AI Insights
The case involves two appeals by M/s Merino Panel Products Ltd and M/s Merino Industries Ltd against the order of the PCIT, which set aside the assessments made by the AO under sections 143(3), 143(3A), and 143(3B) of the Income Tax Act for the assessment year 2018-19. The PCIT's revision was based on the claim that the AO had not properly examined the deduction under section 80G for CSR expenses, which the PCIT deemed erroneous and prejudicial to the Revenue's interests. However, the Tribunal found that the AO had adequately examined the issue during the original assessment proceedings, referencing a similar case (M/S JMS Mining Pvt. Ltd. Vs. PCIT) where it was held that such deductions are permissible if the conditions under section 80G are met.
Appeal details
Counselvise Citation
[2025] 140 COUNSELVISE.COM (IT) 25053 (ITAT-KOLKATA)
Assessee PAN
Bench
Appeal Number
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
24-02-2025
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
A
Assessment Year
2018-2019
Judgement Text
" IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, KOLKATA BEFORE SHRI RAJESH KUMAR, AM AND SHRI PRADIP KUMAR CHOUBEY, JM ITA No.922/KOL/2024 (Assessment Year: 2018-19) M/s Merino Panel Products Ltd. 5, Alexandra court, 601/1, Chowringhee Road, Kolkata- 700020, West Bengal Vs. PCIT-2, Aaykar Bhavan, Chowringhee Square, Kolkata-700069, West Bengal (Appellant) (Respondent) PAN No. AABCM5672Q ITA No. 923/KOL/2024 (Assessment Year: 2018-19) M/s Merino Industries Ltd. 5, Alexandra court, 601/1, Chowringhee Road, Kolkata- 700020, West Bengal Vs. PCIT-2, Aaykar Bhavan, Chowringhee Square, Kolkata-700069, West Bengal (Appellant) (Respondent) PAN No. AAACC9186C Assessee by : Shri Shyam Sundar Jha, AR Revenue by : Shri Subhendu Datta, DR Date of hearing: 05.02.2025 Date of pronouncement : 24.02.2025 O R D E R Per Rajesh Kumar, AM: These are appeals preferred by two assessee against the order of the Pr. Commissioner of Income Tax (hereinafter referred to as the “Ld. PCIT”] dated 31.03.2024 for the AY 2018-19. Page | 2 ITA Nos. 922 & 923/KOL/2024 M/s Merono Panel Products Ltd; A.Y. 2018-19 922/KOL/2024 02. The only issue raised by the assessee in the various grounds of appeal is against the invalid exercise of jurisdiction u/s 263 of the Act by ld. PCIT, thereby setting aside the assessment framed by the ld. AO u/s 143(3) read with section 143(3A) & 143(3B) of the Act dated 16th April, 2021. 03. The facts in brief are that the assessment was framed u/s 143(3)/ 143(3A) and 143(3B) of the Act on 16.04.2021 by National e- Assessment center, Dehi, assessing the income at ₹80,40,30,793/-. The ld. PCIT on examination of the assessment records found that the assessee has incurred CSR expenses of ₹1,38,50,000/- during the year which were suo-motto disallowed in the computation of income by the assessee. However, the assessee has claimed deduction u/s 80G of the Act of ₹69,25,000/- being 50% of the donation of such CSR expenses which according to the PCIT has rendered the assessment as erroneous and prejudicial to the interest of the Revenue. Accordingly, the ld. PCIT issued notice u/s 263 of the Act on 02.02.2024, which was not replied by the assessee. Finally, the ld. PCIT set aside the assessment framed by the ld. AO by passing an order u/s 263 of the Act on 31st March, 2024, by directing the ld. AO to modify the assessment to that extent of quantum mentioned in the revisionary order of ₹69,25,000/- after allowing a reasonable opportunity of hearing to the assessee. 04. The ld. AR of the assessee vehemently submitted before us that the ld. PCIT invalidly exercise the revisionary jurisdiction u/s 263 of the Act without satisfying the twin conditions as envisaged in Section 263 of the Act i.e. the order has to be erroneous and it has to be prejudicial to the interest of the Revenue. The ld. Counsel of the Page | 3 ITA Nos. 922 & 923/KOL/2024 M/s Merono Panel Products Ltd; A.Y. 2018-19 assessee submitted that the assessment framed by the ld. AO is neither erroneous nor prejudicial to the interest of the Revenue as the issue was examined in the original assessment proceedings after having examined the same and therefore, proceeding u/s 263 of the Act deserved to be quashed. The ld. AR also relied on the decision of the co-ordinate bench in the case of M/S JMS Mining Pvt. Ltd. Vs. PCIT, in ITA No. 146/KOL/2021 for A.Y. 2016-17 vide order dated 22.07.2021, wherein the co-ordinate Bench has held that the assessee is entitled to deduction u/s 80G of the Act in respect of donations made which were eligible for deduction at the rate of 50% of the total donations given even in respect of CSR expenses claimed by the assessee in the profit and loss account. The ld. AR therefore prayed that the revisionary jurisdiction was wrogly invoked and therefore order passed u/s 263 by the ld. PCIT may be quashed. 05. The ld. DR on the other hand relied on the revisionary order and prayed that the appeal of the assessee may be dismissed. 06. After hearing the rival contentions and perusing the materials available on record, we find that in this case the assessee has incurred CSR expense which were suo moto disallowed in the computation of income at the time of filing of return of income. However, simultaneously claiming 50% of the eligible donations u/s 80G of the Act as made during the year. In our opinion, there is no bar in the Act for the assessee to claim the deduction u/s 80G of course subject to satisfaction of conditions as envisaged in Section 80G of the Act. The case of the assessee is squarely covered by the aforesaid decision in the case of M/S JMS Mining Pvt. Ltd. Vs. PCIT (Supra), wherein the co-ordinate Bench has held as under: Page | 4 ITA Nos. 922 & 923/KOL/2024 M/s Merono Panel Products Ltd; A.Y. 2018-19 “16. We find in this regard that the assessee pursuant to show cause notice (SCN) (supra) had duly replied to the Ld. PCIT which fact has been acknowledged by the Ld. PCIT in para 3 of the impugned order, wherein he says that in response to the SCN the assessee has submitted reply dated 24.03.2021 which has been found placed at page 10 to 16 of the PB. From a perusal of the same, we note that the assessee specifically brought to the notice of the Ld. PCIT that the AO had specifically raised question about assessee’s claim of deduction of CSR expenses under Chapter VIA of the Act vide his notice u/s 142(1) of the act dated 01.08.2018 by preferring question no (v) and the ibid notice of AO was attached as annexure along with reply given by assessee on this issue for the perusal of Ld. PCIT. The aforesaid query no (v) raised u/s 142(1) of the Act by the A.O and the reply given by the assessee to the Assessing Officer has been already reproduced (supra). From a perusal of the same it is clear that the A.O had enquired about this specific claim of the assessee i.e. deduction of CSR expenses amounting to Rs. 1.35 crores under Chapter VIA and from the perusal of the reply of the assessee it is clear that the assessee has given explanation as to how the assessee had claimed such a deduction along with case laws (supra). Thereafter considering the same only the A.O has allowed the deduction claim and thereby allowed the claim of 50% of the claim u/s. 80G of the Act. In such a scenario, the Ld. PCIT’s findings/allegation that the A.O has not made any enquiry/verification on this issue is factually incorrect. And therefore, his assertion that clause (a) of Explanation 2 to Section 263 is attracted is clearly erroneous. From the query raised by the AO on this issue and the reply given by the assessee we are of the opinion that the A.O. has discharged his dual role of an investigator as well as an adjudicator. The Ld. PCIT’s action of brushing aside the reply given by the assessee and his finding that the A.O has not verified/enquired into the issue smacks of arbitrariness and non-application of mind making the impugned order bad in law. 17. Coming next to the legality/correctness of the deduction allowed by the AO in respect of CSR/donation u/s. 80G of the Act, first of all, we agree with the Ld. CITDR that CSR expenses which are required to be mandatorily incurred by the assessee Company as per Section 135 of the Companies Act are not entitled to deduction u/s 37(1) of the Act for A.Y 2015-16 by virtue of the fetter placed by Explanation 2 to Section 37(1) of the Act which was inserted by the Finance Act vide no. 2.2014. The relevant provisions of Explanation 2 to Section 37(1) of the Act read as follows: \"Explanation 2. -For the removal of doubts, it is hereby declared that for the purposes of sub-section (1), any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 (18 of 2013)27 shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession\" From a plain reading of the above provision shows that, any expenditure incurred towards CSR activities as referred to in Section 135 of the Companies Act, 2013 shall not be allowed as ‘business expenditure’ and shall be deemed to have not been incurred for purpose of business. The embargo created by this Explanation 2 inserted in Section 37 of the Act by the Finance (No.2) Act, 2014 was to deny deduction for CSR expenses incurred by companies, as and by way of regular business expenditure while computing \"Income under the head Business\". Page | 5 ITA Nos. 922 & 923/KOL/2024 M/s Merono Panel Products Ltd; A.Y. 2018-19 18. So, it can be clearly seen that this Explanation 2 to Section 37(1) of the Act which denies deduction for CSR expenses by way of business expenditure is applicable only to the extent of computing 'Business Income' under Chapter IV-D of the Act. The said Explanation according to us cannot be extended or imported to CSR contributions which is otherwise eligible for deduction under any other provision or Chapter, to say donations made to charitable trusts registered u/s 80G of the Act for the reasons cited infra. 19. In the facts of the present case, it is an admitted position that the donation of Rs.1.35 crores was disallowed and suo-moto added back by the assessee in terms of Explanation 2 to Section 37(1) while computing \"Income under the head Business\". However, according to assessee, since the said CSR contribution comprised of donation made to registered charitable trust, it was legally entitled to claim deduction under Section 80G of the Act to arrive at the \"Total Income\" in terms of Chapter VI of the Act, and AO has allowed it, which action of AO has been found fault by Ld PCIT, which issue need to be examined. For examining the same let us look in to the relevant provisions which we need to be taken in to consideration. 20. The provisions of Section 135(5) of the Companies Act, 2013 read as under: \"The Board of every company referred to in sub-section (1), shall ensure that the company spends, in every financial year, at least two per cent. of the average net profits of the company made during the three immediately preceding financial years or where the company has not completed the period of three financial years since its incorporation, during such immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy:\" 21. Let us also look at section 80G of the Act (relevant portions) which reads as under: Section 80G : Deduction in respect of donation to certain funds, charitable institution, etc. In computing the total income of an assessee, there shall be deducted in accordance with and subject to the provision of this section (i) ….. (ii) …… (2) The sum referred to in sub-section (i) should be the following namely – (a) Any sums paid by the assessee in the previous year as donations to – (i) ….. (ii) …… “(iiihk). The Swachh Bharat Kosh, set up by the Central Government, other than the sum spent by the assessee in pursuance of Corporate Social Responsibility under subsection (5) of Section 135 of the Companies Act, 2013 (18 of 2013); or Page | 6 ITA Nos. 922 & 923/KOL/2024 M/s Merono Panel Products Ltd; A.Y. 2018-19 (iiihl). The Clean Ganga Fund, set up by the Central Government, where such assessee is a resident and such sum is other than the sum spent by the assessee in pursuance of Corporate Social Responsibility under Sub-section (5) of Section 135 of the Companies Act, 2013) (18 of 2013).” (iv). Any other fund or any institution to which section applies; or (4) …………………. (5) This Section applies to donations to any institution or fund referred to in Sub- clause (iv) of Clause (a) of Sub-section (2), only if it is established in India for a charitable purpose and if it fulfills the following condition namely: (i) …………. (a)…………… (b)……………… (c)………………… (ii)…………………… (vi) in relation to donations made after the 31st day of March, 1992 , the institution or fund is for the time being approved by the PCIT or Commissioner in accordance with the rules 3 made in this behalf. 22. From a bare reading of the section 80G of the Act we note that deduction under this section has to be made in accordance with and subject to the provisions of this section i.e. section 80G of the Act. As per this section i.e. section 80G of the Act, an amount equal to fifty percent (50%) of the aggregate of the sums specified in sub- section 2 [refer sub-clause (iv) of Clause (a) of Sub-section 2 of section 80G of the Act read with section 80G (1) (ii)] which allows the donation given to any other Fund or any institution to which this section applies and if it satisfies the requirement of sub-section (5) of section 80G of the Act, then 50% of the donation is allowable expenditure [refer section 80G (1) (ii)]even if the assessee has included the expenditure as CSR Expenditure because there is no prohibition or restriction placed by the Parliament on such a donation even if shown as CSR expenditure. The reason for saying so is that in section 80G of the Act certain restrictions in respect of deduction in respect of two (2) donations are expressly seen in this Section. So the Parliament has expressed its intention clearly by bringing in restriction in respect of expenditure classified by an assessee company while claiming deduction u/s. 80G of the Act i.e. CSR expenditure related to Swachh Bharat Kosh and Clean Ganga Fund. So if an assessee makes some donation to these projects and include/classify it as CSR expenditure while claiming deduction u/s. 80G of the Act then it will be allowed only the amount that is other than the sums spent by the assessee in pursuance of CSR u/s. 135 of the Companies Act. In other words, if an assessee company spends only the mandatory expenditure of 2% of net profit for CSR activity, which includes the amount of donation to Swach Bharat Kosh & Clean Ganga Fund (iiihk) and (iiihi) of clause (a) of sub-section (2) of section 80G of the Act, then deduction u/s. 80G of the Act is not allowable, which can be illustrated by giving Page | 7 ITA Nos. 922 & 923/KOL/2024 M/s Merono Panel Products Ltd; A.Y. 2018-19 certain examples (infra). However, in a case scenario, wherein the assessee expends the mandatory expenditure and gives donation to these two projects i.e. over and above the mandatory CSR expenditure u/s. 135 of Companies Act, that sum donated to Swach Bharat Kosh & Clean Ganga Fund will be eligible for 100% deduction u/s. 80G of the Act [refer section 80G (1)(i) and subject to section 80G (4)]. However, such a restriction in respect of expenditure made by an assessee to any other fund or institution as referred to in sub clause (iv) of clause (a) of sub-section 2 of section 80G of the Act had not been placed by the Legislature. And if the Parliament desired, it could have been made such kind of restriction or any restriction like in the case of donation to Swach Bharat Kosh & Clean Ganga Fund. So the assertion of Ld. PCIT that AO could not have allowed deduction u/s 80G of the Act to an assessee on the CSR expenditure/donation to an institution u/s 80G(2)(a)(iv) which is enjoying certificate 80G(5)(vi) of the Act, is erroneous and therefore cannot be accepted. For this, we rely on the interpretation maxim “Expressio Unius Esl Exclusio Alterius” which is a Latin phrase that means “express mention of one thing excludes all others. This is one of the rules used in interpretation of Statutes. The phrase indicates that items not on the list are assumed not to be covered by the Statute. When something is mentioned expressly in a Statute, it leads to the presumption that the things not mentioned are excluded. This is an aid to the construction of Statutes. Applying the legal maxim 'expressio unius est exclusio alterius', it can be safely inferred that when the Legislature in particular has provided for only the above referred two specific exceptions in Section 80G, then it is the implied intent of the Legislature to permit deduction u/s 80G in respect of CSR contributions made to funds/organizations referred to in all other sub-clauses of Section 80G [other than (iiihk) and (iiihl)] of the Act. The above analysis made by us, can be cumulatively illustrated by the following examples for ease of understanding purpose only and should not be cited for making claim which should be made subject to the facts and law involved in each case and also subject to section 80G(4) of the Act: Example: A company has reported eligible net profit u/s 135 of Companies Act, 2013 at Rs.100 crores. The minimum CSR contribution of 2% under Section 135(5) of the Act works out to be Rs. 2 crores. Situation 1 : The company has been spent the required minimum CSR contribution of Rs 2 crores towards construction of roads & schools in the vicinity of the backward area where the factory is located. Tax Treatment: The entire CSR expenditure of Rs.2 crores is to be disallowed and added back in terms of Explanation 2 to Section 37(1) of the Act. Situation 2 : The company has contributed Rs.3 crores to Swach Bharat Kosh. Tax Treatment: The entire CSR expenditure of Rs.3 crores is to be disallowed and added back in terms of Explanation 2 to Section 37(1) of the Act. In terms of Section 135(5) of the Act read with Section 80G(iiihk) only the excess sum paid amounting to Rs. 1 crores [ 3 crores - 2% of 100 crores] can be availed as deduction u/s 80G of the Act. Situation 3 : The company has contributed Rs.l crore to Swach Bharat Kosh and Rs.1 crore to any other charitable trust registered u/s 80G(5) of the Act. Page | 8 ITA Nos. 922 & 923/KOL/2024 M/s Merono Panel Products Ltd; A.Y. 2018-19 Tax Treatment: The entire CSR expenditure of Rs.2 crores is to be disallowed and added back in terms of Explanation 2 to Section 37(1) of the Act. In terms of Section 135(5) of the Act read with Section 80G(iiihk) the donation of Rs.l crores made to Swach Bharat Kosh is not eligible for deduction u/s 80G of the Act. The company can claim deduction of fifty percent of the donation of Rs. 1 crores paid to any other registered charitable trust u/s 80G(2)(iv) read with Section 80G(1)(ii) of the Act. Situation 4 : The company has contributed Rs.1 crore to Prime Minister's National Relief Fund and Rs. 1 crore to any other charitable trust registered u/s 80G(5) of the Act. Tax Treatment: The entire CSR expenditure of Rs.2 crores is to be disallowed and added back in terms of Explanation 2 to Section 37(1) of the Act. The company can claim deduction for hundred percent of the donation of Rs. 1 crores paid to Prime Minister's National Relief Fund u/s 80G(2)(iiia) read with Section 80G(1)(i) of the Act. The company claim deduction to the extent of fifty percent of the donation of Rs. 1 crores paid to any other registered charitable trust u/s 80G(2)(iv) read with Section 80G(1)(ii) of the Act. 23. As discussed supra, we concur with the contention of the assessee that since Parliament intended certain restrictions to only CSR expenditure in respect of two donations included by an assessee as CSR expenditure i.e. [Swachh Bharat Kosh and Clean Ganga Fund] has impliedly not made any prohibition/restriction in respect of claim of CSR expenses in other cases if it is otherwise eligible under Section 80G of the Act. In this context we find that the assessee has made donation of Rs. 1.25 crores on 20.01.2016 by RTGS dated 19.01.2016 through UCO Bank which is evident from page 18 of PB which is received by Shree Charity Trust which was 80G(5)(vi) certificate of the Department dated 15.01.2009 placed at page 17 of PB. The assessee has also made payment of Rs. 10 Lakhs to Pt. Jashraj Music Academy Trust which is found placed at page 22 & 23 and the approval u/s 80G (5)(vi) of the Act in respect of Pt. Jashraj Music Academy Trust is found placed at page 19 of PB dated 30.03.2012 given by Director of Income Tax (Exemption). Therefore, since the assessee satisfies the condition u/s. 80G of the Act of the donees, the assessee’s claim for deduction of CSR expenses/contribution u/s 80G of the Act was allowed after enquiry by the AO. Thus we are of the opinion that the action of the AO allowing the claim u/s. 80G of the Act is a plausible view and is in line with the ratio of the decision of Tribunal cited (supra). Therefore we find that the Ld. PCIT has not been able to make out a case that on this issue raised by him, the AO's order is erroneous as well as prejudicial to the revenue. So the jurisdictional fact as well as law is absent for invoking revisional jurisdiction. Therefore, the usurpation of jurisdiction by Ld. PCIT u/s 263 of the Act is bad in law and therefore need to be quashed and we order accordingly. 24. In the result, the appeal of the assessee is allowed.” Page | 9 ITA Nos. 922 & 923/KOL/2024 M/s Merono Panel Products Ltd; A.Y. 2018-19 07. We therefore, respectfully following the decision of the co-ordinate Bench quashed the revisionary proceedings, as well as the order passed u/s 263 of the Act. The appeal of the assessee is allowed. 923/KOL/2024 08. The issue raised in this appeal is similar to one as decided by us in ITA No. 922/KOL/2024 except quantum of deduction. Accordingly, our decision would apply mutatis mutandis to this appeal of assessee in ITA No.923/KOL/2024 as well. Hence, the appeal of assessee in ITA No. 923/KOL/2024 is allowed. 09. In the result, both the appeals of the assessee are allowed. Order pronounced in the open court on 24.02.2025. Sd/- Sd/- (PRADIP KUMAR CHOUBEY) (RAJESH KUMAR) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Kolkata, Dated: 24.02.2025 Sudip Sarkar, Sr.PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. CIT 4. DR, ITAT, 5. Guard file. BY ORDER, True Copy// Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Kolkata "
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