2018 (9) TMI 706 - AT - Income Tax

Revision u/s 263 - non deduction of TDS on the borrowings u/s 194A - Held that - As seen from the assessment order, the AO has examined the issue with regard to the TDS on the borrowings and observed that the assessee has not deducted the TDS on a sum of ₹ 58, 350/- and the same was added back to the income u/s 40(a)(ia). As per the details submitted by AR during the hearing, the total amount of interest paid was ₹ 9, 02, 287/- out of which for the sum of ₹ 7, 18, 508/- the provisions of section 194A are applicable and the assessee had M/s Ardee Hi-Tech Private Ltd., Visakhapatnam deducted the TDS on the payment of ₹ 6,60,159/- and the remaining amount of ₹ 58, 350/- was disallowed by the AO in the assessment proceedings. There is no error in the assessment order which is prejudicial to the interest of the revenue. Revision u/s 263 - addition of unpaid service tax - Held that - The assessee has debited a sum of ₹ 9, 14, 594/- under service tax and a sum of ₹ 1, 15, 694/- remained unpaid at the end of the year which required to be disallowed under section 43B. There was no dispute that the said amount attracts disallowance u/s 43B of the Act and the issue was not verified by the AO. The contention of the Ld. AR that the disallowance of a sum of ₹ 1, 15, 694/- results into reducing the loss and finally does not result in positive income and the same is not prejudicial to the interest of the revenue is not acceptable and has potential tax effect to the extent of income under assessed. Therefore, not making the addition of unpaid service tax is erroneous as well as prejudicial to the interest of the revenue, and hence, we uphold the order of the Ld. Pr. CIT on this issue and dismiss the appeal of the assessee.

Summary

Issues:
1. Disallowance of interest payment for non-deduction of tax at source.
2. Disallowance of service tax payable under section 43B of the Income Tax Act.

Issue 1: Disallowance of interest payment for non-deduction of tax at source:
The appeal was filed against the order of the Principal Commissioner of Income Tax for the assessment year 2012-13. The Principal Commissioner observed that the assessee had debited interest payment without deducting tax at source. The Assessing Officer had not examined this issue during the assessment. The Principal Commissioner set aside the assessment order and directed a fresh assessment. The appellant contended that the assessment was not erroneous as the remaining interest amount had been added back to income by the Assessing Officer. The Tribunal found that the Assessing Officer had considered the issue and disallowed the amount not subjected to TDS. The Tribunal concluded that there was no error prejudicial to revenue, setting aside the Principal Commissioner's order.

Issue 2: Disallowance of service tax payable under section 43B:
The appellant had debited a sum as service tax payable, with a balance remaining unpaid at year-end. The appellant argued that though there was an error in the assessment for not disallowing the unpaid service tax, it did not affect revenue as the overall income was a loss. The appellant contended that reducing the loss through disallowance did not result in positive income. However, the Tribunal disagreed, stating that the unpaid service tax attracted disallowance under section 43B, which the Assessing Officer had not verified. The Tribunal held that not making the addition of unpaid service tax was both erroneous and prejudicial to revenue. Therefore, the Principal Commissioner's order was upheld, and the appeal on this issue was dismissed.

In conclusion, the Tribunal partly allowed the appeal, setting aside the Principal Commissioner's order on the disallowance of interest payment but upholding the order on the disallowance of unpaid service tax.