2017 (11) TMI 175 - AT - Income Tax

Revision u/s 263 - allowability of expenditure towards management fee - Held that - In this case, the assessee is filing regular income tax returns and claiming the expenditure with regard to the management consultancy fee payable to DPW right from assessment year 2004-05 to 2009-10 The assessee has filed the returns of income and there was no dispute. The assessee has claimed the expenditure and added back to the income in the respective years with a clear noting at the end of statement of computation. The assessment records are available to the assessing officer at the time of giving effect to the CIT(A) s order. The A.O. also has given a finding in the assessment order passed u/s 143(3) of the Act in the assessment year 2010-11 that the above expenses are allowable in the respective assessment years but not in the assessment year 2010-11. Therefore, merely because there was no detailed discussion by the A.O. in the consequential order, it is not correct to hold that the A.O. has taken the decision to allow the expenditure without verification and with misunderstanding. The entire material was placed before the A.O. and after considering the available material, the A.O. allowed the deduction hence we hold that the A.O. has allowed the expenditure correctly as per law. Also, there is no dispute with regard to the genuineness of expenditure. The assessee has debited the expenditure and added back to the income. While giving effect to the CIT(A) order, the A.O. has allowed the expenses pertaining to the respective assessment years correctly. The A.O. has not allowed any excess expenditure or any bogus claim. Therefore, we hold that the order passed by the A.O. giving effect to the CIT(A) is neither erroneous nor prejudicial to the interest of the revenue - Decided in favour of assessee Incorrect assumption of jurisdiction by the CIT u/s 263 against the consequential order of CIT(A) - A.R. argued that the assessing officer passed order giving effect to the appellate order of the Ld. CIT(A) u/s 251 of the Act, and the Principal CIT has no jurisdiction to revise the CIT(A) s order - Held that - CIT(A) has passed the order u/s 251 of the Act with a direction to the A.O. to allow the deduction in accordance with law . Consequent to the direction of the CIT(A), the A.O. has passed the consequential order, which involves verification also. As per the provisions of section 263 of the Act, the Principal CIT is vested with the powers to take up the orders passed by the A.O. for revision. From perusal of the sub section (1) of section 263 of the Act, the Principal CIT is entitled to call for the record and examine the record of any proceeding under this Act in the case of order passed by the A.O. Thus, the Principal CIT has power to examine whether the consequential order passed by the A.O. is in accordance with the direction of the CIT(A) or not. The Ld. Principal CIT has not tinkered with the order of CIT(A). Therefore, we hold that the Principal CIT has rightly assumed the jurisdiction and passed the revision orders and there is no error in assumption of jurisdiction. The assessee s appeal on this ground is dismissed.

Summary

Issues Involved:
1. Allowability of Management Contract Fee (MCF) paid to Dubai Ports World (DPW) for the assessment years 2004-05 to 2009-10.
2. Legality of the Principal CIT's revision order under section 263 of the Income Tax Act.

Issue-Wise Detailed Analysis:

1. Allowability of Management Contract Fee (MCF) Paid to DPW:

The assessee-company, a joint venture engaged in operating a container terminal, entered into an agreement with DPW for technical expertise. The MCF was fixed at US $ 2,00,000 per annum for the first five years. Due to financial constraints, the payment was deferred and consolidated for payment in the financial year 2009-2010, corresponding to the assessment year 2010-2011. The assessee, following the mercantile system of accounting, made provisions for MCF in its books each year but added back the provision to its taxable income.

For the assessment year 2010-2011, the assessee claimed the MCF of ?5,27,63,606/- on a payment basis. The AO disallowed this claim, stating the addition was due to non-deduction of tax at source under section 40(a)(i) of the Act. The CIT(A) confirmed the disallowance, directing the AO to consider the MCF's allowability for the years 2004-05 to 2009-10. The AO subsequently allowed the MCF for these years in the consequential order.

2. Legality of the Principal CIT's Revision Order under Section 263:

The Principal CIT took up the AO's consequential order for revision under section 263, stating the AO misunderstood the CIT(A)'s directions and allowed the deduction without verifying whether the conditions for allowing the expenditure were met. The Principal CIT held the AO's order as erroneous and prejudicial to the revenue, directing a fresh examination of the assessee's claim.

The assessee argued that the Principal CIT had no jurisdiction to revise the consequential order passed under section 251 of the Act. The assessee contended that the expenditure was correctly claimed in the assessment year 2010-11 as per the agreement with DPW, and the AO's allowance of the expenditure for the years 2004-05 to 2009-10 was after due verification.

The Tribunal observed that the assessee had filed regular returns and claimed the MCF expenditure with clear notings in the computation statement. The AO, while giving effect to the CIT(A)'s order, allowed the expenditure correctly as per law, and the genuineness of the expenditure was not disputed. The Tribunal held that the AO's consequential order was neither erroneous nor prejudicial to the revenue and set aside the Principal CIT's revision order under section 263.

Regarding the jurisdiction issue, the Tribunal noted that the Principal CIT is vested with the power to revise any order passed by the AO under section 263. The Principal CIT did not interfere with the CIT(A)'s order but examined the AO's compliance with the CIT(A)'s directions. Thus, the Tribunal upheld the Principal CIT's assumption of jurisdiction under section 263.

Conclusion:

The appeals of the assessee for the assessment years 2004-05 to 2009-10 were partly allowed, setting aside the Principal CIT's revision order under section 263, while upholding the Principal CIT's jurisdiction to revise the AO's consequential order. The Tribunal emphasized the need for the AO to verify the allowability of the MCF expenditure in the respective assessment years as per the CIT(A)'s directions.