ITAT Deletes Excess Stock Additions but Upholds CSR Disallowance under Section 80G

The Mumbai ITAT partly allowed the assessee’s appeal, deleting additions for excess gold stock and survey discrepancies, but upheld the disallowance of Rs. 3 lakh CSR donation under Section 80G. Issues relating to asset classification, depreciation, and block of assets were remanded to the AO for fresh verification.

The Royal Chains Private Limited (Assessee) filed an appeal before the Income Tax Appellate Tribunal (ITAT) in Mumbai, challenging an order passed by the CIT(A) on May 27, 2025, for the assessment year 2019-20.

The assessee is a company engaged in the manufacturing of jewellery. The company filed its return of income on September 26, 2019, declaring total income at Rs. 8,03,96,224. However, the case was selected for investigation and issued notices under sections 143(2) and 142(1), along with a questionnaire, to the assessee.

AO found that extra gold stock was not yet recorded in the books and asked the assessee to explain. The assessee submitted that the job work was to be carried out by the assessee on behalf of M/s. Classic Solitaries Pvt. Ltd. The AO was not satisfied with the reply of the assessee and made an addition of Rs. 4,53,63,627 as unexplained money under section 69A of the Act. Further, the AO disallowed the claim of deduction under section 80G in respect of the CSR donation amounting to Rs. 300,000.

Being aggrieved by the additions, the assessee filed an appeal before the CIT(A). The CIT(A) confirmed the disallowance of deduction under section 80G claimed on account of the CSR donation.

The assessee was not satisfied with the CIT(A) order, so it approached the ITAT. During the appeal, AR submitted that the assessee made a donation of Rs 300,000 on August 30, 2018, to an NGO called the Association for Voluntary Action.

The assessee argued that the company’s payment for its mandatory social responsibility (CSR) activities is backed by necessary certificates. These certificates clearly state that the amounts qualify for tax deduction under Section 80G of the Income Tax Act.

During the hearing, the Tribunal added that according to Schedule AL, the assessee cannot group land and building under a single block as “land”. ITAT further added that the new building constructed by the assessee should be part of the buildings which are eligible for depreciation at 10% and said if there is any asset still existing in the block, the assessee cannot claim short-term capital loss since the sale value would go to reduce the WDV of the asset. ITAT remitted that case back to the AO to carry out necessary modifications. The ITAT upheld CIT(A)’s deletion of additions for excess stock and 24KT gold discrepancy from the survey u/s 133A.