2014 (3) TMI 1089 - AT - Income Tax

Revision u/s 263 - allowability of finance charges - CIT-A took entry under the head MBB Transactions as pertaining to third party - Held that - CIT relied on the documents furnished by assessee before the A.O. during the scrutiny proceedings which indicate that entire details furnished before the A.O. were examined. In our opinion, learned CIT mistook the entry under the head MBB Transactions as pertaining to third party whereas, it is internal code given by the bank for the multi branch banking transactions. Since it is misunderstanding of understanding the word MBB Transactions lead to the proceedings under section 263, we are of the opinion that order of the Ld. CIT cannot be justified on any reason. Since the entire claim of finance charges has been examined by the A.O. and as he has disallowed the amount to the extent assessee could not furnish the details, any other opinion by the Ld. CIT cannot be justified Not only that there is nothing else to direct the A.O. to examine again when the claim itself was examined in the course of scrutiny and A.O. has came to a conclusion by disallowing part of the amount. No further purpose would be served by setting aside the order to A.O. to examine afresh, when Ld. CIT order did not indicate that there are any issues on which A.O. has not examined. Just because the invoices furnished by assessee contain the code of MBB transaction , it does not establish that these are third party transactions. For these reasons, we are unable to uphold the order under 263 passed by Ld. CIT as the order of the A.O. is not prejudicial to the interests of Revenue nor it is erroneous on facts. - Decided in favour of assessee.

Summary

Issues:
1. Validity of the order passed under section 263 of the Income Tax Act, 1961 by the CIT(A).
2. Examination of finance charges claim and MBB Transactions by the Assessing Officer (A.O.).

Issue 1: Validity of the order passed under section 263 by the CIT(A):
The appeal was against the CIT(A)'s order under section 263, where the CIT set aside the assessment order under section 143(3) directing the A.O. to re-examine the genuineness of the claim of finance charges made by the assessee. The assessee contended that the A.O. had already examined the issue and made a specific disallowance, thus challenging the CIT's decision. The A.O. examined the finance charges claim and disallowed a specific amount due to lack of evidence provided by the assessee. The ITAT held that the CIT's order was not justified as the A.O. had already examined the claim thoroughly. The ITAT referenced the decision of the Hon'ble Supreme Court in the case of Malabar Industries Company Limited vs. CIT 243 ITR 83 (SC) to support their conclusion that the CIT's order was not valid.

Issue 2: Examination of finance charges claim and MBB Transactions by the Assessing Officer (A.O.):
The A.O. had examined the finance charges claim made by the assessee and disallowed a portion of it due to lack of explanation provided by the assessee regarding a specific transaction. The ITAT noted that the CIT misunderstood the nature of 'MBB Transactions' mentioned in the invoices, which were actually internal code words used by the bank for multi-branch banking transactions. The ITAT found that the A.O. had already scrutinized the claim thoroughly, and there was no need for a fresh examination as directed by the CIT. The ITAT emphasized that just because the invoices contained the code 'MBB transaction' did not establish them as third-party transactions. Therefore, the ITAT concluded that the A.O.'s order was not prejudicial to the interests of Revenue and was not erroneous on facts, leading them to cancel the order passed by the CIT under section 263.

In conclusion, the ITAT allowed the appeal of the assessee, emphasizing that the A.O. had adequately examined the finance charges claim and MBB Transactions, rendering the CIT's order under section 263 invalid. The judgment highlighted the importance of thorough examination by the A.O. and the need for valid grounds to set aside assessment orders.