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2019 (12) TMI 1191 - AT - Income TaxRevision u/s 263 - related parties u/s.40A(2)(b) - HELD THAT - AO had again issued notice u/s.142(1) of the Income Tax Act dated 03.11.2016 which is at page 24 to 26 and in this respect the reply was also filed by the assessee before the AO which is at page no.20 to 23 and had filed all the replies along with documents and participated into the enquiry proceedings being carried out by the AO. We, further noticed that since the assessee has filed the audited reports containing all the details regarding related parties u/s.40A(2)(b) along with name, PAN, Relations, nature of transactions and payments made. Even otherwise, the assessee has also duly furnished the report from expert in Form 3CEB as required by Law, wherein all the details of payment made related to party were mentioned i.e. name of persons with whom specifically domestic transactions as entered into, description of transaction along with quantitative details if any. Total amounts paid or payable in the transaction as per the books and as computed by the assessee having regard to arm s length price. The method used for determining the arm s length price which also goes to show that there is nothing on the record to suggest that assessee had made any excessive payments to the related parties which has caused loss to the Revenue. Payment of bank guarantee commission and renewal fees - HELD THAT - With regard to payment of bank guarantee commission and renewal fees is concern, in this regard, we have seen from the record that specific query was raised by the AO and the assessee had submitted ledger account vide letter dated 25.11.2016 and also duly replied to the query vide letter dated 26.12.2016. All those facts goes to show that the AO has applied his mind and after considering the same and has passed the assessment order u/s.143(2) of the Act and hence it cannot be said that this is a case of no enquiry. It is well settled that both the conditions vis- -vis before of AO should be erroneous and assessment was prejudicial to the interest of Revenue and both those conditions should be cumulatively specified by the ld.Pr.CIT. In the present case the matter belongs to A.Y. 2014-15 and the Explanation 2 was inserted in the Act u/s.263 by Finance Act 2015 w.e.f 01.06.2015. Even otherwise, taking into consideration the cumulative facts observed by us in the present case as well as the legal proposition laid down by the higher courts we are of the view that in the present case the AO had made enquiry and assessee has also placed on record all the documents as were required by the AO in respect of both the issues as now raised by the ld.Pr.CIT. Thus, the order passed by the AO is neither erroneous nor prejudicial to the interest of the Revenue. Merely just because the view taken by the AO was not found acceptable does not mean that the AO has failed to make requisite enquiries. Thus, the view taken by the AO was plausible view, which cannot be disturbed by the Ld. Pr.CIT. Therefore, the ld. Pr.CIT was not correct in exercise the jurisdiction under section 263 of the Act. In view of these facts and circumstances, we quash the proceedings initiated in the impugned order passed under section 263 of the Act and allow the appeal of the assessee.
Issues Involved:
1. Whether the Principal Commissioner of Income Tax (Pr. CIT) erred in invoking Section 263 of the Income Tax Act, 1961. 2. Whether the assessment order passed under Section 143(3) was erroneous and prejudicial to the interest of the revenue. 3. Whether the payments made to related parties under Section 40A(2)(b) were properly verified. 4. Whether the expenses debited in the Profit & Loss Account for bank guarantee commission and renewal fees were allowable. Issue-wise Detailed Analysis: 1. Invocation of Section 263 by Pr. CIT: The assessee contended that the Pr. CIT erroneously invoked Section 263 of the Income Tax Act, 1961, arguing that the assessment order passed under Section 143(3) was neither erroneous nor prejudicial to the interest of the revenue. The assessee maintained that the Assessing Officer (AO) had made proper verifications and inquiries regarding the payments made to related parties under Section 40A(2)(b) and the allowability of expenses debited in the Profit & Loss Account. 2. Erroneous and Prejudicial Assessment Order: The Pr. CIT observed that the AO failed to properly verify payments made by the assessee to persons covered under Section 40A(2)(b) and the allowability of expenses debited for bank guarantee commission and renewal fees. The Pr. CIT set aside the assessment with a direction to frame it de novo, asserting that the AO's lack of proper inquiry rendered the assessment order erroneous and prejudicial to the interest of the revenue. 3. Verification of Payments to Related Parties under Section 40A(2)(b): The assessee argued that all payments to related parties were properly verified by the AO. The assessee had submitted a tax audit report, which included details of payments made to related parties, such as director remuneration, rent, and purchase payments. The AO had issued notices under Section 142(1) and received detailed responses from the assessee, including books of accounts, purchase registers, and details of rent paid. The AO was satisfied with the explanations and documents provided, and there was no evidence of excessive payments causing loss to the revenue. 4. Allowability of Bank Guarantee Commission and Renewal Fees: Regarding the bank guarantee commission and renewal fees, the assessee claimed these expenses on a payment basis, irrespective of the period they pertained to. The AO had raised specific queries and received detailed responses from the assessee, explaining that the bank guarantee commission was a fixed charge and could not be apportioned over different periods. The AO, after considering the explanations, allowed these expenses in the assessment order. Conclusion: The Tribunal, after hearing both parties and reviewing the material on record, found that the AO had made adequate inquiries and verifications regarding both issues raised by the Pr. CIT. The Tribunal noted that the AO had access to all relevant documents and had applied his mind before passing the assessment order. The Tribunal emphasized that both conditions—erroneous order and prejudice to the interest of the revenue—must be cumulatively satisfied for invoking Section 263. The Tribunal cited various judgments, including those of the Hon'ble Gujarat High Court and the Hon'ble Supreme Court, to support its view that the AO's order was neither erroneous nor prejudicial to the interest of the revenue. Consequently, the Tribunal quashed the proceedings initiated under Section 263 and allowed the appeal of the assessee. Final Judgment: The appeal of the assessee was allowed, and the order passed under Section 263 of the Income Tax Act was quashed. The Tribunal concluded that the AO had conducted proper inquiries and that the assessment order was a plausible view, which could not be disturbed by the Pr. CIT. The judgment was pronounced in the open court on 13-12-2019.
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