BKC PROPERTIES PRIVATE LIMITED ,MUMBAI V. PRINCIPAL COMMISSIONER OF INCOME TAX -6, MUMBAI

ITA 3304/MUM/2025

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BKC Properties Pvt. Ltd. appealed against the order of the Principal Commissioner of Income Tax, Mumbai-6, which was passed under section 263 of the Income Tax Act, 1961, for the Assessment Year 2020-21. The PCIT set aside the AO's assessment order, claiming it was erroneous and prejudicial to the interests of the revenue because the AO had allowed a deduction under section 80G for CSR expenses without proper inquiry. The Tribunal examined whether the AO's order was indeed erroneous and prejudicial to the revenue, considering the detailed inquiries made by the AO and the debatable nature of the issue regarding CSR expenditures under section 80G.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 717651 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2020-2021
• Appeal Filed On: 09-05-2025
• Other Referred Cases: Malabar Industries Co. Ltd. vs. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LEYAQAT ALI AAFAQUI
• Assessee Lawyers: NISHITH KHATRI
• Keywords: Set aside; Opportunity of being heard; Transfer pricing; Revision of order
• Section: 143(3); 263; 115JB; 37(1); 80G

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, MUMBAI BEFORE MS PADMAVATHY S, AM & SHRI RAJ KUMAR CHAUHAN, JM I.T.A. No. 3304/Mum/2025 (Assessment Year: 2020-21) BKC Properties Pvt. Ltd, C-62, Vibgyor Tower, Bandra Kurla Complex, Bandra (East), Mumbai-400051. PAN: AACCB2539C Vs. Principal Commissioner of Income Tax-6, Room No. 501, 5th Floor, Aayakar Bhavan, M.K. Road, Mumbai-400020. Appellant) : Respondent) Appellant /Assessee by : Shri Nishith Khatri, AR Revenue / Respondent by : Shri Leyaqat Ali Aafaqui, Sr. DR Date of Hearing : 17.07.2025 Date of Pronouncement : 14.08.2025 O R D E R Per Padmavathy S, AM: This appeal by the assessee is against the order of the Principal Commissioner of Income Tax, Mumbai-6 [In short 'PCIT'] passed under section 263 of the Income Tax Act, 1961 (the Act) dated 11.03.2025 for Assessment Year (AY) 2020-21. The assessee raised the following grounds of appeal: “1) The Learned Principal Commissioner of Income Tax, Mumbai-6, [hereinafter referred as \"Principal Commissioner of Income Tax\" or \"PCIT\"], erred in passing Revision Order under section 263 of the Income tax Act, 1961 (the Act) and setting aside the Assessment Order passed under Printed from counselvise.com 2 ITA 3304/Mum/2025 BKC Properties Pvt. Ltd. section 143(3) of the Act read with section 144B of the Act without fulfilling the twin conditions precedent to invoke the provisions of section 263 of the Act ie that the order passed by Assessing Officer is erroneous and the order is prejudicial to the interest of the revenue, therefore the Revision Order passed under section 263 is illegal, null, bad in law and without jurisdiction and ought to be quashed. 2) Without prejudice to what has been stated above, the Principal Commissioner of Income Tax failed to appreciate the fact that then the Assessing Officer had conducted detailed inquiries in respect of appellant's claim of deduction under section 80G of the Act during scrutiny proceedings, therefore the Assessment Order passed is neither erroneous nor prejudicial to the interest of the revenue and consequentially the Revision Order passed under section 263 of the Act is bad in law, void ab initio and ought to be quashed. 3) Without prejudice to what has been stated above, the proceedings under section 263 of the Act initiated by the Principal Commissioner of Income Tax on the basis of objections raised by Internal Audit are without independent application of mind by the Principal Commissioner of Income Tax and hence is bad in law and not tenable in law. 4) Without prejudice to what has been stated above, the Principal Commissioner of Income Tax erred in setting aside the Assessment Order on the issue of claim of deduction under section 80G of the Act vis-à-vis Corporate Social Responsibility (CSR) expenses amounting to Rs.12,18,000/- on the ground that CSR expenditure is incurred as per mandatory requirement under section 135 of the Companies Act, 2013, whereas donation is a voluntary Act. 5) The Revision Order passed by the Principal Commissioner of Income Tax under section 263 of the Act ought to be set aside and cancelled. 6) Each of the above grounds of appeal are independent and without prejudice to each other.” 2. The assessee is a company and filed the return of income for AY 2020-21 on 15.02.2021 declaring a total income of Rs. 5,74,54,270/- under the normal provisions of the Act and an income of Rs. 7,25,36,880/- under the provisions of section 115JB of the Act. The case was selected for scrutiny and the AO Printed from counselvise.com 3 ITA 3304/Mum/2025 BKC Properties Pvt. Ltd. completed the assessment under section 143(3) accepting the income returned by the assessee. It is relevant to mention here that one of the reasons for selecting the case for scrutiny is to examine the deduction claimed under Chapter-VIA. Subsequently, the PCIT issued a show-cause notice under section 263 of the Act stating that the AO has erroneously allowed the deduction under section 80G of the Act towards the expenditure incurred by the assessee for Corporate Social Responsibility (CSR) for the reason that the CSR expenses are not voluntary. The assessee made various submissions stating that the AO during the course of assessment has specifically enquired the deduction claimed under section 80G and has made a conscious decision to allow the claim of the assessee. The assessee further submitted that there are judicial precedents where it has been held that the CSR expenditure though disallowed under section 37(1) is eligible for deduction under section 80G if otherwise entitled for such deduction. The PCIT did not accept the submissions of the assessee and proceeded to treat the order of the AO as erroneous and prejudicial to the interest of the revenue. Accordingly, the PCIT set-aside the order under section 143(3) on the issue of claim of deduction under section 80G of the Act. 3. The ld. AR submitted that during the course of assessment proceedings, the AO specifically raised the query with regard to the claim of deduction under section 80G of the Act (page 52 of PB). The ld. AR further submitted that the assessee vide letter dated 25.02.2022 filed response providing the necessary details (page 54 to 59 of PB). The AR accordingly submitted that the AO has examined the details filed by the assessee and has decided to allow the claim of the assessee. The ld. AR on merits submitted that there are various judicial precedents where it has been held that the CSR expenditure is eligible for deduction under section 80G of the Act if otherwise eligible. Printed from counselvise.com 4 ITA 3304/Mum/2025 BKC Properties Pvt. Ltd. 4. The ld. DR supported the order of the PCIT. 5. We heard the parties and perused the material on record. The PCIT has held the order of the AO to be erroneous and prejudicial to the interest of the revenue for the reason that the AO has not conducted proper enquiry towards deduction claimed under section 80G. The PCIT while holding so, has invoked the provisions of explanation 2 to section 263. It is apposite now to take note of the relevant extract of section 263 and the Explanation (2) to section 263 of the Act, which read as under :- “Revision of orders prejudicial to revenue. 263. (1) The [Principal Chief Commissioner or Chief Commissioner or Principal Commissioner] or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer 89[or the Transfer Pricing Officer, as the case may be,] is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, 90[including,— **** Explanation 2.—For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer 94[or the Transfer Pricing Officer, as the case may be,] shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal 95[Chief Commissioner or Chief Commissioner or Principal] Commissioner or Commissioner,— (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or Printed from counselvise.com 5 ITA 3304/Mum/2025 BKC Properties Pvt. Ltd. (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.” 6. Thus, from close scrutiny of the provisions of section 263, it is evident that twin conditions are required to be satisfied for exercise of revisional jurisdiction under section 263 of the Act i.e., firstly, the order of the Assessing Officer is erroneous; and secondly, it is prejudicial to the interests of the revenue on account of error in the order of assessment. Explanation 2 provides that when the AO fails to make the enquiry are verification that ought to have been then the order can be held to be erroneous and prejudicial to the interest of the revenue. In the light of the above provisions of the Act, we will now look at the facts in the present case. From the perusal of the details submitted by the assessee during the course of hearing and the order of the AO, it is obvious that the AO has raised specific queries with regard to the deduction claimed under section 80G (page 52 of paper book). We further notice that the assessee has submitted the relevant details along with the documentary evidences in this regard (page 54 to 59 of paper book). In view of these facts, the ld AR argued that explanation 2 to section 263 should not have been invoked by the PCIT in this case. 7. Besides lack of enquiry the reason for the PCIT to invoke the provisions of section 263 is that the AO has erroneously allowed the deduction claimed by the assessee under section 80G of the Act. In this regard we notice that the Co- ordinate Bench in various cases have been consistently holding that there is no restriction under the law for the assessee to claim the expenses incurred towards CSR as deduction under section 80G provided the payments made are otherwise eligible for deduction under the said section. The revenue's argument is that the payments made towards CSR expenditure are not voluntary and therefore cannot be regarded as donation by placing reliance on the decision of the Hon'ble Printed from counselvise.com 6 ITA 3304/Mum/2025 BKC Properties Pvt. Ltd. Supreme Court. From these discussions it is clear that whether the expenditure disallowed under section 37(1) towards CSR whether can be claimed as a deduction under section 80G is a debatable issue though the issue is reasonably settled at Tribunal level. The Hon'ble Supreme Court in the case of Malabar Industries Co. Ltd. [(2000) 243 ITR 83 (SC)] has laid down the ratio that when the issue is debatable and where there are two views are possible and where the AO has taken one of the plausible views, the revision proceedings cannot be initiated on the ground of the order being erroneous. In our considered view the above said ratio lay down by the Hon'ble Supreme Court is applicable in assessee's case and accordingly we hold that the PCIT is not correct in invoking the provisions of section 263. The order of the PCIT thus is quashed. 8. In result, appeal of the assessee is allowed. Order pronounced in the open court on 14-08-2025. Sd/- Sd/- (RAJ KUAMR CHAUHAN) (PADMAVATHY S) Judicial Member Accountant Member *SK, Sr. PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. DR, ITAT, Mumbai 4. 5. Guard File CIT BY ORDER, (Dy./Asstt. Registrar) ITAT, Mumbai Printed from counselvise.com "