THE KERALA STATE FINANCIAL ENTERPRISES LTD,THRISSUR V. DCIT CIRCLE 1(1) TPS, THRISSUR

ITA 868/COCH/2023

AI Insights

The case involves Kerala State Financial Enterprises Limited, a company owned by the State Government of Kerala, which appealed against the order disallowing a deduction for guarantee commission paid to the State Government. Initially, the Assessing Officer allowed the deduction, but upon review, the Principal Commissioner of Income-tax found the assessment to be erroneous and prejudicial to the interests of the revenue, leading to a revision order that disallowed the deduction. The Tribunal dismissed the appeal, citing the finality of the revision order under section 263 of the Income-tax Act.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 316001 (ITAT-COCHIN)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-05-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2017-2018
• Other Referred Cases: Kerala State Beverages (Manufacturing & Marketing) Corporation Ltd. v. ACIT (2022) 440 ITR 492 (SC)
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SANJIT KUMAR DAS
• Assessee Lawyers: HARIKRISHNANUNNY
• Keywords: Assessment record

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN Before Shri Inturi Rama Rao, Accountant Member & Shri Sandeep Singh Karhail, Judicial Member ITA No.868/Coch/2023 : Asst.Year 2017-2018 Kerala State Financial Enterprises Limited, Bhadratha Museum Road, Chembukkavu Thrissur – 680 020. PAN : AABCT3817A. v. The Deputy Commissioner of Income-tax, Cir 1(1) & TPS Thrissur. (Appellant) (Respondent) Appellant by : Sri.Harikrishnanunny, CA Respondent by : Sri.Sanjit Kumar Das, CIT-DR Date of Hearing : 26.03.2025 Date of Pronouncement : 14.05.2025 O R D E R Per Inturi Rama Rao, AM : This appeal filed by the assessee is directed against the order of the National Faceless Assessment Centre / Commissioner of Income-tax (Appeals) [“the CIT(A)”] dated 30.11.2023 passed u/s.143(3) r.w.s. 263 of the Income-tax Act, 1961 (“the Act”) for the assessment year 2017- 2018. 2. Briefly the facts of the case are that the appellant is a company duly incorporated under the provisions of the Companies Act, 1956. It is an undertaking of the State Government of Kerala. It is engaged in the business of Chitti Investment Services. The return of income for the assessment year 2017-2018 was filed on 29th October, 2017 disclosing income of Rs.422.23 crore. The same was revised on 30th March, 2018 ITA No.868/Coch/2023. Kerala State Financial Enterprises Ltd. 2 at a total income of Rs.182.4 crore. Against the said return of income, the assessment was completed by the Assessing Officer (“the AO”) vide order dated 29th December, 2019 passed u/s.143(3) of the Act at a total income of Rs.407,42,46,472 after making certain disallowances. 3. Subsequently, the Principal Commissioner of Income-tax (PCIT) in exercise of power vested with him u/s.263 of the Act passed an order of revision setting aside the assessment order for the failure of the AO to examine the applicability or otherwise of the provisions of sec.40(a)(iib) of the Act in respect of guarantee commission paid to State Government of Kerala. Pursuant to the order of the revision passed by the PCIT, the AO passed the assessment order u/s.143(3) r.w.s. 263 of the Act making addition in respect of guarantee commission of Rs.44,93,86,518. 4. Being aggrieved by the above order, an appeal was filed before the CIT(A), who vide the impugned order, dismissed the appeal. 5. Being aggrieved, the appellant is in appeal before us in the present appeal. It is submitted that the payment of guarantee commission paid to the State Government of Kerala is not hit by the provisions of section 40(a)(iib) of the Act, as it is not in the nature of fee or charge, but it is purely contractual payment. 6. On the other hand, the learned CIT-DR placing reliance on the decision of the Hon’ble Supreme Court in the case of Hon’ble Supreme Court in the case of Kerala State Beverages (Manufacturing & Marketing) Corporation Ltd. v. ACIT (2022) 440 ITR 492 (SC) and ITA No.868/Coch/2023. Kerala State Financial Enterprises Ltd. 3 submits that the issue is no longer res integra, as it stood covered against the appellant company. 7. We heard the rival submissions and perused the material available on record. The issue in the present case relates to the allowability of bank guarantee commission paid to the State Government of Kerala. It is an undisputed fact that the appellant is a wholly owned undertaking of State Government of Kerala. The appellant company made payment of guarantee commission to the State Government of Kerala. In the original assessment order, the claim for deduction for guarantee commission was allowed by the AO. However, subsequently on review of the assessment records, the learned PCIT, formed an opinion that the assessment order is erroneous and prejudicial to the interests of the revenue, as the AO had failed to examine the applicability or otherwise of the provisions of sec.40(a)(iib) of the Act in respect of the payment of guarantee commission paid to the State Government of Kerala. Accordingly, the PCIT directed the AO to disallow the same. Accordingly, pursuant to the order of the PCIT, the AO passed consequential order u/s.263 by disallowing the guarantee commission paid to the State Government of Kerala of Rs. 44,93,86,518. 8. On a careful perusal of the order passed u/s.263 of the Act, it would be clear that the learned PCIT gave a specific direction to the AO to disallow the guarantee commission paid to the State Government of Kerala. The issue was not open before the Assessing Officer, to decide the allowability or otherwise of the expenditure, the order of the learned PCIT passed u/s.263 of the Act had attained finality. Therefore, the ITA No.868/Coch/2023. Kerala State Financial Enterprises Ltd. 4 issue is no longer alive and cannot be further agitated in an appellate forum. Thus, we do not find any merit in the appeal filed by the same. 9. In the result, the appeal filed by the assessee is dismissed. Order pronounced on this 14th day of May, 2025. Sd/- (Sandeep Singh Karhail) Sd/- (Inturi Rama Rao) JUDICIAL MEMBER ACCOUNTANT MEMBER Cochin; Dated : 14th May, 2025. Devadas G* Copy to : 1. The Appellant. 2. The Respondent. 3. The CIT, Cochin. 4. The DR, ITAT, Cochin. 5. Guard File. Asst.Registrar/ITAT, Cochin "