GFL LIMITED (EARLIER KNOWN AS GUJARAT FLUOROCHEMICALS LTD.),VADODARA V. THE PR. CIT-1, VADODARA

ITA 210/AHD/2022

AI Insights

The case involves GFL Ltd., which appealed against the order of the Principal Commissioner of Income Tax, Vadodara, setting aside the assessment made for the Assessment Year 2016-17. The Principal CIT had issued a notice under Section 263, claiming that the original assessment was erroneous and prejudicial to the interests of the Revenue because the Assessing Officer had allowed a deduction under Section 80IA for windmills without proper verification. The Tribunal examined whether the Assessing Officer had indeed failed to verify the facts and whether the Principal CIT's order was in accordance with the principles of natural justice.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 633242 (ITAT-AHMEDABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-06-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2016-2017
• Other Referred Cases: Gujarat Corporation Power Ltd. vs. PCIT
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PUSHPENDRA SINGH CHAUDHARY
• Assessee Lawyers: S.N. SOPARKAR
• Keywords: Set aside; Revised return; Transfer pricing; Depreciation; Principle of natural justice
• Section: 143(3); 263; 115JB

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, AHMEDABAD BEFORE SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER & SHRI MAKARAND V. MAHADEOKAR, ACCOUNTANT MEMBER I.T.A. No.210/Ahd/2022 (Assessment Year: 2016-17) GFL Ltd. (Earlier known as Gujarat Flurochemicals Ltd.), 2nd Floor, ABS Towers, Old Padra Road, Race Course, Vadodara-390007 Vs. Principal Commissioner of Income Tax-1, Vadodara [PAN No.AAACG6725H] (Appellant) .. (Respondent) Appellant by : Shri S. N. Soparkar, Sr. Advocate Respondent by: Shri Pushpendra Singh Chaudhary, CIT-DR Date of Hearing 05.05.2025 Date of Pronouncement 10.06.2025 O R D E R PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER: This appeal has been filed by the Assessee against the order passed by the Ld. Principal Commissioner of Income Tax, (in short “Ld. PCIT”), Vadodara-1 vide order dated 30.03.2022 passed for A.Y. 2016-17. 2. The Assessee has taken the following grounds of appeal:- “1. The learned Principal Commissioner of Income-tax erred in issuing notice and passing an order under section 263 setting aside the Assessment made on 13- 02-2020. 2. The learned Principal Commissioner of Income-tax erred in presuming that while finalizing the assessment u/s 143(3) r.w.s. 144C(3) of the I.T.Act on 13/02/2020, the Assessing Officer has allowed the deduction u/s 80IA of the I.T. Act of Rs.1,73,58,349/- in respect of Windmills, without verification of the facts which should have been made during the course of assessment proceedings. 3. The learned Principal Commissioner of Income-tax erred in holding that the Assessment made on 13-02-2-2020 was erroneous and prejudicial to the interests of the Revenue.. ITA No. 210/Ahd/2022 GFL Ltd. (Earlier known as Gujarat Flurochemicals Ltd.) vs. PCIT Asst.Year –2016-17 - 2– 4. The learned Principal Commissioner of Income-tax erred in holding that claim of 80IA on windmills is to be reduced by Rs.1,73,58,349/- and in setting aside to that extent. 5. Your Appellant prays that the order under section 263 be cancelled and be set aside. 6. The Appellant craves leave to add to, withdraw or modify any of the grounds of appeal at the time of hearing.” 3. The brief facts of the case are that the assessee initially filed its original return of income for A.Y. 2016-17 declaring total income of ₹26,99,32,640/- under the normal rate and ₹24,31,020/- under the special rate. The assessee filed revised return reporting reduced total income of ₹15,00,68,370/- under the normal rate, while maintaining the same income of ₹24,31,020/- under the special rate, and declaring book profit under section 115JB at ₹145,84,66,706/-. The case was selected for scrutiny under CASS and the assessment under section 143(3) read with section 144C(3) was completed, determining total income at ₹66,41,77,803/- under normal rate, ₹24,31,020/- under special rate, and book profit under section 115JB at ₹148,81,42,146/-. 4. Upon examination of the revised return, Principal CIT observed that the assessee had claimed deduction under section 80IA of ₹12,92,69,075/- for its Coal Based Captive Power Plant at Dahej and ₹26,99,47,214/- for the Wind Power Unit at Mahidad. The AO, in his assessment order, disallowed the entire deduction claimed for Dahej, due to downward adjustments made by the Transfer Pricing Officer (TPO) in order passed under section 92CA(3) dated October 31, 2019, relating to revenue from power and steam supply. However, despite a similar downward adjustment of ₹29,29,56,563/- by the TPO for Wind Mahidad, the AO only partially disallowed the claim and allowed ₹1,73,58,349/- under section 80IA, without verifying the appropriateness of the residual ITA No. 210/Ahd/2022 GFL Ltd. (Earlier known as Gujarat Flurochemicals Ltd.) vs. PCIT Asst.Year –2016-17 - 3– claim. Accordingly, a show cause notice under section 263 of the Income- tax Act was issued by Principal CIT. The assessee filed response stating that the deduction of ₹1,73,58,349/- was correctly computed after netting the TPO's adjustment of ₹29.29 crore and the disallowed O&M charges of ₹4.03 crore, which had already inflated the profit under section 80IA as per CBDT Circular No. 37/2016. The assessee submitted that the AO had appropriately considered all these aspects during assessment and thus the assessment order was neither erroneous nor prejudicial to revenue. However, Principal CIT held that the AO had failed to conduct a proper verification of the 80IA claim related to Wind Mahidad, despite significant TPO adjustments. Consequently, the assessment order dated February 13, 2020, was held to be erroneous and prejudicial to the interests of the Revenue. 5. Before us, on merits, the ld. counsel for the assessee submitted that the assessee had claimed a deduction of ₹26,99,47,214/- under Section 80IA of the Income-tax Act, 1961 in respect of its Wind Power Unit at Mahidad. The revenue from supply of power to its Dahej Plant was originally recorded at ₹67,29,09,730/-, but was subsequently reduced by ₹29,29,56,563/- based on the findings of the Transfer Pricing Officer (TPO). After adjusting this reduction, the effective revenue stood at ₹38,00,00,000/-. The total expenses incurred for the Wind Power Unit amounted to ₹40,29,62,516/-, which included O & M charges of ₹4,17,80,569/- (comprising basic charges of ₹4,03,67,698/- and VAT of ₹14,12,869/-), legal and professional fees of ₹10,16,663/-, rates and taxes of ₹3,18,750/-, administrative overheads of ₹1,80,000/-, miscellaneous expenses of ₹27,25,629/-, interest of ₹21,69,61,434/-, depreciation of ₹20,20,518/-, and foreign exchange fluctuation loss of ₹13,79,58,953/-. The ld. counsel for the assessee submitted that the TPO made two specific ITA No. 210/Ahd/2022 GFL Ltd. (Earlier known as Gujarat Flurochemicals Ltd.) vs. PCIT Asst.Year –2016-17 - 4– adjustments impacting the deduction claimed under Section 80IA. First, he reduced the revenue from sale of power by ₹29,29,56,563/-, thereby reducing the profit eligible for deduction. Second, he disallowed the O&M charges of ₹4,03,67,698/- by determining their arm’s length price at NIL. As per CBDT Circular No. 37/2016 dated 2nd November 2016, such a disallowance is not to be treated as income and hence should not reduce the eligible deduction under Section 80IA. Accordingly, while the revenue was reduced by ₹29.29 crores, the disallowance of O&M charges led to an increase in profits eligible for deduction by ₹4.03 crores, resulting in a net reduction of ₹25,25,88,865/- in the profits of the Wind Power Unit. Thus, the revised eligible deduction under Section 80IA was ₹1,73,58,349/- (i.e., ₹26,99,47,214/- minus ₹25,25,88,865/-), and not NIL as stated in the show-cause notice issued under Section 263. It was further submitted before us that the disallowance of ₹4,03,67,698/- forms part of the total transfer pricing addition of ₹6,76,32,335/- as mentioned in the assessment order under Section 143(3) read with Section 144C(3). The net adjustment of ₹25,25,88,865/- for Wind Mahidad is also included in the total disallowance under Section 80IA of ₹38,18,57,940/-, comprising ₹12,92,69,075/- for the Dahej Coal Power Plant and ₹25,25,88,865/- for the Wind Power Unit (refer page 23 of the assessment order). Therefore, it was submitted that the AO has correctly allowed the reduced deduction of ₹1,73,58,349/- under Section 80IA. On the legal front, the ld. counsel for the assessee submitted that the assessment order is not erroneous since the AO has explicitly dealt with the 80IA claim and O&M charges during assessment proceedings, as evidenced by the assessment order. Without prejudice to the above, the ld. counsel for the assessee also submitted that Principal CIT had not dealt with any of the submissions made by the ITA No. 210/Ahd/2022 GFL Ltd. (Earlier known as Gujarat Flurochemicals Ltd.) vs. PCIT Asst.Year –2016-17 - 5– assessee during the course of 263 proceedings, which also renders the 263 order as being liable to be set aside. 6. In response, Ld. D.R. placed reliance on the observation made by the Ld. PCIT in the 263 order. 7. On going through the facts of the instant case, we observe that the Assessing Officer had specifically inquired on this issue and vide submission dated 24.12.2019 the assessee had filed a detailed submission on this aspect before the concerned Tax Officer. Accordingly, evidently, this aspect had been inquired by the Assessing Officer during the course of assessment proceedings. However, another aspect which we observe is that in the 263 order, the assessee vide letter dated 17.03.2022, gave detailed submissions on this aspect, however, while passing the 263 order, the PCIT did not at all deal with any of the factual and legal contentions put forward by the assessee during the course of 263 proceedings. In our considered view, this approach of Ld. PCIT makes the 263 order liable to be set-aside as having been passed against the principles of natural justice. We note that in the case of Gujarat Corporation Power Ltd. vs. PCIT in ITA No.976/Ahd/2024 vide order dated 21.11.2024 the ITAT Ahmedabad held that order under Section 263 of the Act is not liable to be sustained since the argument or submission of the assessee were not considered by the Ld. PCIT while passing the 263 order. While passing the order, the ITAT Ahmedabad made the following observations: “18. On going through the facts of the instant case, we observe that the PCIT in the 263 order has failed to taken into consideration / dealt with any of the arguments taken / submissions filed by the assessee during the course of 263 proceedings. Therefore, we are of the view that the 263 order and has been passed against the principles of natural justice, wherein none of the arguments / submissions of the assessee were discussed or dealt with in the 263 order. Secondly, we observe that the 263 order, there is not discussion whatsoever as to why the assessment order is erroneous while allowing the claim of expenditure on ITA No. 210/Ahd/2022 GFL Ltd. (Earlier known as Gujarat Flurochemicals Ltd.) vs. PCIT Asst.Year –2016-17 - 6– this issue. For the aforesaid reasons, we are of the view that order passed under Section 263 of the Act on this issue is liable to be set-aside.” 8. Accordingly, looking into the instant facts wherein we have specifically observed that the aspect regarding claim of deduction under Section 80-IA of the Act had been duly considered during the course of assessment proceedings coupled with the fact that while passing 263 order, none of the submissions filed by the assessee were discussed or dealt with by Ld. PCIT, we are of the considered view that order passed by Ld. PCIT under Section 263 of the Act is liable to be set-aside. 9. In the result, the appeal of the assessee is allowed. This Order pronounced in Open Court on 10/06/2025 Sd/- Sd/- (MAKARAND V. MAHADEOKAR) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 10/06/2025 TANMAY, Sr. PS TRUE COPY आदेश की Ůितिलिप अŤेिषत/Copy of the Order forwarded to : 1. अपीलाथŎ / The Appellant 2. ŮȑथŎ / The Respondent. 3. संबंिधत आयकर आयुƅ / Concerned CIT 4. आयकर आयुƅ(अपील) / The CIT(A)- 5. िवभागीय Ůितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाडŊ फाईल / Guard file. आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपीलीय अिधकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation 28.05.2025 2. Date on which the typed draft is placed before the Dictating Member 28.05.2025 3. Other Member………………… 4. Date on which the approved draft comes to the Sr.P.S./P.S 28.05.2025 5. Date on which the fair order is placed before the Dictating Member for pronouncement .06.2025 6. Date on which the fair order comes back to the Sr.P.S./P.S 10.06.2025 7. Date on which the file goes to the Bench Clerk 10.06.2025 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Dispatch of the Order…………………………………… "