ITAT Mumbai on Section 263: When can CSR under Section 80G and ESOP expenses be revised?

The Income Tax Appellate Tribunal, Mumbai, in the case of Livlong Insurance Brokers Limited Vs PCIT, examined the limits of revisional powers under Section 263 in the context of:

Deduction claimed under Section 80G in respect of Corporate Social Responsibility (CSR) expenditure, and
Deduction of Employee Stock Option Plan (ESOP) related expenses under Section 37(1).

The Tribunal ultimately quashed the revision on the Section 80G/CSR issue but upheld the revision on the ESOP issue, thereby partly allowing the assessee’s appeal.

Background of the case

For Assessment Year 2020-21, an assessment was completed under Section 143(3) determining total income at Rs. 20,48,42,090/-. Subsequently, the Principal Commissioner of Income Tax (PCIT) invoked Section 263 and passed a revisional order dated 28.03.2025, alleging that the assessment order was:

Erroneous, and
Prejudicial to the interests of the Revenue,

on two distinct counts:

Deduction of Rs. 18,06,528/- under Section 80G claimed in respect of CSR expenditure of Rs. 37,21,056/-.
Deduction of ESOP expenses amounting to Rs. 1,98,715/- claimed under Section 37(1).

The assessee challenged this revisional order before the ITAT.

Issue 1: CSR Expenditure Claimed under Section 80G

PCIT’s position on CSR and Section 80G

The PCIT observed that:

The assessee had incurred CSR expenditure of Rs. 37,21,056/-.
Out of this, Rs. 18,06,528/- was claimed as deduction under Section 80G.

According to the PCIT:

CSR outlay is compulsory under Section 135 of the Companies Act 2013 read with Schedule VII and the relevant CSR Rules.
Explanation 2 to Section 37 clearly bars CSR expenditure from being claimed as business expenditure.
Donation under Section 80G must be voluntary in nature, and the element of voluntariness stands negated where CSR is statutorily mandated.

Relying on the principle of voluntariness, including reference to Commissioner of Expenditure Tax vs PVG Raju, Rajah of Vizianagaram (1 SCR 1017G (1967)), the PCIT concluded that CSR, being a statutory obligation, cannot qualify as a donation under Section 80G.

He further noted that:

The assessment order was silent on any enquiry or discussion on CSR and the Section 80G claim.
On this basis, he treated the assessment as erroneous and prejudicial and directed the Assessing Officer (AO) to disallow the Section 80G deduction.

Assessee’s response on CSR and Section 80G

In reply to the show-cause notice issued under Section 263, the assessee submitted that:

During the scrutiny proceedings, the AO had specifically raised a query concerning CSR expenditure and the related tax treatment.
The assessee had clarified to the AO that:
- No deduction for CSR expenditure was claimed under Section 37, considering the bar in Explanation 2.
- A separate claim for Section 80G deduction was made for 50% of the CSR expenditure, in line with the provisions of Section 80G.
The AO, having been satisfied with the explanation and documentation, consciously allowed the deduction without any further adverse comment or disallowance.

Thus, the assessee argued that:

The issue was examined in assessment,
The AO had taken a considered view, and
Merely because the PCIT preferred a different interpretation, Section 263 could not be invoked.

ITAT’s analysis on CSR / Section 80G issue

The Tribunal took note of:

Disclosure of CSR expenditure and related Section 80G claim in the assessment records.
The fact that the assessee had clearly placed all relevant details before the AO.
The AO’s conscious decision to allow Section 80G deduction after considering the CSR item.

The Tribunal held that:

AO adopted a plausible view:
The AO had appreciated the facts and law and accepted a legally sustainable position that CSR expenditure, though not deductible under Section 37, can still be eligible under Section 80G if statutory conditions are satisfied.

Scope of Section 263 revision: ITAT Mumbai on CSR donations under Section 80G and ESOP expenditure