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

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.

Your appellant craves leave to add, to alter or to amend the grounds of appeal if occasion arises.

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.

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.

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:

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.

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.

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 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).

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.

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 restrictions under section 54 of the CGST Act, and related accounting entries.

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 –

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.

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.

In the result, the appeal filed by the assessee is allowed.