2012 (1) TMI 244 - AT - Income Tax

Summary

Issues involved: Appeal against CIT order u/s 263 of the Income Tax Act for assessment year 2006-07 regarding disallowance of interest payment to foreign supplier u/s 40(a)(ia).

Summary:

1. Assessment and Disallowance:
The assessee filed its return for the assessment year 2006-07, declaring total income. The case was selected for scrutiny, and the assessment was completed under Section 143(3). The assessee debited the profit and loss account for interest on a foreign supplier without TDS deduction, which was not disallowed in the original assessment.

2. CIT Order u/s 263:
The CIT held that the AO should have disallowed the interest payment under Section 40(a)(ia) due to non-deduction of TDS, deeming the original order as erroneous and prejudicial to revenue. The assessee objected to the proceedings, citing various arguments and case laws in support.

3. Tribunal Decision:
The ITAT Hyderabad bench considered the arguments and previous decisions, noting that similar payments were not subject to TDS. The CIT's revision under Section 263 was deemed unnecessary as the AO had already enquired into the matter during the original assessment. The tribunal found no error in the AO's decision and allowed the assessee's appeal, emphasizing the need for proper enquiry before disallowing expenses.

4. Conclusion:
The tribunal's decision highlighted the importance of thorough enquiry before disallowing expenses and upheld the assessee's appeal against the CIT's order u/s 263, emphasizing the need for proper assessment procedures to avoid erroneous decisions.

Judges: Chandra Poojari (Accountant Member) and Asha Vijaya Raghavan (Judicial Member)