2012 (9) TMI 219 - AT - Income Tax

Validity of the order passed u/s 263 by the CIT - Held that - Going through the order of the CIT as well as the assessment order it can be found that the AO has not dealt with specific issues raised by the CIT in his order passed u/s 263. It is also seen from records that the CIT has passed his order after giving due opportunity of hearing to the assessee. We therefore do not find any infirmity in invoking jurisdiction u/s 263 by the CIT - against assessee Computation of the windmill income - interest paid on loan is to be deducted from the income of power generation while computing deduction u/s 80IA - Held that - The assessee was sanctioned term loan on 20-5- 2004 and disbursement of the loan started from September, 2004. It is also seen that by the time the loan was taken the assessee has started generating income from windmill, thus it is necessary to find out whether the loan was taken for the windmill project. Since the CIT has not brought any material on record which could suggest that the concerned loan was taken for windmill project it is proper to set aside the order of the CIT and direct the AO to examine the end utilisation of loan amount - in favour of assessee for statistical purposes. Direction for applicability of section 40a (ia) - Held that - If any amount remains payable on the date of balance sheet on which tax was not deducted at source only that amount can be disallowed by invoking provisions contained u/s 40a (ia)- direct the AO to examine the facts and find out whether the amount has been paid within the relevant previous year or remains payable on the date of balance-sheet - in favour of assessee for statistical purposes. Direction for applicability of section 40A (2)(b) with regard to purchase of film - Held that - As seen from the order of the CIT that he has only directed the AO to examine the applicability of section 40A (2)(b) and reasonableness involved in payment of consideration with regard to purchase of film . Since the AO has not examined this issue which is very much relevant for the assessment, the CIT set aside the assessment. Since the CIT has not directed the AO to disallow payment made by applying the provisions of section 409A (2)(b) and has only directed to examine the issue, the assessee can raise the contentions before the AO with regard to applicability of section 40A (2)(b) and also reasonableness of the payment made - against assessee.

Summary

Issues:
Validity of the order passed under section 263 by the CIT, Claim made under section 80IA of the Act, Applicability of provisions of TDS and section 40a(ia), Examination of section 40A(2)(b) with regard to purchase of film "Soggadu".

Validity of the order passed under section 263 by the CIT:
The appellant challenged the order passed by the CIT under section 263, claiming it to be arbitrary, beyond jurisdiction, and against natural justice. The appellant argued that the assessment order by the AO was not erroneous or prejudicial to revenue. However, the ITAT found that the AO did not address specific issues raised by the CIT and that the CIT provided a fair opportunity for the assessee to be heard. Consequently, the ITAT upheld the CIT's jurisdiction under section 263, rejecting the appellant's grounds challenging the validity of the order.

Claim made under section 80IA of the Act:
The CIT found the assessment order erroneous concerning the deduction claimed under section 80IA in connection with a windmill project. The CIT directed the AO to deduct interest on the loan, depreciation, and maintenance expenses from the windmill income before considering the deduction under section 80IA. The CIT concluded that after adjustments, there would be no profit from the windmill project eligible for the deduction. The ITAT, however, disagreed with the CIT's decision, stating that the loan taken was not necessarily for the windmill project. The ITAT directed the AO to examine the end utilization of the loan amount to determine its connection with the windmill project for the deduction under section 80IA.

Applicability of provisions of TDS and section 40a(ia):
The CIT directed the AO to examine the applicability of TDS provisions and section 40a(ia) regarding certain payments made without tax deduction. The ITAT clarified that if payments were made within the relevant financial year, no disallowance could be made under section 40a(ia). The ITAT instructed the AO to verify the payment dates to determine the applicability of the provisions correctly.

Examination of section 40A(2)(b) with regard to purchase of film "Soggadu":
The CIT instructed the AO to examine the applicability of section 40A(2)(b) concerning the purchase of a film. The ITAT noted that the CIT's direction was to assess the reasonableness of the payment consideration and applicability of the section. Since the AO had not addressed this issue, the CIT set aside the assessment. The ITAT upheld the CIT's decision, stating that the AO needed to examine the issue as directed and allowed the assessee to present arguments regarding the applicability of section 40A(2)(b) and the payment reasonableness.

In conclusion, the ITAT partly allowed the appeal for statistical purposes, upholding the CIT's directions on various issues while providing clarity on the correct application of relevant provisions under the Income Tax Act.