2010 (10) TMI 1086 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the order u/s 263 of the Income Tax Act.
2. Non-disallowance u/s 40(a) for payment to Nilakandan Brothers Constructions.
3. Non-admission of work-in-progress in the balance sheet.

Summary:

1. Validity of the order u/s 263 of the Income Tax Act:
The appeal was directed against the order u/s 263 passed by the CIT, Salem, which set aside the assessment order for AY 2006-07. The CIT issued a show cause notice u/s 263, stating that the assessment order was erroneous and prejudicial to the interest of revenue due to lack of disallowance u/s 40(a) and non-admission of work-in-progress. The assessee contended that the Assessing Officer (AO) had made proper inquiries and the order was not erroneous. However, the CIT concluded that the AO failed to make necessary inquiries, rendering the assessment order erroneous and prejudicial to the revenue.

2. Non-disallowance u/s 40(a) for payment to Nilakandan Brothers Constructions:
The CIT noted that the AO did not disallow Rs. 1,00,00,000/- paid to Nilakandan Brothers Constructions despite no evidence of TDS deduction. The assessee argued that TDS was deducted and deposited, providing Form No. 16A as evidence. The CIT found that the AO did not verify these details during the assessment, thus failing to make proper inquiries.

3. Non-admission of work-in-progress in the balance sheet:
The CIT observed that the AO did not obtain details of major expenditures or verify the non-admission of work-in-progress, which was consistently not admitted by the assessee. The CIT held that this consistent non-admission could result in incorrect income computation. The CIT directed the AO to obtain details of TDS on the payment to Nilakandan Brothers Constructions and to make necessary inquiries regarding major expenditures and work-in-progress.

Conclusion:
The Tribunal upheld the CIT's order, stating that the AO's failure to make necessary inquiries rendered the assessment order erroneous and prejudicial to the revenue. The Tribunal cited various judicial precedents supporting the CIT's action u/s 263. The appeal of the assessee was dismissed, confirming the CIT's directions for a fresh assessment.