ITAT Mumbai Invalidates Section 263 Revision: Assessing Officer's Silence on Section 80G CSR Claim Does Not Imply Lack of Inquiry

In a significant adjudication concerning the intersection of corporate social responsibility and tax deductions, the Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) delivered a pivotal ruling in the case of Blueberry Trading Company Private Limited Vs PCIT. The tribunal addressed the contentious issue of whether an Assessing Officer's (AO) failure to explicitly discuss a deduction claim in the final assessment order automatically renders the order erroneous and prejudicial to the interests of the Revenue under Section 263 of the Income Tax Act 1961.

This judicial summary encapsulates the tribunal's findings, emphasizing that as long as the assessment records demonstrate a clear trail of inquiry and subsequent verification, the Principal Commissioner of Income Tax (PCIT) cannot invoke revisionary powers simply to substitute their own opinion for a plausible view taken by the AO.

Factual Matrix of the Dispute

The controversy originated from the income tax return filed by the assessee for the Assessment Year (AY) 2022-23.

  1. Filing of Return: The assessee submitted its return of income on 07/11/2022, reporting a total income of ₹2,65,65,270.
  2. Scrutiny Selection: The case was subsequently picked up for complete scrutiny. A primary reason for this selection was the substantial deduction the assessee had claimed under Chapter VI-A of the Income Tax Act 1961.
  3. Assessment Completion: The scrutiny culminated in an assessment order passed under Section 143(3) read with Section 144B on 09/03/2024, wherein the AO accepted the income as returned by the assessee.
  4. The CSR Component: During the year, the assessee had discharged its corporate social responsibility (CSR) obligations by incurring an expenditure of ₹11,29,000, as mandated by Section 135 of the Companies Act 2013. Recognizing that CSR expenses are expressly disallowed as business expenditure, the assessee voluntarily added this sum back to its total income computation.
  5. The Deduction Claim: However, because the CSR contribution was directed toward an eligible charitable institution, the assessee claimed a 50% deduction under Section 80G, which amounted to ₹5,64,500.

Intervention by the Principal Commissioner of Income Tax (PCIT)

Following the completion of the assessment, the PCIT exercised revisionary jurisdiction under Section 263 of the Income Tax Act 1961. Upon reviewing the assessment records, the PCIT raised fundamental objections regarding the allowance of the Section 80G deduction on CSR expenses.