PCIT's revision order quashed for denying bank guarantee commission expenditure claim under section 37

ITAT Ahmedabad quashed PCIT's revision order under section 263 regarding denial of bank guarantee commission expenditure claim under section 37. The assessee had provided detailed bank guarantee information including BG numbers, commission details, and related expenses in response to AO's section 142(1) notice during assessment proceedings. ITAT held that PCIT failed to consider the complete assessment record and the assessee's reply, making the revision order legally impermissible. The order was not erroneous or prejudicial to revenue interest as required under section 263, following Supreme Court precedent in Malabar Industrial Co. Ltd. case.

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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.

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