2014 (12) TMI 1317 - AT - Income Tax

Revision u/s 263 - non deduction of tds on payments of rent, consultancy charges, professional charges and sales promotion charges - Held that - TDS is deductible only if the conditions specified for deduction of TDS are existing. Hence, CIT s observation in the order that the AO s order is erroneous and prejudicial to the interest of the revenue has no basis whatsoever. The observation of the CIT that the AO s order being erroneous and prejudicial to the interest of the revenue is emanating from the show cause notice. Operative part of the order passed u/s. 263 of the Act the ld.CIT has held that he was of the view that the issue needs re-consideration, therefore, he was setting aside the issue and referring back to the table of the AO for re-consideration. Section 263 does not give any power whatsoever to the ld.CIT to remit the issue to the file of the AO without his finding that the order of the AO is erroneous insofar as it is prejudicial to the interest of the revenue - CIT s order passed u/s. 263 is not sustainable as the he has not given a finding that the order of the AO passed u/s. 143(3) of the Act is erroneous in so far as it is prejudicial to the interest of the revenue and had simply set aside the matter and referred back to the table of the AO for re-consideration. In our view this is not at all permissible u/s. 263 - Decided in favour of assessee

Summary

Issues:
Challenge to the order passed under section 263 of the Income Tax Act, 1961.

Analysis:
The appeal was against the order of the ld.CIT dated 28-03-2014 for the assessment year 2009-10. The grounds of appeal raised by the assessee challenged the cancellation of the assessment order under section 263 of the Income Tax Act, 1961. The ld.CIT observed that the assessee failed to deduct TDS on certain payments, leading to the disallowance of an aggregate sum under section 40(a)(ia) of the Act. The ld.CIT issued a notice under section 263, and upon the assessee's submission citing non-operational status due to employee agitation, set aside the assessment for reconsideration by the AO. The assessee contended that the ld.CIT's order was unsustainable, citing the absence of findings on the AO's error or prejudice to revenue. The assessee referred to the Malabar Industrial Co. Ltd case and argued for quashing the ld.CIT's order. The Tribunal noted the provisions of section 263 and the Malabar case, emphasizing the necessity for the ld.CIT to establish both error and prejudice to revenue for revision. The Tribunal found the ld.CIT's order lacking in justifying the TDS deduction requirement and remitting the issue to the AO without a specific finding of error prejudicial to revenue. Consequently, the Tribunal set aside the ld.CIT's order under section 263, ruling in favor of the assessee.

This judgment delves into the crucial aspects of revising an assessment order under section 263 of the Income Tax Act, emphasizing the necessity for the ld.CIT to establish both error and prejudice to revenue for such revision. The Tribunal's analysis of the ld.CIT's order highlighted the importance of providing a clear rationale for revising an assessment, especially concerning the deduction of TDS and its impact on revenue. The decision showcases the significance of adhering to legal principles and precedents, such as the Malabar case, in determining the validity of orders passed under section 263. Ultimately, the Tribunal's ruling in favor of the assessee underscores the requirement for a comprehensive assessment of errors and their implications on revenue before initiating revisions under the Income Tax Act.