ITAT, Kolkata Bench in its recent ruling in JMS Mining (P.) Ltd. v. Principal Commissioner of Income-tax , Kolkata-2 has held that in case where the assessee satisfies the condition u/s. 80G
of the Act of the donees, the assessee’s claim for deduction of CSR expenses/contribution u/s 80G of the Act is allowable. In said ruling, the provisions of Section 263 of the Income Tax were also deliberated.
Facts of the case:
- The appellant JMS Mining (P.) Ltd has claimed deduction on Income Tax Assessment u/s 80G of the IT Act which provides for claiming of deduction to certain funds, charitable institutions etc. The Appellant donated a certain sum of amount to Shree Charity Trust and a Music Academy Trust as a contribution towards Corporate Social Responsibility (“CSR”) activities. The same was allowed by the AO.
- However the order was challenged by the Principal Commissioner of Income-tax (“Respondent”) by invoking revision jurisdiction under Section 263 ibid on the ground that the action of AO to allow deduction of CSR expenses was erroneous as it could not be allowed as per express prohibition under Explanation 2 to Section 37(1) of the IT Act. Said Explanation provides that expenditure of the activities relating to CSR shall not be deemed to the expenditure of business or profession.
- The appellant has challenged the invocation of jurisdiction by the Ld. PCIT u/s 263 of the Act without satisfying the essential condition precedent as prescribed in Section 263 of the Act i.e. the AO’s order has to be found by the Ld. PCIT to be erroneous as well as prejudicial to the revenue.
Order of ITAT: Deliberation and Ruling
- ITAT noted the case of Malabar Industries Ltd. v. CIT [2000] 243 ITR 83(SC) wherein the Hon’ble Supreme Court held that in order to invoke revisional jurisdiction under Section 263 of the IT Act, the phrase “prejudicial to the interest of the revenue” has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue as a consequence to an order of AO cannot be treated as prejudicial to the interest of the revenue.
- The Ld. PCIT’s findings/allegation that the A.O has not made any enquiry/verification on this issue is factually incorrect. And therefore, his assertion that clause (a) of Explanation 2 to Section 263 is attracted is clearly erroneous
- ITAT observed that from a plain reading of the above provision shows that, any expenditure incurred towards CSR activities as referred to in Section 135 of the Companies Act, 2013 shall not be allowed as ‘business expenditure’ and shall be deemed to have not been incurred for purpose of business. The embargo created by this Explanation 2 inserted in Section 37 of the Act by the Finance (No.2) Act, 2014 was to deny deduction for CSR expenses incurred by companies, as and by way of regular business expenditure while computing “Income under the head Business”.
- ITAT noted that Explanation 2 to Section 37(1) of the Act which denies deduction for CSR expenses by way of business expenditure is applicable only to the extent of computing ‘Business Income’ under Chapter IV-D of the Act. The said Explanation according to us cannot be extended or imported to CSR contributions which is otherwise eligible for deduction under any other provision or Chapter, to say donations made to charitable trusts registered u/s 80G of the Act
- ITAT concurred with the contention of the assessee that since Parliament intended certain restrictions to only CSR expenditure in respect of two donations included by an assessee as CSR expenditure i.e. [Swachh Bharat Kosh and Clean Ganga Fund] has impliedly not made any prohibition/restriction in ITA No.146/Kol/2021 M/s JMS Mining Pvt. Ltd. A.Y. 2016-17 respect of claim of CSR expenses in other cases if it is otherwise eligible under Section 80G of the Act.
- The assessee satisfies the condition u/s. 80G of the Act of the donees, the assessee’s claim for deduction of CSR expenses/contribution u/s 80G of the Act was allowed after enquiry by the AO.
In view of the above deliberations, the ITAT was of the opinion that the action of the AO allowing the claim u/s. 80G of the Act is a plausible view and is in line with the ratio of the decision of Tribunal cited (supra). Thus it was held that the Ld. PCIT has not been able to make out a case that on this issue raised by him, the AO’s order is erroneous as well as prejudicial to the revenue. So the jurisdictional fact, as well as law, is absent for invoking revisional jurisdiction. Therefore, the usurpation of jurisdiction by Ld. PCIT u/s 263 of the Act is bad in law and therefore needs to be quashed.
READ / DOWNLOAD ORDER:
M_S_Jms_Mining_Pvt_Ltd_Kolkata_vs_Pcit_2_Kolkata_on_22_July_2021
***
Follow us for free tax updates : facebook Twitter
Subscribe to our portal and get FREE Tax e-books, quality articles and updates on your e-mail.
Resolve your GST queries from national level experts on GST free of cost.
Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.
