Madhav Infra Projects Ltd Eagle Infra India Ltd JV, Vadodara V. The PCIT, Ahmedabad-1, Ahmedabad

ITA 346/AHD/2023

AI Insights

The case involves Madhav Infra Projects Ltd., a joint venture partner in a real estate project, appealing against a revision order by the PCIT, which claimed that the original assessment was erroneous and prejudicial to the interest of the Revenue. The PCIT's revision was based on the grounds that the reimbursement of bank guarantee commission expenses amounting to Rs. 42,10,986 was not reported in the income of Madhav Infra Projects Ltd., and thus, the expenses claimed under section 37 of the Income Tax Act were not allowable. The Tribunal examined the original assessment proceedings and found that the Assessing Officer had taken a considered view after detailed inquiries, and thus, the revision by the PCIT was not justified.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 114242 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-11-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 18-10-2023
• Assessment Year: 2018-2019
• Appeal Filed On: 07-05-2023
• Other Referred Cases: Malabar Industrial Co. Ltd.-Vs-CIT, CIT Vs. Nirav Modi, Commissioner of Income-tax Vis Arvind Jewellers, Spectra Shares & Scrips (P.) Ltd. V/s Commissioner of Income-tax III, Hyderabad, Aryan arcade Ltd. Vs. CIT, CIT Vs. Mehsana District Co-Operative Milk Producers Union Ltd., Commissioner of Income-tax-III V/s R.K. Construction Co
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Gift; Revision of order; Opportunity of being heard; Assessment record; Prejudicial to interest; Set aside
• Section: 263; 132; 2; 143(3); 142(1); 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “C” BENCH Before: Shri Waseem Ahmed, Accountant Member And Shri T.R. Senthil Kumar, Judicial Member Madhav Infra Projects Ltd., Eagle Infra India Ltd. JV, 4, Madhav House, Nr. Panchratna Bldg, Subhanpura, Vadodara (Gujarat) PAN: AAGAM2512G (Appellant) Vs The DCIT, Circle-4(1)(2), Ahmedabad (Respondent) Assessee Represented: Shri S.N. Soparkar, A.R. & Shri Parin Shah, A.R. Revenue Represented: Shri Kamlesh Makwana, CIT-DR Date of hearing : 19-10-2023 Date of pronouncement : 08-11-2023 आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:- This appeal is filed by the Assessee as against Revision order dated 29.03.2023 passed by the Principal Commissioner of Income Tax, Ahmedabad-1 arising out of the assessment order passed under section 143(3) of the Income Tax Act, 1961 (hereinafter ITA No.346/Ahd/2023 Assessment Year 2018-19 I.T.A No. 346/Ahd/2023 A.Y. 2018-19 Page No Madhav Infra Projects Ltd. vs. Pr. CIT 2 referred to as ‘the Act’) relating to the Assessment Year (A.Y) 2018- 19. 2. The brief facts of the case is that the assessee is an Association of Person engaged in the business of Real Estate. For the Assessment Year 2018-19, the assessee filed its Return of Income claiming a total loss of Rs. 95,507/-. The return was selected for scrutiny and notices u/s. 143(2) and 142(1) were issued calling for information from the assessee. On furnishing the same, assessment was completed accepting returned loss filed by the assessee. 2.1. On verification of the above assessment order, the Ld. PCIT noticed that the assessee had debited Bank Guarantee Commission expenses of Rs. 42,10,986/-. As per joint venture agreement, a separate bank account was to be opened for all financial obligation, but bank guarantee has been issued by M/s. Madhav Infra Projects Ltd. (JV Partner) and the assessee reimbursed the commission expenses of to J.V. Partner. However Madhav Infra Projects Ltd. has not offered the reimbursement of commission expenses of Rs. 42,10,986/- in its Return of Income. The assessee failed to prove the genuineness of the expenditure and the same is not allowable u/s. 37 of the Act. Thus the Assessing Officer failed to verify the same while passing the assessment order, which is erroneous and prejudicial to the interest of Revenue. Therefore the assessee was given a show cause notice as to why revise the assessment order dated 26.03.2021 passed by the Assessing Officer. I.T.A No. 346/Ahd/2023 A.Y. 2018-19 Page No Madhav Infra Projects Ltd. vs. Pr. CIT 3 3. The assessee filed its reply giving details of the bank guarantees from Dena Bank, State Bank of India, IDBI Bank and submitted that Madhav Infra Projects Ltd. has debited guarantee commission related to joint ventures and credited reimbursement receipts to the same account and no separate account is maintained by it. for reimbursement of receipts. Thus the net amount of guarantee commission is appearing in the audited financials and a copy of the ledger account of guarantee commission expenses in the books of account of JV partner also enclosed. Further the assessee submitted the A.O. has called for all these commission expenses details by issuing a notice u/s. 142(1) dated 14.12.2020. Thus there is no question of disallowance u/s. 37 of the Act, since the Madhav Infra Projects Ltd. has declared the commission reimbursement expenses in its books of account. Thus the assessee requested to drop the Revision proceedings. 3.1. The above reply was considered by Ld. PCIT and was not satisfied with the same since the A.O. has not adequately verify the facts and not examined the issue properly. Thereby Ld. PCIT held that the assessment order passed by the A.O. is erroneous and prejudicial to the interest of Revenue, as per Explanation 2 to Section 263 of the Act and thereby set aside the assessment to the file of the Assessing Officer with a direction to pass fresh assessment order in accordance with law by giving the assessee reasonable opportunity of being heard. 4. Aggrieved against the same, the assessee is in appeal before us raising the following Grounds of Appeal: I.T.A No. 346/Ahd/2023 A.Y. 2018-19 Page No Madhav Infra Projects Ltd. vs. Pr. CIT 4 1. Ld. Pr. CIT Ahmedabad-1 erred in law and on facts revising a scrutiny assessment order which is neither erroneous nor prejudicial to the interest of revenue. The action of Id. Pr. CIT revising an order passed after verification of the details on record is without any justification to invoke revisional jurisdiction. 2. Ld. Pr. CIT erred in law and on facts holding order erroneous and prejudicial to the interest of revenue on the alleged ground that amount of Rs. 42, 10, 986/- bank guarantee commission expense claimed was allowed by AO without verification and application of mind. 3. Ld. Pr. CIT erred in law and on facts in revising the order on the alleged ground that AO simply allowed expenses claimed accepting the submissions of appellant AOP without cross examining as to whether recipient declared the same as income. 4. Ld. Pr. CIT erred in law and on facts holding scrutiny assessment order as erroneous in so far as prejudicial to the interest of revenue which was passed by AO being satisfied on due verification of Bank Guarantees. Guarantee commission payment by JV partner as well reimbursement of the same by the appellant AOP. 5. Ld. Pr. CIT grievously erred in law and on facts in holding that JV partner. Madhav Infra Projects Ltd. has not declared guarantee commission reimbursement receipts in their books that lead to understatement in case of appellant AOP making the order erroneous and prejudicial to the interest of revenue. 6. Ld. Pr. CIT erred in law and on facts in holding that appellant AOP failed to prove genuineness of reimbursement of guarantee commission which required to be disallowed by AO in accordance with the provisions of section 37 of the Act. 5. Ld. Senior Counsel Shri S.N. Soparkar appearing for the Assessee submitted before us a compilation of Paper Book wherein replies filed by the assessee before the Assessing Officer in response to the notice issued u/s. 142(1) dated 14.12.2020. Ld. Senior Counsel further submitted M/s. Madhav Infra Projects Ltd. offered this bank guarantee commission in the same account and no separate account is maintained for reimbursement of receipts and the net amount of grantee commission is offered for taxation. Therefore no question of disallowance u/s. 37 of the Act. Thus the I.T.A No. 346/Ahd/2023 A.Y. 2018-19 Page No Madhav Infra Projects Ltd. vs. Pr. CIT 5 Revision proceedings initiated by the PCIT is liable to be quashed as the assessment order is neither erroneous nor prejudicial to the interest of Revenue. 6. Per contra, the Ld. Sr. D.R. Shri Kamlesh Makwana appearing for the Revenue supported the order passed by the PCIT and requested to uphold the same. 7. We have given our thoughtful consideration and perused the materials available on record including the Paper Book filed by the assessee. Ld. PCIT revised the assessment order primarily looking on the ground that M/s. Madhav Infra Projects ltd. has not offered the reimbursement of bank guarantee commission in its annual report. Therefore the claim of expenditure u/s. 37 was denied to the assessee, by revising the assessment u/s. 263 of the Act. It is seen from Page 42 of the Paper Book various queries have been raised by the Assessing Officer in his notice u/s. 142(1) dated 14.12.2020 wherein Serial No. 5 as follows: “..5. Justify the bank guarantee commission expenses of Rs. 42,10,986/-.” 7.1. In response, the reply given by the assessee are as follows: “....7. Since Joint venture does not have any sanctioned non fund based limit from banks, hence bank guarantee had been issued by Madhav Infra Projects Limited on request of the Joint Venture for this Road Project. Commission on these Bank Guarantees had also been paid by Madhav Infra Projects Limited, hence the same had been reimbursed by the assesse to Madhav Infra Projects Limited. All details including list of Bank Guarantees, BG number, BG Commission and all other details related to expense booked in assessment year under consideration is enclosed as per Annexure-C.” I.T.A No. 346/Ahd/2023 A.Y. 2018-19 Page No Madhav Infra Projects Ltd. vs. Pr. CIT 6 7.2. Thus the very same issue what was considered by the Ld. A.O. in the assessment proceedings is revised by the Ld. 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 of the Act. In our considered view, the Ld. PCIT partially looking into the assessment record initiated the Revision proceedings which is factually not correct. The Ld. PCIT failed to consider the reply to the notice issued u/s. 142(1) dated 14.12.2020 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 by Hon'ble Supreme Court in case of Malabar Industrial Co. Ltd.-Vs-CIT 243 ITR 83. However, an 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. 8. Our above view is supported by the following judicial precedents: (a) Supreme Court of India in case of CIT Vs. Nirav Modi [2017] 77 taxmann.com 78 (SC) wherein it was held as under. I.T.A No. 346/Ahd/2023 A.Y. 2018-19 Page No Madhav Infra Projects Ltd. vs. Pr. CIT 7 Section 68, read with section 263, of the Income-tax Act, 1961 - Cash credit (Gift) - Assessment years 2007-08 and 2008-09- Assessee received certain amount as gifts from his father and sister who were non- residents in India Assessing Officer after making detailed enquiries, took a view that assessee had duly proved identity, source and creditworthiness of donors Commissioner, however, passed a revisional order under section 263 directing Assessing Officer to enquire into capacity of donors and to decide about genuineness of gifts afresh It was noted that Commissioner in his order of - revision, did not indicate any doubt in respect of genuineness of evidence produced by assessee Moreover, satisfaction of Assessing Officer on basis of documents produced was not shown to be erroneous High Court by impugned order held that it was a case where a view had been taken by Assessing Officer after making proper enquiry and, thus, Tribunal was justified in setting aside impugned revisional order Whether Special Leave Petition filed against impugned order was to be dismissed. Held, yes [Para 2] [In favour of assessee] (b) Commissioner of Income-tax Vis Arvind Jewellers [2002] 124 Taxman 615 (Gujarat) Section 263 of the Income-tax Act, 1961 Revision Of orders prejudicial to interests of revenue Assessment year 1981-82 - Whether provisions of section 263 cannot be invoked to correct each and every type of mistake or error committed by Assessing Officer and it is only when an order is erroneous that section will be attracted and incorrect assumption of facts or an incorrect application of law will satisfy requirement of order being erroneous Held, yes In pursuance of notices issued under sections 142(1) and 143(2), assessee produced relevant material and offered explanation ITO had raised all possible enquiries in view of a search conducted under section 132 After considering those materials and explanation, ITO came to a definite conclusion and made certain additions - However, Commissioner did not agree with conclusion reached by ITO on ground that on material already brought on record, better assessment could have been framed than that framed by ITO and invoked section 263 Whether since material was there on record and said material was considered by ITO and a particular view was taken, mere fact that different view could be taken, should not have been basis for an action under section 263 Held, yes - Whether Commissioner was unjustified in arriving at a conclusion that order passed by ITO was erroneous and prejudicial to interest of revenue - Held, yes (c) Spectra Shares & Scrips (P.) Ltd. V/s Commissioner of Income- tax III, Hyderabad [2013] 36 taxmann.com 348 (Andhra Pradesh) Section 263 of the Income-tax Act, 1961 Revision Of order prejudicial to interest of revenue [Scope of] Assessment year 2006-07 Whether Assessing Officer in assessment order is not required to give detailed I.T.A No. 346/Ahd/2023 A.Y. 2018-19 Page No Madhav Infra Projects Ltd. vs. Pr. CIT 8 reasons and once it is clear that there was application of mind by an enquiry, Commissioner, merely because he entertains a different opinion in matter, cannot invoke his powers under section 263 Held, yes [Para 59] [In favour of assessee] (d) Decision of Gujarat High Court in case of Aryan arcade Ltd. Vs. CIT [2017] 84 taxmann.com 293 wherein it was held as under: Section 24, read with section 263, of the Income-tax Act, 1961 Income from house property - Deductions (Interest) - Assessment year 2011-12 Assessee-company was engaged in renting of property During relevant period assessee raised funds by issuing debentures - Funds raised through such debentures were utilised for repayment of past loans taken for purpose of construction of building Assessee pointed out this aspect to Assessing Officer during original assessment Through accounts assessee could establish precise correlation between debentures and repayment of past loans Assessing Officer after examining issue accepted assessee's claim for deduction under section 24(b) even with respect to interest paid on debentures which were utilised for repayment of past loans used for purpose of construction of building Further, CBDT in its circular dated 20-8-1969 had clarified position that if second borrowing had really been used merely to repay original loan and this fact was proved to satisfaction of Income-tax Officer, interest paid on second loan would also be allowed as a deduction Whether view of Assessing Officer being plausible, it was not open for Commissioner to take such order in revision Held, yes [Para 16] [In favour of assessee] (e) Decision of Gujarat High court in case of CIT Vs. Mehsana District Co-Operative Milk Producers Union Ltd. 263 ITR 645 whereby court has held as under: The provisions of section 263(1) of the Income-tax Act, 1961, cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, and it is only when the order is erroneous that the section will be attracted. The phrase "prejudicial to the interests of the Revenue" has to be read in conjunction with an erroneous order passed by the Assessing Officer. When two views are possible and the Income- tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law. The powers of the Commissioner under sub-section (1) of section 263 extend to such matters as have not been considered and decided in appeal. The revisional powers under section 263 do not extend to matters on which the appellate authority has bestowed consideration and given a decision....” I.T.A No. 346/Ahd/2023 A.Y. 2018-19 Page No Madhav Infra Projects Ltd. vs. Pr. CIT 9 (f) Commissioner of Income-tax-III V/s R.K. Construction Co [2008] 175 Taxman 165 (Gujarat) Section 263 of the Income-tax Act, 1961 - Revision Of orders prejudicial to interest of revenue - Whether where Assessing Officer has taken a particular view on basis of evidence produced before him, it is open for Commissioner, in revisional proceedings under section 263, to take a different view on same material Held, no Whether on facts stated under heading 'Business disallowance - Excessive or unreasonable payments' when Assessing Officer had duly verified all details from books and records, and had made no addition in regular assessment, Commissioner was justified in invoking revisional jurisdiction under section 263 - Held, no] 9. In the result, the appeal filed by the Assessee is hereby allowed. Order pronounced in the open court on 08 -11-2023 Sd/- Sd/- (WASEEM AHMED) (T.R. SENTHIL KUMAR) ACCOUNTANT MEMBER True Copy JUDICIAL MEMBER Ahmedabad : Dated 08/11/2023 आदेश कȧ ĤǓतͧलͪप अĒेͪषत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपीलȣय अͬधकरण, अहमदाबाद