporate Social Resposibility (CSR) Expenditure. According to the assessee, it suo moto disallowed the CSR expenditure but claimed it u/s 80G of the Act because the trust and institutions to which the amounts were paid, were already enjoying benefits of registration u/s Section 80G. Therefore, according to the assessee the donations made by it will qualify for claim of deduction u/s 80G of the Act. Accordingly, 50% of the expenditure was claimed as allowable expenditure with the aid of Section 80G.

4. The ld. Pr. CIT had gone through the record carefully and formed an opinion that action u/s 263 of the Act is required to be taken. Accordingly, he issued a showcause notice which is available at page 1& 2 of the paper book, which reads as under:-

“GOVERNMENT OF INDIA
MINISTRY OF FINANCE
INCOME TAX DEPARTMENT
OFFICE OF THE PRINCIPAL COMMISSIONER OF INCOME TAX
PCIT, Kolkata-2

–

NOTICE FOR THE HEARING

M/s/Mr/Ms

Subject: Notice for Hearing in respect of Revision, proceedings u/s 263 of the THE INCOME TAX ACT, 1961-Assessment Year 2017-18.

In this regard, a hearing in the matter is fixed on 15/03/2022 at 12:00 PM. You are requested to attend in person or through an authorized representative to submit your representation, if any alongwith that the Revision proceeding be concluded oh the basis of your written submissions/representations filed in this office, on or before the said due date, then your personal attendance is not required. You also have the option to file your submission from the e-filing portal using the ink: incometaxindiaefiling-gov.in

Sub. Showcause notice u/s 263(1) of the 1.T.Act,1961 in respect of assessment order for A.Y. 2017-18 – Matter Regarding.

Please refer to the above.

2. It is observed that you had filed your return of Income for the assessment year 2017-18 on 27.10.2017 declaring total income of Rs. 2,69,70,230/-. The case was selected for scrutiny and assessment us 143(3) was completed on 27.12.2019 at an assessed income of Rs.2,71,26,570/-.

3. There were certain issues in the case and accordingly, the case record was called for and examined. Upon examination of case records, it is observed that the you M/s Diamond Beverages Pvt. Ltd has claimed deduction of Rs.3,75,000/- u/s 80G of the Income-tax Act, 1961.

4. Examination of assessment order dated 27/12/2019 passed u/s 143 of the Act by the DCIT, Circle-11(1), Kolkata, it is observed that an amount of Rs.7,50,000/- is debited towards CSR Expenditure under the head Other Expenses. It is seen from the computation of Income for A.Y: 2017-18 that he said amount of CSR had suo moto been added back as Donations and claimed benefit of deduction u/s 80G amounting to Rs.3,75,000/- (50% of Rs.7,50,000). However, as per section 37 of the IT Act, any amount of CSR expenses whether it is made for donation or for other purposes is not allowable expenses. Therefore, the claim of deduction on CSR expenditure amounting to Rs. 3,75,000/- (50% of Rs.7,50,000) was required to be added back. But the Assessing Officer had accepted and allowed the claim u/s 80G of the I.T Act while computing the assessment u/s. 143(3) of the Act which is erroneous and resulted in the assessment order u/s. 143(3) of the Act dated: 27.12.2019 to be erroneous insofar as it is prejudicial to the interest of revenue.

5. Having regard to the facts and circumstances of the case and law and in accordance with the provisions of Sec. 263(1) of I. T. Act, 1961 you are hereby given an opportunity of being heard and to show cause as to why the impugned assessment order passed u/s 143(3) of the Act by DCIT, Circle – 11(1), Kolkata on 27.12.2019 for A.Y. 2017,18 should not be held to be erroneous in so far as it is prejudicial to the interests of the revenue. You may accordingly furnish your written submissions u/s 263(1) of 1.T. Act, 1961 by 15.03.2022, in this regard elaborating and/or evidencing your contentions/submissions/if any. Considering the pandemic situations arising due to COVID-19, physical attendance is not considered necessary and you are requested to make written submissions with necessary details through E-mail ID: pcit2@incometax.gov.in and it will be treated as compliance to this notice u/s 263(1).”

5. In response to this showcause notice, the assessee filed a detailed reply which has been place at page 5 to 10 of the paper books, which is extracted for read reference:-

14.3.2022

The Pr. CIT-2
Aaykar Bhawan,
Kolkata

Respected Sir,

Re: Show Cause Notice u/s 263 issued vide DIN-ITBA/REV/E/REV1/2021-22/1040457747(1) dated 08/03/2022 in the matter of M/s Diamond Beverages Private Limited, AY 17-18, PAN AABCD3346C

With reference to the above I have been advised to submit as under:

The assessee is in receipt of the above show cause notice wherein it has been mentioned that the CSR expenditure which is not allowable under sec 37 of the Act is also not eligible for deduction under sec 80G of the Act.

During AY 2017-18, the assessee spent Rs.7,50,000 as CSR expenditure and rightly disallowed the same as per explanation 2 to section 37 while computing total income for the AY 2017-18

These expenditures were deductible u/s 80G, as such assessee claimed 50% of Rs. 7,50,000/- i.e. Rs 3,75,000 under section 80G. The same was duly disclosed in the computation of total income furnished before the AO in response to the notice under sec 142(1) of the Act.

The issue whether deduction for the Corporate Social Responsibility expenditure incurred u/s 135 of Companies Act, 2013 qualifies for deduction under any section other than sec 37 of Income Tax Act, 1961 has been examined by different courts and ITAT benches and all have unanimously held that the assessee is entitled to claim deduction under sec 80G, sec 35AC, sec 35(1)(i), sec 35(1)(i) etc. A few of the cases are discussed here under:

JMS Mining Private Limted v Pr. CIT-2, Kolkata ITA No 146/Kol/2021 dated 22,07.2021 (Enclosed as Annexure- 1):

In this case the assessee company made a donation of Rs.1.35 crores towards CSR expenditure u/s 135 of Companies Act 2013. The Company suo-moto added back the sum of Rs. 1.35 crore in terms of Explanation 2 to Section 37(1) while computing “Income under the head Business”. However, the assessee claimed Rs.67,50,000 being 50% of the above donation of Rs. 1,35,00,000 under sec 80G of Income tax Act,1961.

4. On examination of assessment order dated 27/12/2019 passed u/s 143(3) of the Act by the DCIT, Circle-11(1), Kolkata, it is observed that an amount of Rs.7,50,000/- is debited towards CSR Expenditure under the head Other Expenses. It is seen from computation of Income for A.Y: 2017-18 that he said amount of CSR had suo moto been added back as Donations and claimed benefit of deduction u/s 80G the amounting to Rs.3,75,000/- (50% of Rs.7,50,000). However, as per section 37 of the I T Act, any amount of CSR expenses whether it is made for donation or for other purposes is not allowable expenses. Therefore, the claim of deduction on CSR expenditure amounting to Rs.3,75,000/- (50% of Rs.7,50,000) was required to be added back. But the Assessing Officer had accepted and allowed the claim u/s 80G of the I.T Act while computing the assessment u/s. 143(3) of the Act which is erroneous and resulted in the assessment order u/s. 143(3) of the Act dated: 27.12.2019 to be erroneous insofar as it is prejudicial to the interest of revenue.

5. Having regard to the facts and circumstances of the case and law and in accordance with the provisions of Sec. 263(1) of I. T. Act, 1961 you are hereby given an opportunity of being heard and to show cause as to why the impugned assessment order passed u/s 143(3) of the Act by DCIT, Circle – 11(1), Kolkata on 27.12.2019 for A.Y. 2017418 should not be held to be erroneous in so far as it is prejudicial to the interests of the revenue. You may accordingly furnish your written submissions u/s 263(1) of I.T. Act 1961 by 15.03.2022, in this regard elaborating and/or evidencing your contentions/submissions) if any. Considering the pandemic situations arising due to COVID-19, physical attendance is not considered necessary and you are requested to make written submissions with necessary details through E-mail ID: kolkata, pcit2@incometax.govin and it will be treated as compliance to this notice u/s 263(1).

********

The Pr. CIT-2
Aaykar Bhawan,
Kolkata

Respect Sir,

Re: Show Cause Notice u/s 263 issued vide DIN-ITBA/REV/F/REV1/2021-22/10404577470) dated 08/03/2022 in the matter of M/s Diamond Beverages Private Limited, AY 2017-18, PAN AABCD3346C

With reference to the above I have been advised to submit as under:

The assessee is in receipt of the above show cause notice wherein it has been mentioned that the CSR expenditure which is not allowable under sec 37 of the Act is also not eligible for deduction under sec 80G of the Act.

During AY 2017-18, the assessee spent Rs.7,50,000 as CSR expenditure and rightly disallowed the same as per explanation 2 to section 37 while computing total income for the AY 2017-18.

These expenditures were deductible u/s 80G, as such assessee claimed 50% of Rs. 7,50,000/- i.e. Rs.3,75,000 under section 80G. The same was duly disclosed in the computation of total income furnished before the AO in response to the notice under sec 142(1) of the Act.

The issue whether deduction for the Corporate Social Responsibility expenditure incurred u/s 135 of Companies Act, 2013 qualifies for deduction under any section other than sec 37 of Income Tax Act, 1961 has been examined by different courts and ITAT benches and all have unanimously held that the assessee is entitled to claim deduction under sec 80G, sec 35AC, sec 35(1)(i), sec 35(1)(ii) etc. A few of the cases are discussed here under:

JMS Mining Private Limited v Pr. CIT-2, Kolkata ITA No 146/Kol/2021 dated 22.07.2021 (Enclosed as Annexure- 1)

In this case the assessee company made a donation of Rs.1.35 crores towards CSR expenditure u/s 135 of Companies Act 2013. The Company suo-moto added back the sum of Rs. 1.35 crore in terms of Explanation 2 to Section 37(1) while computing “Income under the head Business”. However, the assessee claimed Rs 67,50,000 being 50% of the above donation of Rs. 1,35,00,000 under sec 80G of Income tax Act,1961.

The AO while making the assessment allowed the same and completed the assessment. Learned PCIT was of the opinion that claim of Rs. 67,50,000 under sec 80G on account of CSR expenditure was erroneous and it passed an order under sec 263 directing the AO to withdraw the deduction of Rs. 67,50,000 allowed under sec 80G. The assessee preferred an appeal before Hon’ble Kolkata ITAT against the said order passed under sec 263 of the Act.

The Hon’ble ITAT Kolkata held that Parliament had made restriction for allowance of deduction u/s 80G of CSR expenditure on donation to Swachh Bharat Kosh and Clean Ganga Fund only, deduction on account of donation to other fund/trust or institution cannot be denied u/s 80G and quashed the order passed under sec 263 by PCIT.

First American (India) Pvt. Ltd v ACIT ITA No.1762/Bang/2019 order dated 29-04­2020 (Annexure-2):

In this case also the assessee had added back the CSR expenditure u/s 37 and claimed the deduction u/s 80G. The AO disallowed the said deduction on the ground that CSR expenditure are not eligible for deduction u/s 80G also. CIT(A) confirmed the order of the AO.

The assessee preferred an appeal before ITAT Bangalore wherein it has been held that donation of CSR expenses to Swachh Bharat Kosh and Clean Ganga Fund are not admissible for deduction u/s 80G and all other CSR donation eligible u/s 80G are allowable as deduction. The relevant portion of the ruling is reproduced hereunder:

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.806), 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 part of CSR were claimed as deduction under section 80G of the Act, for computing “Total taxable income”, which has been disallowed by authorities below. In our view, assessee cannot be denied the benefit of claim under Chapter VIA, which is considered for computing ‘Total Taxable Income”. If assessee is denied this benefit, merely because such payment forms part of CSR, would lead to double disallowance, which is not the intention of Legislature.

20. On the basis of above discussion, in our view, authorities below have erred in denying claim of assessee under section 80G of the Act.

Similar view has been expressed in the under mentioned cases

• • Goldman Sachs Services Pvt. Ltd [TS-331-ITAT-2020(Bang)](Annexure – 3)
  • FNF India Private Ltd [TS-6-ITAT-2021 (Bang)](Annexure-4)
  • Allegis Services (India) Pvt Limited v ACIT ITA No.1693/Bang/2019(Annexure- 5)

Since all the judicial authorities have unanimously held that an assessee is eligible for deduction under sec 80G on account of donation of CSR expenses made to any fund, trust or institution approved under 80G. Only donation out of CSR expenses made to Swachh BharatKosh and Clean Ganga Fund are not allowable u/s 80G.

As such it cannot be said that the above view is erroneous and there is a possible view that the expenditure which has been disallowed under sec 37 of the Act can be claimed as deductible under sec 80G of the Act.

Revisionary assessment proceedings cannot be initiated unless the conjunctive conditions of section 263 of the Act are satisfied

Section 263(1) of the Act states that:

“The Principal Commissioner or The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.”

In view of the above, it is aptly clear that there are two pre-requisites for the Principal Commissioner to exercise the power of revision under section 263 of the Act:

• • The order passed by the AO should be erroneous; and
  • The error must be such that it is causes prejudice to the interests of the revenue.

We wish to place reliance on the following judicial precedents which have interpreted the powers of revision of Commissioner under section 263 of the Act:

• • Malabar Industrial Co. Ltd vs Commissioner of Income Tax [2000] (243 ITR 83) (SC)

5………

“A bare reading of provisions of s. 263 makes it clear that the prerequisite to exercise of jurisdiction by the CIT suo motu under it, is that the order of the ITO is erroneous insofar as it is prejudicial to the interests of the Revenue. The CIT has to be satisfied of twin conditions, namely, (i) the order of the AO sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent-if the order of the ITO is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue-recourse cannot be had to s. 263(1) of the Act.

There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the AO; it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind.

The phrase ‘prejudicial to the interests of the Revenue’ is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax.”

“The phrase ‘prejudicial to the interests of the Revenue’ has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue as a consequence of an order of AO 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 CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue  unless the view taken by the ITO is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the AO accepting the same as such will be erroneous and prejudicial to the interest of the Revenue.”….

• • CIT v. Gabriel India Ltd. (203 ITR 108) (Bom)(HC)

“12. From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualize a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order unless the decisions is held to be erroneous. Cases may be visualized where the Income-tax Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income-tax Officer. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the Income-tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interests of the Revenue. But that by itself will not be enough to vest the Commissioner with the power of suo-motu revision because the first requirement, viz., that the order is erroneous, is absent.” (Emphasis supplied)

• • Smt. Lila Choudhury v. CIT [2008] 167 Taxman 1 (Gau)(HC)

“An erroneous order does not mean a wrong order; it does not mean an order with which the Commissioner is unable to agree. An erroneous order would be an order which suffers from a patent lack of jurisdiction; the error must be with reference to jurisdiction. Prejudicial to the interest of the Revenue would mean an erroneous order which goes against the interest of Revenue collection. Both the conditions must pre-exist to enable the CIT to exercise the power under Section 263. Having said that, it will not be necessary to burden this order with any further description or narration. The foundation for the exercise of the power being the formation of an opinion or conclusion, there is no escape from the view that the CIT must record his conclusions in the matter before setting aside an order of assessment in exercise of the power under Section 263. It will again be futile to embark upon any discussion as to the “intensity” or “strength” of the conclusion that must be reached by the CIT before setting aside an assessment under Section 263 as the answer to the said question would really depend on the facts that may be confronting the Commissioner in any given case. The position can be best resolved by saying that in certain situations the opinion or conclusion recorded would be the final opinion; in other situations may be less than final’. What would be necessary for our purposes is to take note of the fact that there has to be an opinion that the assessment which has been set aside is, indeed, erroneous and prejudicial to the interest of Revenue. Furthermore, the power under Section 263 being quasi-judicial such conclusion must be reached after hearsay the assessee which is mandated by the statute itself and after recording the reasons for the conclusions reached, a requirement, imposition of which, would be consistent with the well-settled principles of exercise of quasi-judicial powers.” (Emphasis supplied)

In the given case, the proposed revision is sought to be done merely on change of opinion disagreeing with the opinion of the AO that the expenditure is not deductible under sec 80G of the Act.

Further, where there are two views possible and the AO has adopted one of the two possible views, then his order cannot be held to be erroneous/ prejudicial to the interest of the revenue and thereby proceedings under section 263 of the Act will not be sustained.

Reliance in this regard is placed on the decision of the Hon’ble Supreme Court in the case Malabar Industrial Co. Ltd vs. CIT (supra), wherein it is held that where two views are possible on a particular issue and the AO has adopted one view, then the same shall not be termed as erroneous only because CIT disagrees to the view, unless the view taken by the AO is unsustainable in law. Reliance is also placed on the decision in the case of CIT vs. Max Indla Ltd (295 ITR 282) (SC), Bongaigaon Refinery and Petrochemicals Ltd V UOI 287 ITR 120, CIT Pankaj Dhirajlal Dhruve 305 ITR 322, CIT v Nirma Chemicals Works Pvt Ltd 309 ITR 67, Aryan Arcade Limited v CIT 84 Taxmann.com 293(Gujrat)

Prayer:

In view the above, and in view of the jurisdictional Kolkata ITAT ruling in the case of JMS Mining (supra), it is humbly prayed that as none of the reasons required to invoke proceedings under section 263 of the Act are satisfied, your Honour may be pleased to drop the proceedings initiated under section 263 of the Act and oblige.

We request your Honour to kindly take the above information/ documents on record. The shall be pleased to provide your Honour with any further information/ clarification that you may require in this regard.

Thanking you
Yours faithfully
For Diamond Beverages Private Limited
Sd/-
Dilip Loyalka
Authorised Representative
Mobile – 9331013503

6. The ld. Pr. CIT did not agree with the contentions made by the assessee on the ground that, expenditure incurred by the assessee are not allowable u/s 37 of the Act and there is distinction between CSR expenditure vis-à-vis donations made by the assessee. According to the ld. Pr. CIT, the CSR expenditure are mandatory in nature where the assessee is in obligation under the Company Law to incur those expenditure. As far as donations given and claimed u/s 80G are concerned, it is not obligatory and rather voluntary in nature. Therefore, according to him, there is distinction and the assessee cannot claim this expenditure incurred under CSR by taking benefit of Section 80G of the Act. He accordingly set aside the assessment and directed the Assessing Officer to verify the submission made by the assessee.

7. The ld. Counsel for the assessee, while impugning the order of the ld. Pr. CIT, took us through Section 80G (2)(vi) &(via) of the Act, which read as under:-

(1) In computing the total income of an assessee¹⁶, there shall be deducted, in accordance with and subject to the provisions of this section,—

**************************************************

**************************************************

(2) The sums referred to in sub-section (1) shall be the following, namely :—

(a) any sums paid³⁹ by the assessee in the previous year as donations to—

**************************************************

**************************************************

(iv) any other fund or any institution to which this section applies; or

**************************************************

(iva) any corporation referred to in clause (26BB) of section 10; or

**************************************************

8. She further contended that there are various decisions of the Tribunal on this issue where action taken u/s 263 of the Act has been quashed by the Tribunal.

He placed on record copies of five decisions in the paper book and index of those decisions read as under:-

> Naik Seafoods Pvt. Ltd. [TS-1157-ITAT-2021 (Mum)]

> DCIT vs. Peerless General Finance & Investment & Co. Ltd. [2019] 112 taxmann.com 410 (Kolkata-Trib.)

> Infinera India (P) Ltd. vs. JCIT [2022] 137 taxmann.com 197 (Bangalore-Trib.)

> Sling Media (P.) Ltd. vs. DCIT [2022] 135 taxmann.com 164 (Bangalore-Trib.)

> Reliance Home Finance Ltd. vs. Pr. CIT-8 [ITA No. 815 & 814/Mum/2021]

9. On the strength of these decisions, she submitted that the claim made u/s 80G of the Act would be admissible to an assessee if the recipients are enjoying benefit u/s 80G of the Act and there is no further requirement to be fulfilled by the assessee.

10. On the other hand, the ld. CIT D/R, contended that this aspect has not been examined by the Assessing Officer and it is not discernible as to whether the trust/institutions to whom the donations were made by the assessee were registered u/s 80G or not. Therefore, it requires verification at the end of the Assessing Officer.

11. We have heard the ld. Representative and with their assistance gone through the record carefully. Before we embark upon an enquiry on the facts and issues agitated before us to find out whether the action u/s 263 of the Act, deserves to be taken against the assessee or not, it is pertinent to take note of this section. It reads as under:-

“263(1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.

[Explanation.- For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,-

(a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include-

(i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Incometax Officer on the basis of the directions issued by the Joint Commissioner under section 144A;

(ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Chief Commissioner or Director General or Commissioner authorized by the Board in this behalf under section 120;

(b) “record shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Commissioner;

(c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal.

(2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed.

(3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, National Tax Tribunal, the High Court or the Supreme Court.

Explanation.- In computing the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded.”

12. A bare perusal of the sub section-1 would reveal that powers of revision granted by section 263 to the learned Commissioner have four compartments. In the first place, the learned Commissioner may call for and examine the records of any proceedings under this Act. For calling of the record and examination, the learned Commissioner was not required to show any reason. It is a part of his administrative control to call for the records and examine them. The second feature would come when he will judge an order passed by an Assessing Officer on culmination of any proceedings or during the pendency of those proceedings. On an analysis of the record and of the order passed by the Assessing Officer, he formed an opinion that such an order is erroneous in so far as it is prejudicial to the interests of the Revenue. By this stage the learned Commissioner was not required the assistance of the assessee. Thereafter the third stage would come. The learned Commissioner would issue a show cause notice pointing out the reasons for the formation of his belief that action u/s 263 is required on a particular order of the Assessing Officer. At this stage the opportunity to the assessee would be given. The learned Commissioner has to conduct an inquiry as he may deem fit. After hearing the assessee, he will pass the order. This is the 4th compartment of this section. The learned Commissioner may annul the order of the Assessing Officer. He may enhance the assessed income by modifying the order. He may set aside the order and direct the Assessing Officer to pass a fresh order. At this stage, before considering the multi-fold contentions of the ld. Representatives, we deem it pertinent to take note of the fundamental tests propounded in various judgments relevant for judging the action of the CIT taken u/s 263. The ITAT in the case of Mrs. Khatiza S. Oomerbhoy Vs. ITO, Mumbai, 101 TTJ 1095, analyzed in detail various authoritative pronouncements including the decision of Hon’ble Supreme Court in the case of Malabar Industries 243 ITR 83 and has propounded the following broader principle to judge the action of CIT taken under section 263.

(i) The CIT must record satisfaction that the order of the AO is erroneous and prejudicial to the interest of the Revenue. Both the conditions must be fulfilled.

(ii) 263 cannot be invoked to correct each and every type of mistake or error committed by the AO and it was only when an order is erroneous that the section will be attracted.

(iii) An incorrect assumption of facts or an incorrect application of law will suffice the requirement of order being erroneous.

(iv) If the order is passed without application of mind, such order will fall under the category of erroneous order.

(v) Every loss of revenue cannot be treated as prejudicial to the interests of the Revenue and if the AO has adopted one of the courses permissible under law or where two views are possible and the AO has taken one view with which the CIT does not agree. If cannot be treated as an erroneous order, unless the view taken by the AO is unsustainable under law.

(vi) If while making the assessment, the AO examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determine the income, the CIT, while exercising his power under s 263 is not permitted to substitute his estimate of income in place of the income estimated by the AO.

(vii) The AO exercises quasi-judicial power vested in his and if he exercises such power in accordance with law and arrive at a conclusion, such conclusion cannot be termed to be erroneous simply because the CIT does not fee stratified with the conclusion.

(viii) The CIT, before exercising his jurisdiction under s. 263 must have material on record to arrive at a satisfaction.

(ix) If the AO has made enquiries during the course of assessment proceedings on the relevant issues and the assessee has given detailed explanation by a letter in writing and the AO allows the claim on being satisfied with the explanation of the assessee, the decision of the AO cannot be held to be erroneous simply because in his order he does not make an elaborate discussion in that regard.

13. Apart from the above principles, we deem it appropriate to make reference to the decision of the Hon’ble Delhi High Court in the case of CIT vs. Sun Beam Auto reported in 227 CTR 113 and Gee Vee Enterprises Ltd vs. Addl. Commissioner of Income Tax (99 ITR 375). In the case of Sun Beam Auto, the Hon’ble High Court has pointed out a distinction between lack of inquiry and inadequate inquiry. If there is a lack of enquiry, then the assessment order can be branded as erroneous. The following observations of the Hon’ble Delhi High Court are worth to note:

“12. We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the Commissioner of Income-tax under section 263 of the Income-tax Act. As noted above, the submission of learned counsel for the revenue was that while passing the assessment order, the Assessing Officer did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the Assessing Officer had not applied his mind on the issue. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between “lack of inquiry” and “inadequate inquiry”. If there was any inquiry, even inadequate, that would not by itself, give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has different opinion in the matter. It is only in cases of “lack of inquiry”, that such a course of action would be open”.

14. In the case of Gee Vee Enterprise vs. Commissioner of Income Tax reported in 99 ITR page 375, the Hon’ble court has expounded the approach of ld. Assessing Officer while passing assessment order. The observation of the Hon’ble court on pages 386 of journal read as under:-

“… it is not necessary for the Commissioner to make further inquiries before cancelling the assessment order of the Income-tax Officer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income-tax Officer should have made further inquiries before accepting the statements made by the assessee in his return.

The reason is obvious. The position and function of the Income-tax Officer is very diffident from that of a civil court. The statement made in a pleading proved by the minimum amount of evidence may be adopted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Income-tax Officer is not only on adjudicator but also an investigator. He cannot remain passive in the face of the return which is apparently in order but called for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry… It is because it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when circumstances would made such an inquiry prudent that the word ‘erroneous’ in section 263 includes the failure to make such an enquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct.”

15. In light of the above, we are of the view that the ld. Pr. CIT has not recorded any finding that the recipients were not enjoying registration u/s 80G of the Act, neither this fact was verified by him. His reasoning is from the angle that there is distinction between the expenditure claimed under CSR expenditure vis-à-vis donation made u/s 80G of the Act. In order to appreciate the controversy in a more scientific we deem it appropriate to take note of paragraph 3(c) at page 6 of the impugned order, which read as under:-

“(c) Claiming deduction u/s 80G of the Act against CSR expenses:

In the instant case, the assessee is claiming deduction u/s 80G of the Act against its CSR expenses. At the outset, it is crystal clear from the heading of section 80G of the Act that this section is meant for ‘Deduction in respect of donations to certain funds, charitable institutions, etc.’. It is undeniable fact that this section is primarily speaks about donation, though one of its sub-section mentions the term Corporate Social Responsibility’ in connection with donation to a specific fund. The assessee, while claiming deduction u/s 80G of the act, has tried to justify that CSR and Donation as similar component. But the fact is that the CSR’ is completely obligatory in nature and binding upon the entities that governed by the Companies Act whereas the Donation’ is completely voluntary and philanthropic in nature. It is quite clear that ‘CSR’ and ‘Donation’ is two different things in the eyes and whereas 80G of the Act speaks about ‘Donation’, the expenses made towards mandatory provisions of CSR cannot qualified for the deductions u/s 80G. Hence, the deduction claimed u/s 80G of the Act amounting to Rs.3,75,000/- (50% of Rs.7,50,000) against Corporate Social Responsibility is required to be added back in the computation of income.”

16. On due consideration of the above facts and circumstances, we are of the view that, for taking action u/s 263 of the Act, twin conditions should be fulfilled i.e., the order should be erroneous inasmuch as it causes prejudice to the revenue.

From the finding of the ld. Pr. CIT, it appears that the ld. Pr. CIT has erred in construing the position of law. The Hon’ble Delhi High Court in the case of DG Housing Projects Ltd. [2012] 343 ITR 329 (Delhi) has held that the ld. Commissioner should not simply relegate the point that the assessment order is erroneous to the AO. The ld. Commissioner, after analyzing the record, ought to have recorded a categorical finding and provided valid reasons as to how the assessment order is erroneous. In other words, the ld. Commissioner should have recorded a finding about the error that had crept in which required action u/s 263 of the Act. There is no such finding at the end of the ld. Commissioner that recipients were not enjoying registration u/s 80G and that this fact was not enquired into by the Assessing Officer. Therefore, in the absence of this finding, we are of the view that the impugned order is not sustainable and hence the same is quashed.

17. In the result, appeal of the assessee is allowed.

Order pronounced in the Court on ^6th July, 2022 at Kolkata.