ORDER
Siddhartha Nautiyal, Judicial Member. – This appeal filed by the assessee is directed against the order of Learned Principal Commissioner of Income-Tax, Ahmedabad-1 [hereinafter referred to as “Ld. Pr. CIT” for short] dated 07/ 03/2025 passed in exercise of his revisionary jurisdiction under Section 263 of the Income-Tax Act, 1961 [hereinafter referred to as “the Act” for short] for Assessment Year (AY) 202021.
2. The assessee has raised the following grounds of appeal:
“1. On the facts and circumstances of the case, and in law, the Ld. Pr. Commissioner of Income-tax -1 Ahmedabad [the Pr.CIT’) erred in invoking jurisdiction u/s 263 of the Income-tax Act, 1961 (the Act) while concluding that the assessment order passed by the Assessment Unit-Income tax Department-New Delhi (‘Ld. AB) is erroneous in nature and is prejudicial to the interest of revenue in terms of section 263 of the Act.
2. Disallowance of depreciation amounting to Rs. 1,48,30,256/- on Goodwill:
2.1 On the facts and circumstances of the case and in law, the Ld. Pr. CIT erred in contending that the depreciation amounting to Rs.1,48,30,256 on Goodwill acquired in Industrial Mixing Solution Division from Sudarshan Chemical Industries Ltd on slum sale basis, is not allowable under section 32 of the Act thereby upholding the revision proceeding under section 263 of the Act.
2.2 In doing so, the Pr. CIT failed to appreciate the facts that the issue of claim of depreciation has been examined, considered and concluded by the Ld. AO during the assessment proceedings and upholding the revision proceeding under section 263 of the Act on account of change of opinion, is not permissible in law.
3. Disallowance of provision for warranty amounting to Rs.48,50,000/-:
3.1 On the facts and circumstances of the case and in law, the Ld. Pr. CIT erred in contending that the provision for warranty amounting to Rs.48,50,000 debited to profit and loss account, is not a revenue expenses and therefore, it is not allowable expenditure, thereby upholding the revision proceeding under section 263 of the Act.
3.2 In doing so, the Pr. CIT failed to appreciate the facts that the provision for warranty is being made based on scientific method and the issue of allowability of it has been decided by the Hon’ble Income tax Appellate Tribunal for past assessment year 2005-06, therefore, the Order passed by the Ld AD allowing such provision is neither erroneous nor prejudicial to the interest of the revenue.
4. Disallowance of deduction claimed amounting to Rs.62,17,634/- under section 80G:
4.1 On the facts and circumstances of the case and in law, the Ld. Pr. CIT erred in contending that deduction claimed under section 80G of the Act amounting to Rs.62,17,634/- on account of donation made as part of Corporate Social Responsibility (CSR), is not allowable deduction, thereby upholding the revision proceeding under section 263 of the Act.
4.2 In doing so, the Pr. CIT failed to appreciate the facts that the issue of claim of deduction under section 80G of the Act been examined, considered and concluded by the Ld. AO during the assessment proceedings and upholding the revision proceeding under section 263 of the Act on account of change of opinion, is not permissible in law.
43 The Pr.CIT also failed to consider the settled principle of law that a payment made towards Corporate Social Responsibility under Section 135 of the Companies Act. 2013 to an entity approved for deduction/exemption under Section 80G of the Act is allowable to be deducted from the total taxable income of the Appellant.
5. Your appellant craves leave to add, alter and/or to amend all or any of the grounds before the final hearing.”
3. The brief facts of the case are that the assessee, M/s GMM Pfaudler Limited, filed its return of income for the Assessment Year 2020-21 on 13.02.2021 declaring a total income of Rs. 77,93,72,310/-. The assessment was completed under section 143(3) read with section 144B of the Income-tax Act, 1961 (“Act”) on 16.09.2022, accepting the income as declared in the return. On examination of records, the Principal Commissioner of Income Tax (Pr. CIT) observed that the Assessing Officer had not made requisite verifications on three specific issues — firstly, the allowability of depreciation of Rs. 1,48,30,256/ – claimed on goodwill; secondly, the allowability of provision for warranty claimed by the assessee without necessary examination of conditions laid down by the Hon’ble Supreme Court in Rotork Controls India (P) Ltd. v. CIT (SC)/[2009] 314 ITR 62 (SC); and thirdly, the allowability of deduction under section 80G amounting to Rs. 62,17,834/ – claimed in respect of Corporate Social Responsibility (CSR) expenditure of Rs. 94,35,667/-, which according to the Pr. CIT, was not allowable in view of Explanation 2 to section 37(1) of the Act.
3.1. Accordingly, a show-cause notice under section 263 of the Act dated 21.01.2025 was issued requiring the assessee to explain why the assessment order dated 16.09.2022 should not be revised as being erroneous and prejudicial to the interests of the Revenue. In response, the assessee filed a detailed submission contending that depreciation on goodwill was allowable following the ratio laid down by the Hon’ble Supreme Court in CIT v. Smifs Securities Ltd. (SC)/[2012] 348 ITR 302 (SC), that the provision for warranty was in line with the principles laid down by the Hon’ble Supreme Court in Rotork Controls India (P) Ltd. (supra), and that donations forming part of CSR expenditure were eligible for deduction under section 80G of the Act.
3.2. The Pr. CIT, however, after examining the submissions, held that the reliance placed by the assessee on Smifs Securities Ltd. (supra) was misplaced since the said decision was rendered in the context of pre-amended provisions of sections 2(11) and 32(1) of the Act, which have been subsequently amended to specifically exclude goodwill from the block of intangible assets eligible for depreciation. He therefore held that the Assessing Officer failed to examine the applicability of the amended law and that the assessment order was erroneous on this count. On the issue of provision for warranty, the Pr. CIT observed that the Assessing Officer did not examine whether the three preconditions laid down by the Hon’ble Supreme Court in Rotork Controls India (P) Ltd. (supra) for recognizing a provision were satisfied in the present case, and thus, the failure to make proper enquiry rendered the order erroneous and prejudicial to the interests of the Revenue. With respect to the claim of deduction under section 80G on CSR expenditure, the Pr. CIT noted that the expenditure incurred under CSR obligations under section 135 of the Companies Act, 2013 is not allowable as business expenditure in view of Explanation 2 to section 37(1) of the Act. Principal CIT held that allowing such expenditure as deduction under section 80G of the Act would defeat both the intent of the Companies Act as well as the Income-tax Act, since CSR outlays represent application of income rather than expenditure incurred wholly and exclusively for business purposes. The Pr.CIT thus held that the Assessing Officer erred in allowing deduction under section 80G in respect of CSR expenditure. Relying on the judgment of the Hon’ble Supreme Court in BSES Rajdhani Power Ltd. v. Pr. CIT (SC)/[2023] 454 ITR 436 (SC), the Pr. CIT held that non-examination of such material issues by the Assessing Officer renders the order erroneous and prejudicial to the interest of the Revenue, warranting revision under section 263 of the Act.
4. The assessee is in appeal before us against the order passed by Principal CIT.
5. Before us, the learned counsel for the assessee submitted that the very foundation of the impugned revisionary order passed under section 263 of the Act is erroneous inasmuch as all the three issues — namely, depreciation on goodwill, provision for warranty, and deduction under section 80G in respect of CSR expenditure—were duly examined and enquired into by the Assessing Officer in the course of the original assessment proceedings, and after due verification, a conscious view was taken by the Assessing Officer accepting the assessee’s explanation and computation. With regard to the issue of depreciation on goodwill, the counsel submitted that the Assessing Officer had made a detailed enquiry on this aspect. Our attention was invited to pages 44 to 49 of the paper book wherein the Assessing Officer’s queries under sections 142(1) and 143(2) of the Act, as well as the assessee’s replies, were placed on record. It was pointed out that the Assessing Officer had specifically called upon the assessee to explain the allowability of depreciation on goodwill vide show-cause notice dated 30.08.2022, to which the assessee furnished a detailed response referring to the judgment of the Hon’ble Supreme Court in Smifs Securities Ltd. (supra) and Trio Elevators Company (India) Ltd. v. Assistant Commissioner of Income-tax (Ahmedabad – Trib.)/ITA No. 2477/Ahd/2011, order dated 12.12.2016) (ITAT Ahmedabad). The counsel submitted that after examining these submissions and verifying the supporting documents, the Assessing Officer accepted the assessee’s claim in the assessment order passed under section 143(3) of the Act. Therefore, it cannot be said that there was any lack of enquiry or nonapplication of mind on this issue. The learned counsel further relied on the recent judgment of the Hon’ble Gujarat High Court in Principal Commissioner of Income-tax v. Aculife Healthcare (P.) Ltd. (Gujarat)/[2025] 477 ITR 392 (Gujarat) /(dated 28.08.2023), wherein the Court held that where goodwill had arisen on account of demerger of a division and the same represented excess consideration paid for acquisition of business as a going concern, depreciation on such goodwill is allowable under section 32(1) of the Act, being an intangible asset within the meaning of Explanation 3(b). In light of the above binding judicial precedents, the claim of depreciation on goodwill made by the assessee was fully justified and duly examined by the Assessing Officer. Hence, the Pr. CIT was not justified in invoking section 263 merely to substitute his own view for that of the Assessing Officer. On the issue of provision for warranty, the learned counsel submitted that the assessee has been consistently making such provision based on a scientific and historical trend in respect of its glass-lined equipment supplied to customers, and that the same practice has been accepted by the Department in earlier assessment years. He pointed out that the issue had already attained finality in the assessee’s own case by virtue of the decision of the Hon’ble ITAT, Ahmedabad Bench, in GMM Pfaudler Ltd. v. DCIT [IT Appeal No. 12(Ahd) of 2008, dated 02-11-2011], wherein the Tribunal, following the judgment of the Hon’ble Supreme Court in Rotork Controls India (P.) Ltd. (supra), held that provision for warranty based on past experience and a reliable estimation of future liability is an allowable deduction under section 37 of the Act. The learned counsel further submitted that this position has been consistently accepted by the Department from Assessment Year 2014-15 onwards and that the Assessing Officer, being aware of the settled position, did not find it necessary to again disallow the claim during the year under appeal. Therefore, there was neither any error nor any prejudice caused to the Revenue on this count. Regarding the claim of deduction under section 80G, the learned counsel submitted that the Assessing Officer had conducted an extensive verification during the assessment proceedings. Reference was made to page 35 of the paper book containing the show cause notice issued by the Assessing Officer, and page 38 containing the assessee’s detailed reply. The Assessing Officer had specifically called for donation receipts, bank statements highlighting donations, copies of registration certificates under sections 12A and 80G of donee organizations, and details of CSR treatment. After verification of all documents and after conducting online verification of donee organizations, the Assessing Officer recorded a categorical finding in the assessment order that the donations were genuine, eligible under section 80G, and properly supported by receipts and certificates. The learned counsel further submitted that the CSR activities undertaken by the assessee were not in the nature of prohibited activities under section 80G and were duly approved charitable activities within the scope of Schedule VII to the Companies Act, 2013. In support of the allowability of deduction under section 80G on CSR-related donations, the learned counsel placed reliance on several judicial precedents, including Interglobe Technology Quotient Ltd. v. DCIT (Del. Trib.), Alubond Dacs India (P.) Ltd. v. DCIT (Mumbai – Trib.)/[2024] 207 ITD 393 (Mumbai – Trib.), Optum Global Solutions (India) Pvt. Ltd. v. Dy. CIT (Hyderabad – Trib.)/[2023] 203 ITD 14 (Hyderabad – Trib.)(Hyd. Trib.), FDC Ltd. v. PCIT (Mumbai – Trib.)(Mum. Trib.), and Britannia Industries Ltd. v. DCIT (Kolkata – Trib.), wherein it was uniformly held that CSR expenditure, when incurred in the form of donations to institutions approved under section 80G, continues to be eligible for deduction under that section. The learned counsel therefore submitted that since detailed enquiries were conducted on all three issues during the course of assessment proceedings, and the Assessing Officer had adopted one of the possible legal views after due consideration of facts and applicable law, the assessment order cannot be termed as erroneous and prejudicial to the interests of the Revenue within the meaning of section 263 of the Act. It was accordingly that the impugned order of the Pr. CIT passed under section 263 deserves to be quashed.
6. In response, Ld. DR placed reliance on the observations made Principal CIT in the 263 order.
7. We have carefully considered the rival submissions, the impugned order passed under section 263 of the Act, and the material available on record. It is evident from the records that during the course of assessment proceedings, the Assessing Officer had raised specific queries on each of the issues which form the basis of the revisionary proceedings —namely, depreciation on goodwill, provision for warranty, and deduction under section 80G in respect of CSR expenditure. The assessee had furnished detailed replies supported by documentary evidence and judicial precedents, which were duly examined by the Assessing Officer before accepting the returned income. Thus, it cannot be said that the assessment order was passed without enquiry or verification. Once a view has been taken by the Assessing Officer after due application of mind, the same cannot be substituted merely because the Principal CIT holds a different opinion on the same set of facts. On the issue of depreciation on goodwill, we observe that the Assessing Officer had specifically called upon the assessee to justify the claim and the assessee had furnished detailed submissions relying upon the decision of the Hon’ble Supreme Court in Smifs Securities Ltd. (supra) and Trio Elevators Co. (India) Ltd. (supra). After examining the submissions and the nature of goodwill arising on account of business restructuring, the Assessing Officer accepted the claim. The Hon’ble Gujarat High Court in Aculife Healthcare (P.) Ltd. (supra) has held that depreciation on goodwill representing the excess consideration paid for acquisition of a going concern is allowable under section 32(1) of the Act even post amendment. Therefore, the view taken by the Assessing Officer was a plausible view in law and cannot be termed as erroneous merely because the Principal CIT did not agree with it. With respect to the provision for warranty, we observe that the assessee has been following consistent method for estimating warranty obligations based on historical data, which has been accepted by the Department in earlier assessment years. In fact, in the assessee’s own case for Assessment Year 2004-05, the Hon’ble ITAT Ahmedabad in GMM Pfaudler Ltd. (supra) upheld the allowability of such provision by following the ratio laid down by the Hon’ble Supreme Court in Rotork Controls India (P.) Ltd. (supra) Therefore, when the Assessing Officer accepted the assessee’s claim in line with the settled judicial position, it cannot be said that the order was erroneous or prejudicial to the interests of the Revenue. On the issue of deduction under section 80G in respect of CSR expenditure, we observe that the Assessing Officer had conducted detailed verification of the donations claimed by the assessee, called for relevant supporting documents including donation receipts, bank statements, and 80G registration certificates of the donee organizations, and after due verification accepted the claim. Several judicial authorities have now consistently held that donations made under CSR obligations to institutions registered under section 80G continue to be eligible for deduction under that section. Reference in this regard may be made to Interglobe Technology Quotient Ltd. (supra), Alubond Dacs India (P.) Ltd. (supra), FDC Ltd. (supra), and Britannia Industries Ltd. (supra). Thus, the view adopted by the Assessing Officer was a possible view supported by judicial pronouncements. It is well settled by the judgments of the Hon’ble Supreme Court in Malabar Industrial Co. Ltd. v. CIT (SC)/[2000] 243 ITR 83 (SC)and CIT v. Max India Ltd. (SC)/[2007] 295 ITR 282 (SC) that an order of the Assessing Officer cannot be held to be erroneous merely because the Principal CIT does not agree with the conclusion arrived at by the Assessing Officer, unless the view adopted by the Assessing Officer is unsustainable in law. In the present case, the Assessing Officer had taken a plausible view after conducting due enquiries and applying his mind to the facts and the law. Therefore, the twin conditions required for invoking section 263 —namely, that the order must be both erroneous and prejudicial to the interests of the Revenue — are not satisfied in the present case.
7.1. Accordingly, we hold that the assumption of jurisdiction by the Principal CIT under section 263 of the Act was unjustified.
8. In the result, the appeal of the assessee is allowed.