2023 (11) TMI 500 - AT - Income Tax

Revision u/s 263 by CIT - assessee has not offered the reimbursement of bank guarantee commission in its annual report therefore the claim of expenditure u/s. 37 was denied - HELD THAT - Queries have been raised by the AO in his notice u/s. 142(1) - Thus the very same issue what was considered by the Ld. A.O. in the assessment proceedings is revised by PCIT on the ground that the payee company has not offered the income for taxation and consequently the assessee is not entitled for deduction u/s. 37 - In our considered view the Ld. PCIT partially looking into the assessment record initiated the Revision proceedings which is factually not correct. PCIT failed to consider the reply to the notice issued u/s. 142(1) filed by the assessee wherein the assessee given the details of the Bank Guarantees issued by Madhav Infra Projects Limited with name of the Bank Guarantees BG number BG commission and all other details related expenses as Annexure-C. Thus both the ingredients i.e. order must be erroneous in nature; and the error must be such that it is prejudicial to the interest of Revenue are present in a given case it is not legally permissible for a Commissioner to initiate suo motu proceeding under section 263 of the Act the same has been upheld in case of Malabar Industrial Co. Ltd.-Vs-CIT 2000 (2) TMI 10 - SUPREME COURT Assessment cannot be revised if there is no jurisdictional error in the order or if it has been passed after due application of mind or in case where PCIT has a view different from that taken by A.O. Therefore we have no hesitation in quashing the Revision order passed by the Ld. PCIT - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of the revision order by the Principal Commissioner of Income Tax (PCIT).
2. Verification and application of mind by the Assessing Officer (AO) regarding bank guarantee commission expenses.
3. Genuineness of the reimbursement of guarantee commission.
4. Entitlement for deduction under Section 37 of the Income Tax Act.

Summary of Judgment:

1. Legality of the Revision Order by the PCIT:
The appeal was filed by the Assessee against the revision order dated 29.03.2023 by the PCIT, which set aside the assessment order for AY 2018-19. The PCIT held that the AO's order was erroneous and prejudicial to the interest of Revenue under Explanation 2 to Section 263 of the Income Tax Act. The PCIT directed the AO to pass a fresh assessment order after giving the assessee a reasonable opportunity of being heard.

2. Verification and Application of Mind by the AO:
The PCIT noticed that the AO failed to verify the genuineness of the bank guarantee commission expenses of Rs. 42,10,986/- reimbursed to M/s. Madhav Infra Projects Ltd. The PCIT argued that the AO did not adequately verify the facts and examine the issue properly, specifically whether the recipient declared the reimbursement as income.

3. Genuineness of the Reimbursement of Guarantee Commission:
The assessee provided details of bank guarantees and argued that Madhav Infra Projects Ltd. had debited the guarantee commission related to joint ventures and credited reimbursement receipts to the same account. The assessee claimed that the AO had called for all these details during the assessment proceedings, and thus, there was no question of disallowance under Section 37 of the Act.

4. Entitlement for Deduction under Section 37:
The tribunal found that the AO had indeed verified the details of the bank guarantee commission expenses during the assessment proceedings. The tribunal held that the PCIT's revision was based on a partial review of the assessment record and failed to consider the comprehensive reply provided by the assessee. The tribunal cited several judicial precedents, including the Supreme Court's decision in Malabar Industrial Co. Ltd. vs. CIT, to support its view that an assessment cannot be revised if it has been passed after due application of mind and there is no jurisdictional error.

Conclusion:
The tribunal quashed the revision order passed by the PCIT, stating that the assessment order was neither erroneous nor prejudicial to the interest of Revenue. The appeal filed by the Assessee was allowed.

Order Pronounced:
The order was pronounced in the open court on 08-11-2023.