2012 (6) TMI 506 - AT - Income Tax

Non-inclusion of TDS deductions in assessment - CIT deleted the AO s Order - Held that - The order of the A.O. was erroneous insofar as it was prejudicial to the interests of Revenue. Assessee might have submitted some details before AO, but looking at the said details itself shows that the assessee has claimed a number of payments as not liable for deduction of tax at source since the payments did not exceed Rs.20,000/50,000 and had also claimed that part of charges were arising only out of sub-contract - as theses aspects were never examined by the A.O. CIT exercised his power under Section 263 rightly set aside the order of A.O. considering it erroneous - against assessee.

Issues Involved:
1. Validity of the order under Section 263 of the Income-tax Act, 1962.
2. Non-deduction of TDS on various expenses.
3. Prejudice to the interests of Revenue due to non-deduction of TDS.
4. Examination of details by the Assessing Officer during the original assessment.

Issue-wise Detailed Analysis:

1. Validity of the order under Section 263 of the Income-tax Act, 1962:
The assessee challenged the order dated 21.3.2010 under Section 263 of the Income-tax Act, 1962, issued by the Commissioner of Income Tax (CIT), Chennai-III. The CIT set aside the assessment on the grounds that TDS deductions were not done as required, despite the assessee's claim that TDS deductions were made in accordance with the law and details were provided during the assessment. The CIT noted that the quarterly TDS returns reflected deductions for only Rs.57,66,220/-, while the balance amount of Rs.2,70,92,122/- had no tax deductions, thus attracting the provisions of Section 40(a)(ia) of the Act.

2. Non-deduction of TDS on various expenses:
The CIT identified several expenses where TDS should have been deducted but was not, according to the assessee's Profit & Loss account:
- Forwarding and clearing charges: Rs.50,98,416/-
- Freight charges: Rs.60,03,289/-
- Transport Expenditure: Rs.22,81,046/-
- Machining charges: Rs.12,74,423/-
- Sawing charges: Rs.1,57,62,103/-
- Rent: Rs.22,39,065/-
The assessee provided explanations for non-deduction of TDS on certain portions, such as reimbursement of expenses and individual payments not exceeding Rs.20,000/-. However, the CIT was not convinced, noting that these classifications and explanations were presented for the first time during the Section 263 proceedings and were not available to the Assessing Officer (A.O.) during the original assessment.

3. Prejudice to the interests of Revenue due to non-deduction of TDS:
The CIT concluded that the A.O.'s failure to examine the TDS deductions and the applicability of Section 40(a)(ia) rendered the assessment erroneous and prejudicial to the interests of Revenue. The CIT directed the A.O. to pass a fresh order after giving the assessee an opportunity to present their case. The Tribunal upheld this view, emphasizing that non-deduction of tax at source where required causes loss of tax, which is prejudicial to Revenue.

4. Examination of details by the Assessing Officer during the original assessment:
The assessee argued that all details regarding TDS were furnished to the A.O. during the original assessment proceedings. However, the Tribunal noted that the assessment order was cryptic and lacked evidence of the A.O.'s application of mind regarding TDS provisions. The Tribunal held that an order without detailed examination of relevant issues and provisions is erroneous and causes prejudice to Revenue. The Tribunal cited the Hon'ble Apex Court's decision in Malabar Industrial Co. Ltd. v. CIT and the Hon'ble Delhi High Court's decision in Gee Vee Enterprises v. Addl. CIT to support this view.

Conclusion:
The Tribunal dismissed the appeal filed by the assessee, upholding the CIT's order under Section 263. The Tribunal agreed that the A.O.'s failure to apply TDS provisions and examine the details rendered the assessment erroneous and prejudicial to Revenue. The fresh order passed by the A.O. pursuant to the CIT's revisionary order was deemed appropriate. The Tribunal emphasized the A.O.'s duty to investigate and ascertain the truth of facts in the return, especially when circumstances provoke an inquiry.

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