ITAT Mumbai Quashes Section 263 Revision on CSR-Based Section 80G Deduction; Holds Assessment Not Erroneous

Key Facts and Tribunal Findings

The Income Tax Appellate Tribunal (ITAT), Mumbai Bench, allowed the appeal of Apraava Wind Energy (Khandke) Pvt. Ltd. and set aside the revisionary order passed by the Principal Commissioner of Income Tax under Section 263 for Assessment Year 2020–21.

The dispute arose from the assessee’s claim of deduction under Section 80G in respect of donations forming part of Corporate Social Responsibility (CSR) expenditure. The assessee had suo motu disallowed CSR expenditure under Section 37(1) while computing business income and separately claimed deduction under Section 80G for eligible donations.

The Assessing Officer, after examining the claim during scrutiny proceedings under Section 143(3), allowed the deduction. Subsequently, the PCIT invoked revisionary jurisdiction under Section 263, holding that the allowance of deduction under Section 80G on CSR expenditure rendered the assessment order erroneous and prejudicial to the interests of the Revenue.

Before the Tribunal, it was demonstrated that the Assessing Officer had specifically raised queries regarding CSR expenditure and deduction under Section 80G, and the assessee had furnished detailed replies along with supporting documentation.

The Tribunal found that the Assessing Officer had conducted due enquiry and applied his mind to the issue. It held that the PCIT’s observation regarding lack of enquiry was factually incorrect.

On merits, the Tribunal noted that there is no statutory bar on claiming deduction under Section 80G for donations merely because they are part of CSR expenditure, provided conditions under the provision are satisfied. It observed that disallowance under Section 37(1) does not preclude independent eligibility under Chapter VI-A.

Accordingly, the Tribunal held that the twin conditions for invoking Section 263—namely, the order being erroneous and prejudicial to the interests of the Revenue—were not satisfied, and quashed the revisionary order.