2023 (1) TMI 1383 - AT - Income Tax

Revision u/s 263 - Allowability of deduction u/s 80G in respect of contributions towards Corporate Social Responsibility (CSR) - HELD THAT - As the issue pertaining to deduction u/s. 80G is concerned the same was not included in the enquiry notice issued u/s. 142(1). Although the details of the same have been Suo moto provided by the assessee vide para-9 of its submissions with annexures XXV. Here we are agree with the objection of the PCIT that the same is not examined by the AO, so to that extent order of the AO is erroneous but not prejudicial to the interest of the revenue, As the same has been duly explained with facts and law applicable on the same by the assessee before the PCIT itself we found based on the legal position in favour of assessee the same has been duly taken care of. This objection of PCIT no more stands against the assessee as erroneous in so far as prejudicial to the interest of the revenue. Issue was not examined by the AO and on this front order is erroneous but not necessarily prejudicial to the interest of the revenue. Power of Ld. PCIT on the one hand empowers to verify any order on the criteria of being erroneous in so far as prejudicial to the interest of the revenue. On the other hand, the same section cast a responsibility on the Ld. PCIT that if during the proceedings before him u/s. 263 if assessee is able to substantiate that issue is not verified by the AO but the same is not prejudicial to the interest of the revenue, Ld. PCIT being guardian of law should evaluate and consider the fact of the case based on settled legal position. As in this case as mentioned in the case of Infosys Technologies Ltd. 2013 (7) TMI 451 - KARNATAKA HIGH COURT and benches of ITAT including jurisdictional bench have held that a claim of assessee which is not allowable under sec. 37 for CSR expenses can still be allowed u/s 80G. We find that assessee has already furnished the details relevant to sec. 80G deductions and same is in order, Ld. PCIT ought to have dropped objection on this front. In these terms we find that as far as issue of deduction u/s. 80G is concerned, the order of AO is not erroneous. Allowability of commission paid on sales to CSD - As far as second objection of the Ld. PCIT is concerned we observed that it s a regular practice of the assessee and there is nothing new specifically in this year. We have gone through the copies of agreements with the agents to whom commission has been paid against CSD sales. All these papers were submitted to the record of AO of the submission in response to notice u/s 142(1). This disallowance of 5% of commission by the AO is in line with previous years. Clearly establishes that he has gone through the practice of assessee, amount of commission paid and thereafter he disallowed certain percentage of commission. In the light of assesses submission and copy of agreements with sales agent for CSD sales we find that the concern of Ld. PCIT is not on valid premises. Payments to agents were being made for number of services in the form of certain field work, logistics co-ordination and handling of the goods. These services are essential part of any FMCG company. We do not find any error in the order of AO and that is to there is complete transparency at the end of the assessee. Following the principle of consistency assessee and AO both are following the established norms of the industries and assessment procedures respectively. In view of above appeal of the assessee is allowed and order of Ld. PCIT is set aside on above terms. Appeal filed by the assessee is allowed.

Summary

Issues Involved:
1. Validity of proceedings u/s 263.
2. Allowability of deduction u/s 80G for CSR contributions.
3. Allowability of commission paid on sales to Canteen Stores Department (CSD).

Summary:

Validity of proceedings u/s 263:

1. The Principal Commissioner of Income Tax (PCIT) revised the assessment order dated 28 December 2018 u/s 263, deeming it erroneous and prejudicial to the interests of the revenue.
2. The PCIT argued that the issues forming part of the revision were not adequately examined during the assessment proceedings.

Allowability of deduction u/s 80G for CSR contributions:

1. The PCIT directed the Assessing Officer (AO) to re-examine the allowability of deduction u/s 80G for donations made as part of CSR contributions.
2. The PCIT observed that the deduction u/s 80G should have been disallowed for CSR contributions, relying on Explanation 2 to section 37(1) and legislative intent.
3. The PCIT did not consider that disallowance provisions for CSR expenditure apply only to section 37(1) and not to section 80G.
4. The PCIT overlooked that section 80G specifically disallows deductions only for certain CSR contributions like Swachh Bharat Kosh and Clean Ganga Fund, while other eligible CSR contributions are deductible.
5. The assessee had provided detailed evidence of eligible CSR contributions during the assessment proceedings.

Allowability of commission paid on sales to CSD:

1. The PCIT directed the AO to re-examine the allowability of commission paid on sales to CSD.
2. The PCIT noted that the AO did not adequately examine the relevant facts and circumstances regarding the commission expenditure.
3. The PCIT failed to appreciate that the AO had already disallowed 5% of the commission expenditure after reviewing detailed submissions and documentation from the assessee.
4. The PCIT did not consider the consistent practice of disallowing a percentage of commission since AY 2009-10 after similar verification.
5. The PCIT's notice contained factual errors and incorrect assumptions, which were rebutted by the assessee during the proceedings.

Judgment:

1. The appeal was admitted despite a 46-day delay, condoned due to the Supreme Court's suo-moto cognizance for Extension of Limitation.
2. The Tribunal observed that the AO did not examine the deduction u/s 80G during the assessment, making the order erroneous but not prejudicial to the revenue, as the assessee had substantiated the claim with facts and law.
3. The Tribunal found that the AO had adequately examined the commission paid on CSD sales, following established industry norms and assessment procedures.
4. The Tribunal set aside the PCIT's order, allowing the appeal filed by the assessee.

Conclusion:

The Tribunal ruled in favor of the assessee, finding that the AO's order was not erroneous or prejudicial to the interests of the revenue regarding the deduction u/s 80G and commission paid on CSD sales. The appeal was allowed, and the PCIT's order was set aside.