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2020 (9) TMI 245 - HC - Income TaxRevision u/s 263 - difference between the amount of service income on which tax is deducted by the service provider and income which is shown in the Profit and Loss account by the respondent assessee - as submitted that the Assessing Officer while framing the assessment under section 143(3) of the Act did not verify this aspect - ITAT quashed the order passed u/s 263 - HELD THAT - PCIT has not considered the submissions made by the respondent assessee and has arrived at conclusion with regard to the issue of less income as stated by him in the show-cause notice. However, the Tribunal after considering the submissions made by the respondent assessee and on the basis of material on record has arrived at finding that because there was some difference in the service income as per the Profit Loss account and as worked out based on TDS, the assessment order cannot be said to be erroneous and prejudicial to the interest of the Revenue. No substantial questions of law.
Issues Involved:
1. Interpretation of Section 263 of the Income Tax Act, 1961. 2. Validity of assessment order under Section 143(3) of the Act. 3. Treatment of service income and TDS discrepancies in the assessment. Issue 1: Interpretation of Section 263 of the Income Tax Act, 1961 The High Court addressed whether the Appellate Tribunal had the right to quash the order passed by the CIT under section 263 of the Act, despite the Assessing Officer's error being prejudicial to the revenue's interest. The Tribunal found that the conditions for invoking jurisdiction under section 263 were not satisfied, as the order was not erroneous and prejudicial to revenue. The Tribunal referred to the judgment in the case of Malabar Industrial Co. Ltd. to support its decision. It concluded that the order under section 263 did not fulfill the legal conditions and thus should be quashed. Issue 2: Validity of Assessment Order under Section 143(3) of the Act The Principal Commissioner of Incometax found the assessment order under Section 143(3) erroneous and prejudicial to the revenue's interest. The PCIT issued a show cause notice under section 263(1) of the Act, questioning three issues related to service income, provision for non-achievement of targets, and failure to deduct tax at source. The respondent assessee provided explanations regarding TDS on reimbursement expenses and differences in service income calculations. The CIT, however, disregarded the explanations and directed a fresh assessment. The Tribunal, after considering the explanations, found that the assessment order was not erroneous and prejudicial to the revenue's interest, leading to the quashing of the order under section 263. Issue 3: Treatment of Service Income and TDS Discrepancies in the Assessment The Tribunal examined the discrepancy between service income calculated based on TDS and the income shown in the Profit and Loss account. It concluded that the TDS on reimbursement of expenses was not income and hence not reflected in the Profit & Loss account. The Tribunal also noted timing differences in income calculations. The Tribunal found that the assessment order was not erroneous and prejudicial to the revenue, as the issues were examined during the original assessment stage. The High Court upheld the Tribunal's decision, stating that the appeal failed based on the factual findings and material on record. Consequently, the appeal was dismissed, and no costs were awarded. In conclusion, the High Court's judgment focused on the interpretation of Section 263 of the Income Tax Act, the validity of the assessment order under Section 143(3), and the treatment of service income and TDS discrepancies in the assessment. The Court upheld the Tribunal's decision, emphasizing that the assessment order was not erroneous and prejudicial to the revenue, leading to the dismissal of the appeal.
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