NTT Global Data Centers and Cloud Infrastructure India Private Limited Vs PCIT (ITAT Mumbai)
Summary: The Income Tax Appellate Tribunal, Mumbai, allowed the assessee’s appeal against revision under Section 263 for AY 2020-21, holding that the classification of a payment as Corporate Social Responsibility expenditure does not, by itself, disqualify an otherwise eligible donation under Section 80G. The assessee, engaged in data centre and cloud services, had debited CSR expenditure of ₹59,08,333, added it back while computing business income under Section 37(1), and separately claimed deduction of ₹31,42,090 under Section 80G. The Principal Commissioner considered that compulsory CSR expenditure lacked the voluntary character of a donation and that allowing the deduction would defeat Explanation 2 to Section 37(1). After recording that the assessee had not responded to the revisional notice, the Principal Commissioner set aside the assessment for limited verification of the claim.
The Tribunal explained that Explanation 2 to Section 37(1) restricts deduction of CSR expenditure in computing business income, whereas Section 80G operates independently under Chapter VI-A. Disallowance under the former provision does not automatically prevent a deduction independently available under the latter. However, every item of CSR expenditure does not qualify: the payment must constitute a qualifying donation and satisfy the applicable conditions, exclusions and limits. The express exclusions for CSR contributions to the Swachh Bharat Kosh and Clean Ganga Fund under Section 80G(2)(a)(iiihk) and (iiihl) cannot be extended into a general prohibition against all CSR-linked donations. Similarly, the statutory obligation under Section 135 of the Companies Act, 2013 does not, by itself, establish that a payment to an eligible charitable institution ceases to be a donation.
On the enquiry issue, the Tribunal expressly declined to presume that the Assessing Officer had specifically examined the CSR-linked deduction merely because Chapter VI-A deductions were a scrutiny issue and financial statements and computations were available. Nevertheless, the revisional order identified no particular ineligible recipient, statutory exclusion, inadmissible payment mode, incorrect deduction rate or breach of the qualifying limit. Its allegation of non-enquiry rested on the same unsustainable general objection to CSR-linked donations. Applying the jurisdictional principles in Malabar Industrial Co. Ltd. v. CIT, (2000) 243 ITR 83 (Supreme Court), the Tribunal held that Explanation 2 to Section 263 does not dispense with identifying a relevant omitted enquiry connected with the alleged error. The assessee’s failure to respond to the notice also did not relieve the Principal Commissioner of establishing the jurisdictional conditions. The revision was therefore set aside and the appeal allowed. No separate finding on actual examination during assessment, or recomputation of the Section 80G deduction, was required.
Cases Discussed
- Malabar Industrial Co. Ltd. v. CIT, (2000) 243 ITR 83 (Supreme Court). The Tribunal applied the requirement that an assessment must be both erroneous and prejudicial to the interests of the Revenue for revision under Section 263, and the principle that a legally permissible view cannot be revised merely because the Commissioner prefers another view.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
Present appeal is filed by the assessee against the order dated 27/03/2026 passed by the Ld.Pr.CIT-2, u/s.263 of the Act, for Assessment Year 2020-21, on the following grounds of appeal:
“1. The Learned PCIT grossly erred in law and on facts in invoking jurisdiction under section 263 of the Act and in passing the impugned order setting aside the assessment order passed by the Learned Assessing Officer without appreciating that the assessment order passed by the Learned Assessing Officer was neither erroneous nor prejudicial to the interests of the Revenue.
2. The Learned PCIT erred in law and on facts in setting aside the assessment order and directing fresh verification of the issues under section 263 of the Act without appreciating that the said claim had already been duly examined, verified and considered by the Learned Assessing Officer during the course of assessment proceedings.
3. The Learned PCIT grossly erred in disallowing claim of deduction under section 80G of the Act in respect of CSR expenditure of INR 31,42,090/- .
4. The Appellant craves leave to add to, alter, amend or delete any ground of appeal at or before hearing of the appeal.”
2. Brief facts of the case are as under:-
Assessee is a company engaged in providing data center services, including colocation, hosting, remote infrastructure management and cloud services. It filed its return of income on 14/02/2021 declaring total income of Rs.59,08,70,740/- under the normal provisions of the Act and book profit of Rs.98,87,60,743/-. The return was processed u/s.143(1) on 26/12/2021 determining total income at Rs.60,08,82,290/-. The case was thereafter selected for scrutiny under CASS on various issues, including deduction from total income under Chapter VI-A. Assessment was completed on 30/09/2023 u/s.143(3) r.w.s.144B determining total income at Rs.62,53,94,290/-, after making additions of Rs.2,41,81,691/- towards education cess and Rs.3,29,297/- u/s.14A of the Act.
2.1. Subsequently, the Ld.PCIT examined the assessment record and noted that the assessee debited CSR expenditure of Rs.59,08,333/- to its Profit and Loss Account and disallowed the same u/s.37(1) while computing its income. Further it was noted that the assessee separately claimed deduction of Rs.31,42,090/- u/s.80G, comprising 100% of Rs.3,75,847/- and 50% of Rs.55,32,486/-. The Ld. PCIT issued a show-cause notice dated 11/03/2026 proposing revision of the assessment on the ground that CSR expenditure, being incurred pursuant to the statutory obligation u/s.135 of the Companies Act, 2013, could not qualify as a voluntary donation for deduction u/s.80G.
2.2. The impugned order records that the assessee was required to respond on 16/03/2026 but did not furnish a response. The Ld. PCIT therefore proceeded on the material available on record. According to the Ld. PCIT, allowing deduction u/s.80G after disallowance u/s.37(1) would defeat the legislative intention underlying Explanation 2 to section 37(1). It was further held that the Ld. AO had not examined the nature of the payment, its eligibility as a donation, the effect of the statutory CSR obligation or the competing legal interpretations. Invoking Explanation 2 to section 263, the Ld.PCIT set aside the assessment for the limited purpose of verification of the impugned claim and directed the Ld.AO to allow, disallow or restrict the deduction in accordance with law after affording an opportunity of being heard.
Aggrieved, by the order of the Ld.PCIT, the assessee is in appeal before this Tribunal.
3. The Ld.ARsubmitted that the assessment was neither erroneous nor prejudicial to the interests of the Revenue and that the claim had already been examined during assessment. It also disputes the denial of deduction of Rs.31,42,090/- u/s. 80G merely because the payments formed part of its CSR expenditure.
On the contrary, the Ld.DR submitted that the statutory character of the expenditure excludes the element of voluntary donation and that the omission to examine these aspects renders the assessment amenable to revision.
We have perused the submissions advanced by both d=sides in light of records placed before us
4. The controversy is whether the allowance of deduction u/s.80G on donations forming part of CSR expenditure justified revision of the assessment u/s.263 of the Act. The jurisdictional challenge and the legal objection to the deduction are interconnected and are therefore considered together.
4.1. For exercise of jurisdiction u/s.263, the assessment order must be both erroneous and prejudicial to the interests of the Revenue. Hon’ble Supreme Court in case of Malabar Industrial Co. Ltd. v. CIT reported in (2000) 243 ITR 83 explained that an incorrect assumption of facts or an incorrect application of law may render an order erroneous. At the same time, where the Ld.AO adopts a course permissible in law, or one of two permissible views, the order cannot be revised merely because the Commissioner prefers another view. The enquiry objection must accordingly be examined in the context of the precise error identified in the impugned order.
4.2. We note that the Explanation 2 to section 37(1) provides that, for the purposes of that sub-section, expenditure incurred on activities relating to CSR referred to in section 135 of the Companies Act, 2013 shall not be deemed to have been incurred for the purposes of business or profession. The restriction thus operates upon the allowance of business expenditure u/s.37(1). In the present case, the impugned order itself acknowledges that the assessee disallowed the entire CSR expenditure of Rs.59,08,333/- in its computation. Therefore, no deduction of that expenditure as business expenditure u/s.37(1) was allowed by the Ld. AO.
4.3. It cannot be ignored that section 80G operates independently under Chapter VI-A and permits deduction in respect of qualifying donations to the specified funds and institutions, subject to the conditions, exclusions and limits prescribed therein. An amount disallowed in computing business income does not, for that reason alone, become ineligible for a deduction independently available under Chapter VI-A. The claim has to be tested under section 80G itself. This does not imply that every item of CSR expenditure qualifies for deduction u/s.80G; the payment must possess the character of a qualifying donation and fulfil the applicable statutory requirements.
4.4. The statutory scheme also contains express exclusions for CSR contributions to the Swachh Bharat Kosh and the Clean Ganga Fund in section 80G(2)(a)(iiihk) and (iiihl), respectively. These provisions specifically exclude sums spent in pursuance of the CSR obligation u/s.135(5) of the Companies Act, 2013. Such express exclusions cannot be enlarged into a general prohibition covering all donations forming part of CSR expenditure. Where a payment otherwise falls within section 80G and satisfies its requirements, its inclusion in the assessee’s CSR expenditure does not, by itself, disqualify the claim.
4.5. We are therefore unable to accept the reasoning that deduction u/s.80G necessarily circumvents Explanation 2 to section 37(1). Giving effect to each provision within its own sphere preserves both provisions. The expenditure remains disallowed as business expenditure, while the separate deduction, if otherwise admissible, is computed under section 80G. Likewise, the statutory obligation to incur CSR expenditure cannot by itself establish that a payment to an eligible charitable institution ceases to be a donation for section 80G. Its nature and eligibility must be determined by reference to the requirements of that section.
4.6. We next consider the allegation of lack of enquiry. The assessment order identifies deduction under Chapter VI-A as one of the scrutiny issues and records the furnishing of the computation of income and audited financial statements. However, selection of an issue for scrutiny, or mere availability of these documents, is not by itself conclusive proof of a specific enquiry into the CSR-linked deduction. We therefore do not rest our conclusion on a presumed enquiry or on any query and reply not established by the material before us.
4.7. The alleged omissions enumerated in paragraph 11 of the impugned order concern whether CSR expenditure can constitute a voluntary donation, whether the statutory CSR obligation permits an eligible donation, the effect of Explanation 2 to section 37(1), and the competing legal interpretations. The Ld.PCIT’s conclusion proceeds on the premise that deduction u/s.80G is legally unavailable even where payment is made to an institution otherwise eligible under that section. As discussed above, this premise is not sustainable. The impugned order does not identify a particular ineligible recipient, an applicable statutory exclusion, an inadmissible mode of payment, an incorrect deduction rate or a breach of the qualifying limit. Nor does it link the enquiry objection to any such factual deficiency in the claim.
4.8. Explanation 2 to section 263 applies where an enquiry or verification which ought to have been made was omitted. It does not dispense with the requirement to identify the relevant omission in relation to the error alleged. In the present case, the allegation of non-enquiry is founded on the same general legal objection that CSR-linked donations cannot qualify u/s.80G. An assessment cannot be treated as erroneous merely because the Ld. AO did not adopt that objection. The absence of an elaborate discussion in the assessment order on this legal proposition cannot, without more, sustain the impugned exercise of revisionary jurisdiction.
4.9. The assessee’s non-response to the revisional notice entitled the Ld. PCIT to decide the matter on the available record; it did not relieve the Ld. PCIT of the obligation to establish the jurisdictional conditions u/s.263. Since the error and prejudice identified in the impugned order arise from an unsustainable general prohibition against CSR-linked donations, and no independent factual defect in the section 80G claim has been identified, the impugned revision cannot be sustained.
Accordingly, Ground No.1 raised by the assesse stands allowed.
Ground No.2, insofar as it asserts actual examination of the claim during assessment, does not require a separate finding in view of the above conclusion.
Ground No.3 is disposed of in terms of our finding that CSR classification alone does not bar deduction u/s.80G; no separate recomputation of the deduction arises in this appeal against the revisional order.
Ground No.4 is general in nature and does not require adjudication.
In the result, the appeal filed by the assessee stands allowed.
Order pronounced in the open court on 12.10.2026.
