Section 263 Revision Invalid Where AO Conducted Inquiry: CSR Expenditure Qualifies for Section 80G Deduction — ITAT Mumbai

Case Reference

Societe Generale Securities India Pvt. Ltd. Vs PCIT (ITAT Mumbai)
Assessment Year: 2018-19
Order Date: 20th November, 2023
Forum: Income Tax Appellate Tribunal, Mumbai

Background and Facts of the Case

Societe Generale Securities India Pvt. Ltd., the assessee company, filed its return of income on 29-11-2018 declaring total income of Rs. 413,50,97,580/-. The case was selected for complete scrutiny under CASS with special emphasis on deductions claimed under Chapter VI-A of the Income Tax Act, 1961. After issuance and compliance of statutory scrutiny notices, the assessment was completed on the returned income vide order dated 17.03.2021 under Section 143(3) read with Section 143(3A) and Section 143(3B) of the Act by the National e-Assessment Centre (NeAC). No disallowance was made in respect of the deduction claimed under Section 80G of the Act pertaining to Corporate Social Responsibility (CSR) expenditure amounting to Rs. 1,88,69,677/-.

Subsequently, the Principal Commissioner of Income Tax, Mumbai-4 (PCIT) issued a notice dated 01.03.2022 under Section 263 of the Income Tax Act, 1961, seeking to examine whether the deduction claimed under Section 80G on CSR-related donations was legally permissible. The PCIT, after considering the assessee's detailed reply, found the explanation unsatisfactory. The PCIT concluded that the Assessing Officer (AO) had failed to conduct adequate and warranted inquiries into the allowability of such CSR donations under Section 80G, thereby rendering the assessment order erroneous and prejudicial to the interests of the Revenue. Accordingly, the PCIT set aside the assessment order and directed the AO to re-examine and disallow the claim under Section 80G on CSR expenditure.

Aggrieved by this revisionary order, the assessee preferred an appeal before the ITAT Mumbai.

Grounds of Appeal Raised by the Assessee

The assessee challenged the PCIT's order on the following broad grounds:

1. Validity of Section 263 proceedings — The order passed under Section 263 of the Act was bad in law and legally unsustainable.

2. Denial of Section 80G deduction — The PCIT erred in holding that the assessment order was erroneous and prejudicial to the Revenue merely because the deduction under Section 80G on CSR expenses of Rs. 1,88,69,677/- was allowed without sufficient inquiry.

3. Other legal infirmities in the revisionary order, including:

   • Erroneous reliance on clause (a) to Explanation 2 of Section 263(1) and the Supreme Court ruling in Malabar Industrial Co. Limited v. CIT [2000] 243 ITR 83 (SC)
   • Exercise of revision power despite acknowledging that the NeAC had already called for relevant details from the assessee
   • Failure to demonstrate even prima facie how the Section 80G claim was unsustainable
   • Non-adherence to binding precedents of higher appellate authorities

Issues Considered by the Tribunal

The ITAT identified and examined two distinct dimensions of the matter:

1. Jurisdictional Validity of Section 263 Proceedings

Before addressing the substantive question on merits, the Tribunal examined whether the PCIT was justified in assuming jurisdiction under Section 263 of the Act.