2015 (1) TMI 1233 - AT - Income Tax

TDS u/s 194C - non deduction of tds deleted by AO - Revision u/s 263 - Held that - CIT has only examined the agreement which have been already considered by the Ld. Assessing Officer. Though he has made several observations, there were no other findings other than, nondeduction of tax at source and applicability of Section 40(a)(ia) of the Act. The Ld. A.R. during the course of proceedings before the Ld.CIT had submitted the letters from the recipients of the payments from the assessee company wherein they have stated that they had declared the amount received from the assessee as their income and paid the tax duly. The amended second proviso to Section 40(a)(ia) of the Act was also referred. The Tribunal in the case of Rajeev Kumar Agarwal Vs. Additional Commissioner of Income Tax 2014 (6) TMI 79 - ITAT AGRA has held that the insertion of second proviso to Section 40(a)(ia) is declaratory and curative in nature and it has retrospective effect from 1st April, 2005, being the date from which sub clause (ia) of section 40(a) was inserted by the Finance (No.2) Act, 2004. In such circumstances, it cannot be construed that the Ld. Assessing Officer had passed the order without application of mind. He has considered all these facts and had consciously decided the matter. From the above facts, it appears that the Ld.CIT has passed the order U/s.263 based on difference of opinion and by reviewing the issue which was already decided by the Ld. Assessing Officer. Moreover, it is pertinent to mention at this juncture that the decision rendered in the case of Merilyn Shipping and Transports Vs. Additional CIT in 2012 (4) TMI 290 - ITAT VISAKHAPATNAM is also in favour of the case of the assessee.

Summary

Issues:
Assessment order challenged under section 263 for non-deduction of TDS under section 194C.

Analysis:
The appeal was filed by the Assessee against the order of the Learned Commissioner of Income Tax under section 263 of the Income Tax Act, 1961, challenging the direction to re-do the assessment for the year 2009-10 due to non-deduction of TDS under section 194C. The Assessee claimed an expenditure of Rs. 33 crores towards providing access to branch network, paid to related companies for business requirements. The Commissioner held that the expenditure was not allowable as the Assessee failed to deduct TDS, invoking section 40(a)(ia) of the Act. The Commissioner directed the Assessing Officer to re-do the assessment accordingly.

The Assessee argued that all relevant documents were submitted to the Assessing Officer, who passed the order after due consideration. The Assessee also cited the second proviso to section 40(a)(ia) inserted by the Finance Act, 2012. The Assessee provided letters from recipients confirming tax payment on the received amount. The Assessee contended that the Commissioner's order was erroneous and not prejudicial to revenue. The Department supported the Commissioner's order.

The Tribunal noted that the Commissioner's observations were based on materials already examined by the Assessing Officer. The Tribunal found that the Commissioner's conclusions were limited to non-deduction of TDS and the applicability of section 40(a)(ia). The Tribunal considered the second proviso to section 40(a)(ia) and a precedent indicating its retrospective effect. The Tribunal held that the Assessing Officer had applied his mind and the Commissioner erred in setting aside the order under section 263. Referring to another case, the Tribunal ruled in favor of the Assessee, stating that section 40(a)(ia) applies only to amounts payable as of March 31 and not to amounts actually paid during the previous year without TDS deduction. Consequently, the Tribunal allowed the Assessee's appeal and quashed the Commissioner's order under section 263.