ABM Knowledgeware Limited Vs Assessing Officer Circle (ITAT Mumbai)
ITAT Mumbai held that while revision under Section 263 was valid due to AO’s lack of inquiry, CSR donations made to eligible institutions without quid pro quo qualify for deduction under Section 80G.
Background
The assessee’s return was picked up for complete scrutiny under Section 143(2) of the Income-tax Act, 1961. The Assessing Officer (AO) was empowered to verify all claims, including deductions under Schedule BP and Chapter VI-A. However, during assessment, the AO only examined one issue referred to in the scrutiny notice and did not verify other claims, including the deduction under Section 80G relating to donations.
The Principal Commissioner of Income-tax (PCIT) exercised revisional jurisdiction under Section 263, holding that the AO had failed to carry out necessary inquiries into the 80G claim. The assessee challenged this revision before the ITAT Mumbai.
Scope of Revision under Section 263
Section 263 empowers the PCIT to revise an order if it is both erroneous and prejudicial to the interests of the Revenue. Explanation 2 (inserted by Finance Act 2015) clarifies circumstances where an order shall be deemed erroneous, including:
- Where the AO fails to make necessary inquiries or verifications.
- Where relief is allowed without inquiry.
The Tribunal noted that even before Explanation 2, courts had consistently held that both conditions—“erroneous” and “prejudicial to Revenue”—must coexist for revision.
