2025 (7) TMI 438 - AT - Income Tax

Revision u/s 263 - PCIT held the assessment order passed by the AO u/s 143(3) r.w.s. 144B as erroneous in so far as it is prejudicial to the interest of the Revenue - no or inadequate enquiry - allowability of deduction u/s 80G in respect of donations forming part of the assessee s CSR expenditure and allowability of deduction claimed as GST Credit Expenses Written Off Allowance of deduction u/s 80G - HELD THAT - 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 u/s 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 AO and were duly verified. 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. As decided in Gujarat State Financial Services Ltd. 2025 (5) TMI 790 - ITAT AHMEDABAD has held that the restriction u/s 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. 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). Thus 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. Failure to examine the allowability claimed as write-off of GST input credit - We observe that the assessee had furnished detailed replies before the AO 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. Assessee therefore treated the accumulated and non-refundable ITC as irrecoverable and claimed it as a deduction u/d 37(1). We find that the AO 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 u/s 263. Hon ble Supreme Court in Kwality Steel Suppliers Complex 2017 (7) TMI 620 - SUPREME COURT 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. In the present case no finding that the AO 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 u/s 263 is not satisfied. This is not a case of no inquiry but at best a case where the PCIT disagrees with the conclusion drawn by the AO. As held in Kamal Galani 2018 (6) TMI 1052 - GUJARAT HIGH COURT 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. Thus the impugned revisionary order passed by the PCIT u/s 263 is set aside and quashed. Decided in favour of assessee.

Summary

The core legal questions considered by the Appellate Tribunal (AT) in this appeal under section 263 of the Income-tax Act, 1961 ("the Act") are twofold:

(i) Whether the Principal Commissioner of Income Tax (PCIT) was justified in holding the assessment order erroneous and prejudicial to the Revenue for allowing deduction under section 80G in respect of donations which were, in substance, part of the assessee's Corporate Social Responsibility (CSR) expenditure;

(ii) Whether the PCIT was justified in setting aside the assessment order on the ground that the Assessing Officer (AO) failed to conduct adequate inquiry and verification before allowing deduction of Rs. 59,03,79,923/- claimed as write-off of unutilised GST input credit ("GST Credit Expenses Written Off").

Issue-wise Detailed Analysis

Issue 1: Allowability of Deduction under Section 80G for Donations Forming Part of CSR Expenditure

Relevant Legal Framework and Precedents: Section 80G of the Act provides deduction in respect of donations to certain funds, charitable institutions, or trusts approved under the section. Explanation 2 to section 37(1), inserted by the Finance Act, 2014, prohibits deduction of CSR expenditure under section 37(1) as it is not incurred "wholly and exclusively" for business purposes. Section 135(4)(b) of the Companies Act, 2013, mandates CSR spending either directly or through eligible implementing agencies, and donations routed through third-party trusts may not comply with this provision. The Coordinate Bench decision in Gujarat State Financial Services Ltd. v. DCIT clarified that the restriction under section 80G(2)(a)(iiihk)/(iiihl) applies only to donations to Swachh Bharat Kosh and Clean Ganga Fund, not to other eligible trusts.

Court's Interpretation and Reasoning: The Tribunal noted that the assessee had disallowed the entire CSR expenditure of Rs. 10,90,50,000/- suo motu in its computation of income. The deduction under section 80G was claimed only on donations made to institutions duly approved under section 80G(5), specifically GMDC Gramin Vikas Trust and GMDC Gramya Vikas Trust. The AO had verified the particulars and supporting receipts. The Tribunal emphasized that section 80G operates independently of section 37(1) and its Explanation 2, and there is no statutory bar on claiming deduction under section 80G merely because the donation arises from CSR outlay, except for specified funds. The Tribunal relied on the Coordinate Bench decision to hold that the PCIT's view that such deduction is an indirect claim of CSR expenditure was unsustainable.

Key Evidence and Findings: The assessee furnished detailed particulars and confirmations of donations to approved trusts. The assessment order reflected the disallowance of CSR expenditure and separate claim under section 80G. The AO had examined and accepted the claim in accordance with law.

Application of Law to Facts: Since the donation was made to eligible institutions and complied with section 80G requirements, denial of deduction on the ground that it formed part of CSR expenditure was not warranted. Explanation 2 to section 37(1) does not override specific deductions under Chapter VI-A.

Treatment of Competing Arguments: The PCIT argued that allowing deduction under section 80G for CSR-related donations defeats the legislative intent of prohibiting CSR expenditure deduction. The Tribunal rejected this, holding that the legislative scheme does not disallow section 80G deduction in such cases except for specified funds, and the assessee had not claimed deduction under section 37(1) for CSR expenditure.

Conclusion: The Tribunal concluded that the PCIT's assumption of jurisdiction under section 263 on this issue was unsustainable, and the assessment order was neither erroneous nor prejudicial to the Revenue in allowing deduction under section 80G for donations made to approved trusts.

Issue 2: Allowability of Deduction for GST Credit Expenses Written Off

Relevant Legal Framework and Precedents: Under GST law, Input Tax Credit (ITC) on inward supplies taxed at a higher rate may become unutilisable against output supplies taxed at a lower rate, especially under an inverted duty structure. Refund of such unutilised ITC is generally not permissible. The assessee claimed write-off of such irrecoverable ITC as revenue expenditure under section 37(1). Jurisprudence on section 263, including decisions in Principal CIT v. Kamal Galani, Kwality Steel Suppliers Complex v. CIT, and Principal CIT v. NYA International, emphasize that revisionary powers can be invoked only if the assessment order is erroneous and prejudicial to Revenue, and that mere difference of opinion or desire for further inquiry does not justify such exercise.

Court's Interpretation and Reasoning: The Tribunal observed that the assessee had furnished detailed replies and explanations during assessment proceedings, clarifying the nature of the GST credit accumulation and the legal position regarding refund restrictions. The AO had access to these details and formed a view accepting the claim. The Tribunal reiterated that the PCIT did not record any finding that the AO's conclusion was wrong or that there was a complete lack of inquiry. The PCIT's observation of inadequate verification did not satisfy the pre-condition for invoking section 263. The Tribunal relied on the principle that "lack of inquiry" is distinct from "inadequate inquiry," and only the former can trigger jurisdiction under section 263.

Key Evidence and Findings: The assessee's replies dated 06.01.2022 and 07.02.2022 provided comprehensive details on the GST credit write-off. The AO considered these submissions and audit reports before allowing the deduction. The PCIT's assertion of non-verification was not supported by the record.

Application of Law to Facts: Since the AO had conducted inquiry and applied mind to the claim, and the PCIT merely disagreed with the AO's conclusion, the revisionary jurisdiction could not be invoked. The Tribunal applied binding precedents that restrict section 263 powers to cases of erroneous orders and not mere differences of opinion.

Treatment of Competing Arguments: The PCIT contended that the AO did not conduct necessary verification, justifying revision. The Tribunal rejected this, finding that the AO had examined the claim adequately. The AR's argument that further verification or disagreement with AO's view does not amount to jurisdictional error was accepted.

Conclusion: The Tribunal held that the PCIT's action in setting aside the assessment order on this ground was unjustified and quashed the revisionary order.

Significant Holdings

"Section 80G operates independently of section 37(1) and its Explanation 2, and there is no statutory bar on claiming deduction under section 80G merely because the donation arises from CSR outlay, except for specified funds."

"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."

"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 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."

"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."

Final determinations on the issues are that the PCIT's invocation of revisionary jurisdiction under section 263 was unwarranted on both counts. The assessment order allowing deduction under section 80G for donations to approved trusts, notwithstanding their connection with CSR expenditure, was held valid. Similarly, the allowance of deduction for GST Credit Expenses Written Off was upheld as having been based on adequate inquiry and application of mind by the AO. Consequently, the impugned revisionary order dated 07.03.2025 was set aside and the appeal allowed in favor of the assessee.