2016 (12) TMI 863 - AT - Income Tax

Revision u/s 263 - reliance on audit objection raised by the internal audit party - Held that - CIT has invoked the provisions of section 263 of the Act based upon the audit objection raised by the internal audit party team. The A.O. has categorically replied vide letter no. ACIT/Circle-8(3)/Audit Objection / 2009-10 dated 19-08-2009 to the objections raised by the internal audit party objections and dismissed audit objections by replying on each and every issue on merit which clearly refects that the AO has gone through every issue on merits and applied his mind before passing assessment orders and the decisions was taken by the AO on merits before passing assessment order. With respect to non-deduction of TDS on usance interest the AO while replying to audit objection has sought permission to invoke provisions of Section 154 of the Act to rectify the mistake apparent from record. The assessee in proceedings before learned CIT u/s 263 of the Act and also before us duly demonstrated that all the facts were before the AO and the AO has taken a conscious decisions on merits which is a plausible decisions which does not warrant interference u/s 263 of the Act to revise concluded assessment. We have also considered all the replies given by the assessee on merits before AO and CIT as well before us which are set out in preceding para s and are not repeated for the sake of brevity and we find that the assessee has convincingly replied on all issues on merits and the view taken by the AO before passing assessment order was a plausible view on merit taken after due enquiries and cannot be categorized as erroneous so far as prejudicial to the interest of the Revenue With respect to the usance interest the proceedings u/s 154 was contemplated by the AO vide reply to audit objection on 19-08-2009 while ld. CIT issued show cause notice only on 11.03.2011 u/s 263 of the Act. Thus the record of proposal to take action by the AO u/s 154 of the Act was before the CIT before issuing notice u/s 263 and hence the order of the AO cannot be termed as erroneous so far as prejudicial to the interest of Revenue as the word records used in Section 263 of the Act shall also contemplate including the record pertaining to proceedings u/s 154 of the Act arising subsequently out of the assessment order passed by the AO u/s 143(3) of the Act and such record was before ld CIT before he issued notice u/s 263 of the Act on 11.03.2011. Thus in our considered view the assessment order dated 23.12.2008 passed by the A.O. u/s 143(3) of the Act is neither erroneous nor it is prejudicial to the interest of Revenue - Decided in favour of assessee

Issues Involved:

1. Jurisdiction and validity of the order under section 263 of the Income-tax Act, 1961.
2. Non-deduction of TDS on various payments.
3. Incorrect rate of TDS deduction on interest payments.
4. Incorrect depreciation claims on certain assets.

Issue-wise Detailed Analysis:

1. Jurisdiction and Validity of Order under Section 263:
The assessee challenged the jurisdiction of the CIT to direct a fresh assessment under section 263, claiming the original assessment order was neither erroneous nor prejudicial to the interests of the revenue. The Tribunal agreed with the assessee, stating that the AO had conducted proper inquiries and made informed decisions based on the facts and material on record. The Tribunal emphasized that the CIT invoked section 263 based on an audit objection, which the AO had already addressed and dismissed on merits. Hence, the Tribunal concluded that the CIT's order under section 263 was not sustainable and quashed it.

2. Non-deduction of TDS on Various Payments:
The CIT found the original assessment order erroneous for not disallowing payments under section 40(a)(ia) due to non-deduction of TDS on ground rent, wharfage charges, stevedoring charges, freight charges, and handling charges. The assessee argued these were reimbursements and not subject to TDS. The Tribunal observed that the AO had examined these payments, considered them reimbursements, and concluded that no TDS was required. The Tribunal found the AO's view plausible and not erroneous or prejudicial to the revenue, thus rejecting the CIT's contention.

3. Incorrect Rate of TDS Deduction on Interest Payments:
The CIT noted that the assessee deducted TDS at 10.20% on interest payments instead of the applicable 22.44%, making the assessment order erroneous. The assessee clarified that the recipients were individuals or HUFs, for whom the correct TDS rate was 10.20%. The Tribunal found that the AO had examined the details and accepted the assessee's explanation, making the assessment order neither erroneous nor prejudicial to the interest of the revenue.

4. Incorrect Depreciation Claims on Certain Assets:
The CIT identified errors in depreciation claims: labor quarters classified as factory buildings, bunker sheds as plant and machinery, and factory electrification as plant and machinery. The assessee justified these classifications based on the functionality and necessity for continuous factory operations. The Tribunal noted that the AO had examined these claims and accepted them based on the assessee's explanations and relevant judicial precedents. The Tribunal concluded that the AO's decision was a plausible view, and the assessment order was not erroneous or prejudicial to the revenue.

Conclusion:
The Tribunal held that the assessment order dated 23rd December 2008 was neither erroneous nor prejudicial to the interest of the revenue. The CIT's invocation of section 263 was based on audit objections already addressed by the AO. The Tribunal quashed the CIT's order and allowed the assessee's appeal.

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