GUJARAT MINERAL DEVELOPMENT CORPORATION LIMITED,KHANJI BHAVAN V. PR. COMMISSIONER OF INCOME TAX-1, AAYAKAR BHAWAN(VEJALPUR), AHMEDABAD

ITA 651/AHD/2025

AI Insights

The case involves Gujarat Mineral Development Corporation Ltd., which appealed against the order of the Principal Commissioner of Income Tax-1, Ahmedabad, under section 263 of the Income Tax Act, 1961. The PCIT had set aside the original assessment order, directing a fresh assessment on issues related to the claim of deduction under section 80G and the write-off of GST input credit. The Tribunal examined whether the PCIT was justified in invoking section 263, focusing on the adequacy of the Assessing Officer's inquiries and the correctness of the legal interpretations applied.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 705889 (ITAT-AHMEDABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-07-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2020-2021
• Other Referred Cases: Gujarat State Financial Services Ltd. v. DCIT, Principal CIT v. Kamal Galani, Kwality Steel Suppliers Complex v. CIT, Shreeji Prints (P) Ltd. v. PCIT, Principal CIT v. V-Con Integrated Solutions Pvt. Ltd., Principal Commissioner of Income-tax v. NYA International
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RIGNESH DAS
• Assessee Lawyers: S.N. SOPARKAR
• Keywords: Set aside; Difference of opinion; Revenue expenditure; Reassessment proceedings; Business expenditure; Principle of natural justice; TDS; Earning of tax free income; Charitable institution; Rule 8D; Revision of order
• Section: 143(3); 142(1); 263; 54; 14A; 37(1); 80G

Judgement Text

"आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण,अहमदाबाद \bयायपीठ अहमदाबाद \bयायपीठ अहमदाबाद \bयायपीठ अहमदाबाद \bयायपीठ ‘C’ अहमदाबाद। अहमदाबाद। अहमदाबाद। अहमदाबाद। IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, AHMEDABAD ]BEFORE S/SHRI T.R. SENTHIL KUMAR, JUDICIAL MEMBER AND MAKARAND V.MAHADEOKAR, ACCOUNTANT MEMBER ITA No.651/Ahd/2025 Asstt.Year : 2020-21 Gujarat Mineral Development Corporation Ltd. 6th Floor, Khanji Bhavan 132 Ft. Ring Road B/h. Gandhi Labour Institute Ahmedabad 380 052. PAN : AAACG 7987 P Vs. The Pr.Commissioner of Income Tax-1 Vejalpur Ahmedabad. (Applicant) (Responent) Assessee by : Shri S.N. Soparkar, Sr.Advocate Revenue by : Shri Rignesh Das, CIT-DR सुनवाई क तारीख/Date of Hearing : 01/07/2025 घोषणा क तारीख /Date of Pronouncement: 04/07/2025 आदेश आदेश आदेश आदेश/O R D E R PER MAKARAND V.MAHADEOKAR, AM: This appeal by the assessee is directed against the order dated 07.03.2025 passed by the Principal Commissioner of Income Tax-1, Ahmedabad [hereinafter referred to as \"the PCIT\"] under section 263 of the Income-tax Act, 1961 [hereinafter referred to as \"the Act\"], for the assessment year 2020–21, whereby the PCIT held the assessment order passed by the Assessing Officer under section 143(3) r.w.s. 144B of the Act dated 23.09.2022 as erroneous in so far as it is prejudicial to the interest of the Revenue, and directed the Assessing Officer to pass a fresh order after examining certain issues. ITA No.651/Ahd/2025 2 Facts of the Case 2. The assessee is a Government of Gujarat undertaking engaged in the business of taping major mineral resources and developing mineral based industrial products. The assessee filed its return of income for the assessment year 2020–21 on 30.03.2021 declaring total income of Rs.1,90,01,26,570/-. The return was processed under section 143(1) of the Act. Subsequently, the case was selected for scrutiny under the Computer Aided Scrutiny Selection (CASS) system for multiple parameters, inter alia, claim of deductions under Chapter VI-A, claim under section 80IA, compliance with TDS provisions, expenses incurred for earning exempt income, ICDS adjustments, and refund claims. Accordingly, notices under sections 143(2) and 142(1) were issued on 29.06.2021 and 15.12.2021 respectively, and the assessee furnished its responses thereunder. During the course of assessment proceedings, the Assessing Officer noted that the assessee had earned exempt income amounting to Rs.8,28,12,464/- during the year under consideration. The Assessing Officer further observed that the assessee had made substantial investments, aggregating to Rs.2,50,53,20,000/- as on 31.03.2020 and Rs.4,13,73,16,000/- as on 31.03.2019, and disallowed expenditure under section 14A read with Rule 8D of the Income Tax Rules, 1962. Initially, while computing the disallowance, the Assessing Officer considered not only the “Investments” shown in the balance sheet but also “Other Financial Assets (Non-current and Current)” aggregating to over Rs.18,00 crores, on the ground that such financial assets may also have been deployed to earn exempt income. In response to the show cause notice dated 08.09.2022 issued by the Assessing Officer, the assessee submitted a detailed reply dated 13.09.2022, inter alia, explaining that the amounts appearing under the head “Other Financial Assets (Non-current and Current)” represented security deposits, escrow balances, and fixed deposits with Gujarat State Financial Services (GSFS), all of which had either yielded taxable interest income or were business-related deposits not having any nexus with exempt income. The Assessing Officer, after considering the written submissions as ITA No.651/Ahd/2025 3 well as oral representations made during the video conferencing hearing on 15.09.2022, accepted the assessee’s contention that the amounts under “Other Financial Assets (Non-current and Current)” did not pertain to investments generating exempt income, and accordingly excluded the same from the computation under Rule 8D. However, the Assessing Officer did not accept the plea of the assessee to consider only the cost of investment rather than the fair value. Relying on the provisions of Rule 8D(2)(ii) and the CBDT Circular No. 5/2014 dated 11.02.2014, the Assessing Officer computed disallowance under section 14A at 1% of the average value of opening and closing balance of investments, resulting in a disallowance of Rs.3,32,13,180/-. Consequently, the returned income of Rs.1,90,01,26,570/- was enhanced by Rs.3,32,13,180/- and the total income was assessed at Rs.1,93,33,39,750/- under section 143(3) of the Act. 3. Subsequently, the PCIT, on perusal of records, found the assessment order to be erroneous and prejudicial to the interest of the Revenue on account of two specific issues: (i) allowance of deduction under section 80G in respect of donations which were, in substance, in the nature of corporate social responsibility (CSR) expenditure, and (ii) failure to examine the allowability of Rs.59,03,79,923/- claimed as write-off of GST input credit. 4. The PCIT observed that the assessee had added back the entire CSR expenditure of Rs.10,90,50,000/- in its computation of income but simultaneously claimed deduction under section 80G for Rs.5,00,00,000/- , being 50% of the donation made to registered trusts. According to the PCIT, this amounted to an indirect claim of CSR expenditure, which is prohibited by Explanation 2 to section 37(1) inserted by the Finance Act, 2014. The PCIT noted that the nature and motive of CSR under the Companies Act is application of income, and such expenditure is not incurred wholly and exclusively for business purposes. Allowing deduction of such expenses, even in the form of donation under section 80G, would result in subsidising ITA No.651/Ahd/2025 4 CSR outlay through tax expenditure, contrary to legislative intent. The PCIT further observed that the assessee did not comply with section 135(4)(b) of the Companies Act, 2013, as the CSR activities were routed through third- party trusts instead of being undertaken directly or through eligible implementing agencies. In the view of the PCIT, this treatment defeated the object of both the Companies Act and the Income-tax Act. The Assessing Officer had failed to examine whether the donation claimed under section 80G was part of the assessee’s CSR obligation, and this omission, according to the PCIT, rendered the assessment order erroneous and prejudicial to the interest of the Revenue. Accordingly, the PCIT set aside the assessment and restored the issue to the Assessing Officer for proper verification and re- computation of taxable income after disallowing CSR expenditure in any form of deduction, exemption, or donation. 5. On the second issue, the PCIT noted that the Assessing Officer allowed deduction of Rs.59,03,79,923/- claimed under the head “GST Credit Expenses Written Off” without conducting any inquiry or verification. During the proceedings under section 263, the assessee submitted that this amount represented Input Tax Credit (ITC) on inward supplies taxed at 18%, which could not be utilised against output tax at 5% on lignite sales, and refund of such ITC was not permissible under the GST law due to the inverted duty structure. The assessee treated the unutilised ITC as irrecoverable and claimed it as revenue expenditure. The PCIT recorded that no evidence was called for by the Assessing Officer to verify the claim, such as ledgers, breakup of ITC, nature of inward supplies, eligibility of such credit under GST law, or working of the accumulation. In the absence of such inquiry, the PCIT concluded that the assessment order suffered from non-application of mind. Invoking Explanation 2(a) to section 263, the PCIT held the order to be erroneous and prejudicial to the interest of Revenue. Accordingly, the assessment was set aside to this extent, with a direction to the Assessing Officer to examine the claim afresh and reframe the assessment after giving opportunity to the assessee. ITA No.651/Ahd/2025 5 6. Aggrieved by the order of PCIT, the assessee is in appeal before us raising following grounds of appeal: 1. On the facts & in the circumstances of the case it is most respectfully submitted that the Ld. Principal Commissioner of Income Tax-1 has erred in Law and on Facts in holding that the order passed u/s 143(3) r.w.s. 144(B) of The Income Tax Act, 1961 dated 23/09/2022 as erroneous and prejudicial to the interest of revenue and directing the Ld. Assessing Officer to make fresh assessment on issue related to claim of deduction u/s 80G of the IT Act & claim of deduction in respect of GST Credit w/off as expense and, by passing the Order U/s 263 of The Income Tax Act, 1961 dated 07/03/2025. 2. Your appellant craves leave to add, to alter or to amend the grounds of appeal if occasion arises. 7. The learned Authorised Representative (AR) vehemently opposed the assumption of jurisdiction by the PCIT under section 263 of the Act and submitted that the assessment order was neither erroneous nor prejudicial to the interest of the Revenue. 8. With respect to the claim of deduction under section 80G amounting to Rs.5,00,00,000/-, the learned AR submitted that the donations were made to institutions duly approved under section 80G(5), and the claim was restricted to the eligible portion (50%) in accordance with law. It was contended that such deduction is governed by section 80G, which operates independently of section 37(1), and cannot be denied merely because the amount forms part of the assessee’s CSR expenditure. The AR further submitted that the assessee had suo motu disallowed the entire CSR expenditure of Rs.10,90,50,000/- in its computation of income and had not claimed any deduction under section 37(1). The deduction under section 80G was claimed only in respect of voluntary donations to approved charitable institutions, which were distinct from the statutory CSR obligation. The AR relied on the decision of Coordinate Bench in case of Gujarat State Financial Services Ltd. v. DCIT [2025] 174 taxmann.com 461 (ITAT Ahmedabad), where it was held that section 80G(2)(a)(iiihk)/(iiihl) bars deduction only for donations to Swachh Bharat Kosh and Clean Ganga Fund, and not for other eligible trusts. ITA No.651/Ahd/2025 6 9. As regards the second issue concerning the deduction of Rs.59,03,79,923/- claimed as “GST Credit Expenses Written Off”, the AR submitted that the said amount represented Input Tax Credit (ITC) accumulated due to the inverted duty structure, wherein the input GST on mining services was charged at 18%, whereas the output GST on sale of lignite was 5%. The AR pointed out that under the prevailing GST law, refund of unutilized ITC on input services was not permissible, and hence the assessee had written off such irrecoverable credit as revenue expenditure in the books and claimed it as allowable deduction under section 37(1). The AR argued that the Assessing Officer had accepted the claim after due consideration and examination of the financials and audit reports and that the disallowance of such ITC was disclosed in the tax audit report. Therefore, it could not be said that the AO had failed to conduct any inquiry. The learned AR specifically submitted that in response to the notice issued by the Assessing Officer dated 15.12.2021, the assessee furnished detailed replies on 06.01.2022 and 07.02.2022. It was pointed out that in the reply dated 07.02.2022, under point No. 3 (placed at page 128 of the paper book), the assessee had duly explained the basis and justification for claiming deduction of GST Credit Expenses written off, along with supporting facts and rationale. The learned AR submitted that mere disagreement with the conclusion of the Assessing Officer, or the desire to conduct further verification, does not constitute valid ground for revision. The reliance was placed on the following judicial precedents: 1. Principal CIT v. Kamal Galani [(2018) 95 taxmann.com 261 (Guj)] 2. Kwality Steel Suppliers Complex v. CIT [(2017) 84 taxmann.com 234 (SC)] 3. Shreeji Prints (P) Ltd. v. PCIT [(2023) 154 taxmann.com 424 (Ahmedabad - Trib.)] 4. Principal CIT v. V-Con Integrated Solutions Pvt. Ltd. [(2025) 173 taxmann.com 774 (SC)] ITA No.651/Ahd/2025 7 5. Principal Commissioner of Income-tax v. NYA International [2025] 173 taxmann.com 103 (SC) 10. The learned Departmental Representative (DR) relied upon the order of the PCIT and submitted that the claim of deduction under section 80G, in respect of donations forming part of CSR expenditure, was at best a debatable issue, and in such a situation, the PCIT was justified in invoking revisionary powers under section 263. 11. We have carefully considered the rival submissions and perused the assessment order, the impugned order passed by the PCIT and the material placed on record including the paper book and judicial precedents cited. The limited controversy in this appeal relates to the assumption of revisional jurisdiction by the PCIT under section 263 of the Act on two distinct issues: (i) allowability of deduction under section 80G in respect of donations forming part of the assessee's CSR expenditure, and (ii) allowability of deduction of Rs.59,03,79,923/- claimed as “GST Credit Expenses Written Off”. The PCIT held the assessment order dated 23.09.2022 passed under section 143(3) r.w.s. 144B to be erroneous in so far as it is prejudicial to the interest of the Revenue and restored the matter to the Assessing Officer for fresh examination. 12. The principal objection of the PCIT is that the assessee, having disallowed the entire CSR expenditure of Rs.10,90,50,000/- in its computation of income, ought not to have claimed deduction under section 80G for Rs.5,00,00,000/- as it constituted an indirect claim of CSR outlay, thereby defeating the purpose of Explanation 2 to section 37(1). It was further observed that the donations were routed through third-party trusts and were not incurred directly, contrary to section 135(4)(b) of the Companies Act, 2013. 13. We find, on perusal of the record, that the assessee had duly furnished the particulars of the donation, including supporting receipts and confirmation from the donee trusts, in its reply dated 06.01.2022 and again on 07.02.2022 in response to the Assessing Officer’s notices issued under ITA No.651/Ahd/2025 8 section 142(1) of the Act. The donation was made to GMDC Gramin Vikas Trust and GMDC Gramya Vikas Trust, which were duly approved under section 80G(5). These particulars were available before the Assessing Officer and were duly verified. In fact, the computation clearly reflects suo motu disallowance of the entire CSR expenditure, and a separate claim under section 80G was made, strictly in accordance with the provisions of the Act. The Coordinate Bench in Gujarat State Financial Services Ltd. v. DCIT (supra) has held that the restriction under section 80G(2)(a)(iiihk) and (iiihl) is confined only to donations made to the Swachh Bharat Kosh and Clean Ganga Fund and does not prohibit deduction in respect of donations to any other institution approved under section 80G(5), even if such donation is sourced from CSR expenditure. This view is fortified by the legislative scheme wherein Explanation 2 to section 37(1) operates independently and is confined to business expenditure. It cannot override or read into the specific deductions provided under Chapter VI-A, unless such restriction is explicitly stated. We further note that there is no statutory bar under section 80G disqualifying donations made in the course of discharging CSR obligations, except to the extent of specified funds mentioned in section 80G(2)(a). 14. In these circumstances, once the donation is made to eligible institutions, and the requisite statutory conditions under section 80G are fulfilled, deduction cannot be denied merely because it coincides with or arises out of CSR obligations. Therefore, we find no infirmity in the assessment order on this issue, and the action of the PCIT in invoking section 263 is unsustainable in law. 15. The PCIT has also set aside the assessment order on the ground that the Assessing Officer allowed the claim of deduction of Rs.59,03,79,923/- on account of “GST Credit Expenses Written Off” without conducting necessary verification. It was contended that the AO did not call for details of input tax credit accumulation, eligibility under the GST law, refund ITA No.651/Ahd/2025 9 restrictions under section 54 of the CGST Act, and related accounting entries. 16. From the record, we observe that the assessee had furnished detailed replies dated 06.01.2022 and 07.02.2022 before the Assessing Officer in the course of assessment proceedings, explaining the nature of the unutilized GST input credit. The assessee clarified that due to an inverted duty structure—input GST on mining services being 18% and output GST on lignite sales being 5%—a substantial portion of ITC became unutilisable. It was further explained that refund of such ITC was not permissible under the extant GST rules. The assessee therefore treated the accumulated and non-refundable ITC as irrecoverable and claimed it as a deduction under section 37(1). We find that the Assessing Officer had access to the relevant material and formed a view after examining the explanation of the assessee. Merely because a different view could be taken or further inquiries could have been made does not justify revision under section 263. The Hon’ble Supreme Court in Kwality Steel Suppliers Complex v. CIT (supra) held that where the AO has taken a plausible view on the basis of facts and inquiries made, the jurisdiction under section 263 cannot be invoked merely because the Commissioner believes that a different view should have been taken. Similarly, in Principal CIT v. Kamal Galani (supra), the Hon’ble Gujarat High Court extensively analysed the contours of revisionary powers exercisable by the Commissioner under section 263 of the Act. The Hon’ble High Court held after surveying several precedents including CIT v. Sunbeam Auto Ltd. [(2011) 332 ITR 167 (Del)] and Malabar Industrial Co. Ltd. v. CIT [(2000) 243 ITR 83 (SC)], authoritatively noted that – \"... one has to keep in mind the distinction between ‘lack of inquiry’ and ‘inadequate inquiry’. If there was any inquiry, even inadequate, that would not by itself give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has a different opinion in the matter. It is only in cases of ‘lack of inquiry’ that such a course of action would be open.\" ITA No.651/Ahd/2025 10 17. The Hon’ble High Court further noted that the power under section 263 cannot be exercised merely on the ground that a more detailed inquiry could have been conducted or that the conclusion of the Assessing Officer was not acceptable to the Commissioner. The relevant paras from the judgement of Hon’ble High Court in case of Principal CIT v. Kamal Galani (supra) are reproduced for the sake of clarity – 16. In case of ITO v. DG Housing Projects Ltd. [2012] 343 ITR 329/[2013] 212 Taxman 132/20 taxmann.com587, Delhi High Court observed that a finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under section 263 of the Act. The matter cannot be remitted for afresh decision to the Assessing Officer to conduct further enquiries without such a finding. 17. Full Bench of Gauhati High Court in case of CIT v. Jawahar Bhattacharjee [2012] 341 ITR 434/209Taxman 174/24 taxmann.com 215 held that not holding such inquiry as is normal and not applying mind to relevant material in making assessment by the Assessing Officer would be an erroneous assessment warranting exercise of revisional jurisdiction. It was held as under: \"23. Accordingly, we hold that Daga Entrade P. Ltd [2010] 327 ITR 467 (Gauhati) lays down correct law and the same is not in conflict with the earlier order of this court in Rajendra Singh [1990] 79 STC 10(Gauhati). Jurisdiction under section 263 can be exercised whenever it is found that the order of assessment was erroneous and prejudicial to the interest of the Revenue. Cases of assessment order passed on wrong assumption of facts, or incorrect application of law, without due application of mind or without following the principles of natural justice are not beyond the scope of section 263 of the Act. \" 18. In case of CIT v. Arvind Jewellers [2003] 259 ITR 502/[2002] 124 Taxman 615 (Guj.) Division Bench of this Court referring to the judgement of Supreme Court in case of Malabar Industrial Co. Ltd. v. CIT [2000]243 ITR 83/109 Taxman 66 observed as under: \"6. From the above observations made by the Supreme Court, it is clear that the provisions of Section 263cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted and incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. The Supreme Court has also made it clear that the phrase \"prejudicial to the interests of the Revenue\" has to be read in conjunction with an erroneous order passed by the Assessing Officer and that every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. It was further emphatically stated that when an Income-tax Officer adopted one of the courses ITA No.651/Ahd/2025 11 permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law.\" 18. Recently, in Principal CIT v. NYA International [(2025) 173 taxmann.com 103 (SC)], the Hon’ble Supreme Court reiterated that the power under section 263 cannot be exercised merely to conduct roving inquiries in the absence of a definite finding. The relevant para is reproduced here for the sake of ready reference – 5. In the given facts, the assertion by the Revenue that inquiry and verification in re the bank account was not made is ex-facie incorrect. This being the position, this is not a case of failure to investigate, but as no addition was made, the Revenue can argue that it is a case of wrong conclusion and decision in the reassessment proceedings. Therefore, to exercise jurisdiction under Section 263 of the 1961 Act, the Commissioner of Income Tax should have examined the merits and only on reaching a finding that the re-assessment order was erroneous and prejudicial to the interest of the Revenue made an addition. 6. This is not a case of 'no inquiry and verification', but as made out by the Revenue, a case of wrong conclusion. The difference between the two situations is clear and has different consequences. 19. In the present case, no finding that the Assessing Officer is wrong in allowing the claim of “GST Credit Expenses Written Off” has been recorded by the PCIT. The observation that the AO failed to conduct adequate verification is not borne out from the record. Hence, the pre-condition for exercise of jurisdiction under section 263 is not satisfied. Applying the above principles and ratio to the present case, we find that the Assessing Officer had conducted necessary verification with respect to both the disallowance of CSR expenses and the claim under section 80G. As per the assessee's submissions (noted in replies dated 06.01.2022 and 07.02.2022), and as acknowledged in the assessment order itself, the claim was restricted to donations made to institutions approved under section 80G(5), distinct from the CSR expenditure suo motu disallowed by the assessee. Similarly, the claim for write-off of unutilised GST credit was duly ITA No.651/Ahd/2025 12 explained and supported in the reply dated 07.02.2022 and considered by the Assessing Officer before accepting the same. 21. Thus, this is not a case of \"no inquiry\" but at best, a case where the PCIT disagrees with the conclusion drawn by the Assessing Officer. As held in Kamal Galani (supra), the PCIT is not permitted to invoke revisionary powers under section 263 in such circumstances. The entire action of the PCIT in directing a fresh assessment on issues already examined would amount to a mere difference of opinion, which does not fall within the permissible scope of section 263. Accordingly, the impugned revisionary order dated 07.03.2025 passed by the PCIT under section 263 of the Act is set aside and quashed. The appeal of the assessee is allowed. 22. In the result, the appeal filed by the assessee is allowed. Order pronounced in the Court on 4th July, 2025 at Ahmedabad. Sd/- Sd/- (T.R. SENTHIL KUMAR) JUDICIAL MEMBER (MAKARAND V. MAHADEOKAR) ACCOUNTANT MEMBER Ahmedabad, dated 04/07/2025 vk* "