CBS Fee is Not Proved as Revenue in Nature: ITAT Upholds Revision Order Against SBI [Read Order]

In a setback to the State Bank of India (SBI), the Income Tax Appellate Tribunal (ITAT), Mumbai bench has held that since the fee paid for core banking solution (CBS) was not proved as revenue in nature, the Assessment Order was “erroneous” and therefore, revisional jurisdiction under section 263 of the Income Tax Act, 1961 can be invoked.

Bhartiya Mahila Bank Limited was merged with SBI in the year 2017 and an assessment was completed against the assessee in 2019. The PCIT invoked the revisional jurisdiction observing that the assessee has claimed an amount of Rs.14,60,92,479/- towards “CBS Implementation Fees” under the head of other Expenses which are capital in nature.

The assessee claimed that expenditure/fees for CBS is ascertained liability and not contingent. And therefore, the expenditure is allowable expenditure.

Relying on a bunch of decisions, a two-Member ITAT comprising Shri Aby T. Varkey, JM and Shri Om Prakash Kant, AM held that to invoke section 263, the twin conditions which need to be satisfied are that (i) the order of the Assessing Officer must be erroneous and (ii) as a consequence of passing an erroneous order, prejudice is caused to the interest of the Revenue.

Diving deeply into the facts of the case, the ITAT held that “In the circumstances enumerated above the order passed by the Assessing Officer can be termed as erroneous for the purpose of section 263 of the Act. It has to be borne in mind that even if the PCIT/CIT finds that the assessment order is erroneous, he cannot invoke the revisional jurisdiction u/s 263 of the Act without satisfying the requirement of second limb [i.e. the PCIT/CIT has to show that due to the erroneous assessment order, prejudice has been caused to the interest of revenue. This essential requirement of law needs to be satisfied before the PCIT/CIT invokes revisional jurisdiction.”

Upholding the revision order, the ITAT held that “In the absence of examination of the claim made by the assessee the finding of Ld. PCIT that the order of the AO is erroneous and prejudicial to the interest of the revenue qua the expenditure claimed as CBS Fees is upheld. Therefore, we hold that exercise of the revisional jurisdiction u/s 263 of the Act by the Ld. PCIT is proper and valid. And therefore, we dismiss the appeal of the assessee.”

To Read the full text of the Order CLICK HERE

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