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PATEL INFRASTRUCTURE LIMITED,AHMEDABAD vs THE PCIT (CENTRAL), SURAT, VADODARA | BharatTax

PATEL INFRASTRUCTURE LIMITED,AHMEDABAD vs. THE PCIT (CENTRAL), SURAT, VADODARA

ITA 787/AHD/2025Status: DisposedITAT Ahmedabad28 July 2025AY 2020-21Bench: SMT. ANNAPURNA GUPTA (Accountant Member), SHRI SIDDHARTHA NAUTIYAL (Judicial Member)1 pages

AI SummaryAllowed

Facts

The assessee appealed an order passed by the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act, 1961, which revised the assessment order. The PCIT initiated revision proceedings on the grounds that the assessment order was erroneous and prejudicial to the interest of the revenue, specifically concerning a deduction for expected credit loss and a donation under Section 80G.

Held

The Tribunal held that the PCIT wrongly invoked the revisionary jurisdiction under Section 263 of the Act. The assessment order was found to be neither erroneous nor prejudicial to the revenue, as the Assessing Officer had conducted necessary inquiries and the assessee had provided sufficient documentation. The PCIT's view was considered a change of opinion, which is impermissible.

Key Issues

Whether the PCIT was justified in invoking Section 263 of the Act when the Assessing Officer's assessment order was not erroneous or prejudicial to the revenue, and whether the deduction under Section 80G for CSR expenditure is allowable.

Sections Cited

263, 143(3), 80G, 37(1)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “D” BENCH, AHMEDABAD

Before: SMT. ANNAPURNA GUPTA & SHRI SIDDHARTHA NAUTIYAL

For Appellant: Shri Hardik Vora, AR

For Respondent: Shri Sher Singh, CIT-DR

Hearing: 10.07.2025Pronounced: 28.07.2025

(Assessment Year: 2020-21) Patel Infrastructure Ltd., Vs. Principal Commissioner of 401, 501 & 601, MZ Corporate, Income Tax (Central), Ashok Vatika, Double Road Surat At Vadod Corner, Iscon-Ambli Road, Ahmedabad-380058 [PAN No.AADCP2670D] (Appellant) .. (Respondent) Appellant by : Shri Hardik Vora, AR Respondent by: Shri Sher Singh, CIT-DR Date of Hearing 10.07.2025 Date of Pronouncement 28.07.2025 O R D E R

PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER:

1.

This appeal has been filed by the Assessee against the order passed by the Ld. Principal Commissioner of Income Tax (Central), (in short “Ld. PCIT”), Surat at Vadod vide order dated 31.03.2025 passed for A.Y. 2020- 21.

2.

The assessee has raised the following grounds of appeal:

“1. On the facts and circumstances of the case as well as law on the subject, the learned Principal Commissioner of Income Tax, Surat has erred in passing order u/s 263 of the Act for assessment year 2020-21.

2. On the facts and circumstances of the case as well as law on the subject, the learned Principal Commissioner of Income Tax, Surat has erred in passing order u/s 263 of the Act when order passed by Assessing Officer is neither erroneous nor prejudicial to the interest of revenue.

3. On the facts and circumstances of the case as well as law on the subject, the learned Principal Commissioner of Income Tax, Surat has erred in passing the order u/s 263 of the Act on the grounds other than the grounds which had been the part of show cause notice dated 17/03/2025 proposing revision of assessment order passed u/s 143(3) of the Act.

3.

The brief facts of the case are that the Principal Commissioner of Income Tax (PCIT) passed a revision order under section 263 of the Income Tax Act, 1961, (Act) setting aside the assessment order dated 29.09.2022 passed under section 143(3) in the case of the assessee company for the assessment year 2020-21. The revision proceedings were initiated on the grounds that the assessment order was both erroneous and prejudicial to the interest of the Revenue. There were two key issues which were examined: deduction of ₹1,94,67,203/- claimed on account of "expected credit loss" and the deduction of ₹42,00,000/- under section 80G of the Act in respect of a donation to the "Late Vithalbhai Gobarbhai Patel Foundation". The assessee submitted before Principal CIT that the provision for expected credit loss was already added back in the return through ICDS adjustments and that a net increase in income of ₹1,07,53,745/- was duly reported and offered for taxation under 'Other Information' in the ITR. Supporting documentation such as the tax audit report, additional ICDS notes, and return of income were submitted to substantiate this position. It was contended that the proposed disallowance under revision proceedings was factually incorrect as no deduction had been claimed for this provision while computing taxable income. However, the PCIT, upon examination of assessment records, observed that while the assessee had reported a net add-back of ₹1,07,53,745/-, the calculation involved offsetting figures, including a significant deduction of ₹3,68,89,930/- under "Ind AS Fair valuation of security deposits and retention money", for which no supporting evidence was submitted. The PCIT held that the assessing officer had not conducted Patel Infrastructure Ltd. vs. PCIT Asst.Year –2020-21 - 3– any inquiry on the matter of expected credit loss and failed to examine the computation of the adjustment under ICDS and neither did he scrutinize the relevant audit details. This lack of inquiry amounted to non-application of mind, thereby rendering the order erroneous and prejudicial to the interest of the Revenue. Similarly, in relation to the section 80G deduction, the PCIT noted that the assessing officer did not verify whether the donation of ₹84,00,000/- (50% of which was claimed as a deduction) was made towards CSR activities, and which are not eligible for deduction under section 80G of the Act. The assessee failed to provide a satisfactory explanation regarding the nature of the donation, and the omission to examine this issue led to underassessment and short levy of tax. Principal CIT placed reliance on rulings by the Supreme Court and various High Courts and held that revision under section 263 of the Act is justified when an assessment order is passed without due inquiry or consideration of material facts. Principal CIT was of the view that the mere act of calling for information does not constitute proper inquiry unless the assessing officer applies his mind to the material and arrives at a reasoned conclusion. In this case, the assessment order showed no indication of such examination, by the Assessing Officer. Accordingly, the PCIT held that the assessment order was passed without necessary inquiry into material issues, making it erroneous and prejudicial to the interest of the Revenue.

4.

The assessee is in appeal before us against the order passed by Principal CIT u/s 263 of the Act setting aside the assessment order passed by the Assessing Officer as being erroneous and prejudicial to the interest of the Revenue. Before us, the Counsel for the assessee reiterated the submissions made before us Principal CIT in 263 proceedings. In response, the Ld. DR placed reliance on the observations made by Principal CIT in the 263 order. We have heard the rival contentions and perused the material on record. In this case, Principal CIT directed the Assessing Officer to make a fresh Patel Infrastructure Ltd. vs. PCIT Asst.Year –2020-21 - 4– assessment on two primary issues: (i) the allowability of deduction under section 80G of the Act for donation of ₹84,00,000/- to 'VG Patel Foundation', and (ii) the tax treatment of the amount of ₹1,94,67,203/- debited in the profit and loss account as “Expected Credit Loss”. It is the case of the assessee that the PCIT has wrongly invoked the revisionary jurisdiction under section 263 of the Act, despite there being no error in the assessment order. With respect to the first issue concerning the deduction under section 80G, the Counsel for the assessee submitted that the donation of ₹84,00,000/- was made to ‘Late Vithalbhai Gobarbhai Patel Foundation’ which held a valid exemption approval under section 80G(5)(vi) of the Act vide order dated 22.10.2019 issued by the competent authority. A copy of the said approval certificate was submitted as part of the response during revision proceedings, and there is no dispute about the validity of the donee institution’s approval. Furthermore, during the assessment proceedings, the Assessing Officer had called for comprehensive details regarding all deductions, exemptions, and rebates claimed by the assessee for the relevant year vide notice dated 03.03.2022. The assessee had duly responded to the said notice and furnished all the supporting documents, including those relating to the donation to VG Patel Foundation. Accordingly, the allegation that the Assessing Officer failed to verify the genuineness or eligibility of the section 80G claim is not coming from the facts and amounts to a mere change of opinion by the PCIT, which is impermissible in law under section 263 of the Act. With regards to the second issue regarding the expected credit loss of ₹1,94,67,203/-, the Counsel for the assessee submitted that while the said amount was debited to the profit and loss account as per Ind AS-compliant financial statements, the entire amount was voluntarily offered for taxation by making corresponding adjustments under the Income Computation and Disclosure Standards (ICDS), specifically under ICDS I (Accounting Policies). This adjustment was duly disclosed in the Tax Audit Report and in the ITR under “Part A - Patel Infrastructure Ltd. vs. PCIT Asst.Year –2020-21 - 5– OI - Other Information” and resulted in a net increase in taxable income by ₹1,07,53,745/- after combining other ICDS-related adjustments. The Counsel for the assessee has placed on record the relevant sections of the Tax Audit Report, Return of Income (ITR-6), and the computation worksheet showing these disclosures and adjustments. On going through the facts of the case, we observe that the expected credit loss was not claimed as a deduction in computing income under the Act, and thus there is no question of disallowance or underassessment on this account. The revisionary jurisdiction under section 263 of the Act, in our view, cannot be exercised on mere presumptions or hypothetical loss to Revenue, especially when the assessee has offered the said provision for taxation voluntarily and disclosed all the necessary details in the Return of Income and the Tax Audit Report. We further note that both issues-80G deduction and ICDS adjustments-were part of the material filed before the Assessing Officer during the assessment proceedings, and no adverse comment or finding was made in the assessment order. The PCIT’s observation that there was no inquiry or lack of application of mind is not sustainable when the record shows that requisite information was called for and duly furnished before the Assessing Officer, and no discrepancy was found. It is a settled law that if the Assessing Officer adopts one of the plausible views based on the facts and materials before him, the same cannot be substituted by the PCIT merely because he holds a different view, unless the view of the Assessing Officer is unsustainable in law or results in prejudice to the Revenue.

5. Further, looking into the merits of the case as well, in the case of AIA Engineering Ltd. vs. Principal CIT (ITA Nos. 309 & 310/Ahd/2024), the Ahmedabad Bench of the Income Tax Appellate Tribunal addressed the issue of whether Corporate Social Responsibility (CSR) expenditure is allowable as a deduction under Section 80G of the Income Tax Act. The Tribunal held that CSR expenditure is eligible for deduction under Section 80G, provided Patel Infrastructure Ltd. vs. PCIT Asst.Year –2020-21 - 6– the other conditions of that section are met. The Tribunal relied on several rulings by co-ordinate benches across India, holding that the mandatory nature of CSR expenses does not disqualify them from deduction under Section 80G if they fulfill the section’s conditions. The ITAT Delhi in Interglobe Technology Quotient Ltd (2024) 163 taxmann. com 542 (Del) held that while CSR expenditure is disallowed as a business expense under Section 37(1) due to Explanation 2 introduced by the Finance (No. 2) Act, 2014, it remains part of the assessee’s total income and thus eligible for deduction under Chapter VIA, which includes Section 80G. The Tribunal clarified that CSR contributions, although mandatory, still retain the voluntary and philanthropic nature required under Section 80G, as they are made without any reciprocal benefit from the donee. ITAT observed that there is no linkage between disallowance under Section 37(1) and eligibility for deduction under Section 80G, and the Revenue had not alleged any failure on part of the assessee to meet other Section 80G conditions. The Mumbai Bench in Alubond Dacs India P Ltd. vs. DCIT (2024) 163 taxmann. com 536 (Mum) held that CSR expenses, although statutorily required under Section 135 of the Companies Act, 2013, do not lose their character as donations eligible for deduction under Section 80G, except where specific exclusions (like donations to the Swachh Bharat Kosh or Clean Ganga Fund under Section 80G(2)(a)(iiihk)/(iiihl)) apply. The Tribunal ruled that as long as the conditions of Section 80G are satisfied, such donations remain allowable, even after CSR-related restrictions under Section 37(1). The Kolkata Bench in JMS Mining (P.) Ltd. vs. PCIT (2021) 130 taxmann.com 118 (Kol) has held that CSR contributions made to entities registered under Section 80G(5)(vi) are eligible for deduction and cannot be denied merely due to their mandatory nature under corporate law. The ITAT held that Explanation 2 to Section 37(1) applies only in the context of business income and not to deductions under Chapter VIA. As the Assessing Officer’s view allowing the deduction was found plausible, the Tribunal held that invoking revisionary powers under Section 263 was unjustified. Similarly, the Mumbai Bench in Societe General Securities India P Ltd - (2023) 157 taxmann.com 533 (Mum) held that revision proceedings initiated to disallow Section 80G claims on CSR contributions were improper.