2022 (1) TMI 940 - AT - Income Tax

Revision u/s 263 by CIT - Disallowance of Professional Fees u/s.40(a)(ia) for non-deduction of tax at source u/s.194J - HELD THAT - None of the individual items of payments or aggregate to one party exceeds ₹ 30,000/-. Once the position is such, the case gets covered under the first proviso to section 194J(1), requiring no deduction of tax at source on professional fees or technical fees in terms of section 194J. The ld. Pr.CIT, without controverting the factual position stated before him, failed to consider that the assessee was, in fact, not required to deduct tax at source in view of the first proviso to section 194J. When the AO impliedly accepted the assessee s contention, the assessment order cannot be held as prejudicial to the interest of the Revenue inasmuch as there is no loss to the Revenue warranting disallowance u/s.40(a)(ia) - assessment order may be termed as erroneous from the standpoint of the ld. Pr.CIT for not having discussed the issue in the assessment order, but it cannot be branded as prejudicial to the interest of the Revenue because there is no loss to the revenue inasmuch as the issue is tax neutral. - Pr.CIT was not justified in treating the assessment order as erroneous and prejudicial to the interest of the Revenue on this score. Disallowance of Transport Expenses u/s.40(a)(ia) on account of failure to deduct TDS u/s. 194C - Even though the AO did not make a mention of the issue in the assessment order, the same cannot be considered as prejudicial to the interest of the Revenue because the provisions of sub-section (6) of section 194C did not require deduction of tax at source. The position so stated before the ld. Pr.CIT, giving all the necessary details which have been tabulated in the impugned order, has not been controverted in any manner. We, therefore, hold that the ld. Pr.CIT was not justified in exercising the revisionary power on this issue because the twin conditions for revision were not satisfied. Mismatch of Sales Turnover - Even though there is a mistake in mentioning the figure of turnover in Tax Audit report but that mistake does not affect the total income inasmuch as the amount of profit shown in the Profit and loss account has been considered for the purposes of computation of total income. In fact, the same audit report having Annexure 1 Part B gives the amount of net profit/loss to be taxed as per the Profit and loss account which matches with the amount of profit as per the Profit and loss account. Albeit , the AO did not conduct any inquiry on wrong mentioning of the amount of total turnover in the Tax Audit report, which was although correctly considered in return of income, but the assessment order cannot be considered as prejudicial to the interest of the Revenue because the amount of profit has been correctly reflected. As such, the assessment order cannot be said to pass the test of satisfying the dual conditions laid down in section 263. Improper verification of Sundry Creditors - Assessee furnished a list of sundry creditors, showing copious details of all the sundry creditors including the creditors with balances of ₹ 1.00 lakh or more that were duly confirmed by the respective parties also. Only small balances below ₹ 1.00 lakh were without confirmation. It can be seen from the details of such sundry creditors as given in the impugned order itself that large chunk of total sundry creditors got exhausted in the balances of more than ₹ 1.00 lakh, for which proper verifications were done. Some small balances here and there below ₹ 1.00 lakh even though not examined by the AO, did not render the assessment order erroneous and prejudicial to the interest of the Revenue unless the ld. Pr.CIT demonstrates something amiss in them, which is actually not the case. Interest on refund u/s.244A not offered for taxation - The amount of interest on income-tax refund has been duly credited on 16- 07-2014. The total closing balance from such account has been taken to the Profit and loss account which has been considered for declaring the income chargeable to tax. Under these circumstances, we fail to appreciate as to how the assessment order can be termed as prejudicial to the interest of the Revenue when the assessee disclosed the amount of interest on income-tax refund in its interest income account. We find that even though the AO did not specifically discuss such five issues in the assessment order, but the assessment order does not satisfy the second condition of being prejudicial to the interest of the Revenue. Ex consequenti, we hold that the ld. Pr.CIT was not justified in revising the assessment order. We, therefore, set-aside the same. - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of Professional Fees for non-deduction of tax at source
2. Disallowance of Transport Expenses for failure to deduct TDS
3. Mismatch of Sales Turnover
4. Improper verification of Sundry Creditors
5. Interest on refund not offered for taxation

1. Disallowance of Professional Fees:
The LD. Pr.CIT held the assessment order to be erroneous and prejudicial to the interest of the Revenue due to the non-deduction of tax at source on Professional Fees. However, the Tribunal found that the assessee was not required to deduct tax as the payments did not exceed the threshold for TDS. The assessment order was deemed erroneous but not prejudicial to the Revenue as there was no loss.

2. Disallowance of Transport Expenses:
The LD. Pr.CIT sought disallowance of Transport Expenses for failure to deduct TDS under section 194C. The Tribunal noted that the provisions exempted deduction in certain cases, which applied to the assessee. As the conditions for revision were not met, the assessment order was not considered prejudicial to the Revenue.

3. Mismatch of Sales Turnover:
The LD. Pr.CIT highlighted a mismatch in Sales Turnover between the audit report and the income-tax return. The Tribunal observed that the error did not impact the total income calculation, rendering the assessment order not prejudicial to the Revenue despite the oversight in the Tax Audit report.

4. Improper verification of Sundry Creditors:
The LD. Pr.CIT raised concerns about the increase in sundry creditors without proper verification. The Tribunal found that substantial creditors were confirmed, and small balances below a threshold were not examined. As there was no evidence of discrepancies, the assessment order was not deemed prejudicial to the Revenue.

5. Interest on refund not offered for taxation:
The LD. Pr.CIT flagged interest on refund not offered for taxation, which the AO did not examine. The Tribunal reviewed the ledger account and concluded that the interest amount was included in the income account for taxation. As the income was disclosed correctly, the assessment order was not considered prejudicial to the Revenue.

In conclusion, the Tribunal held that the LD. Pr.CIT was not justified in revising the assessment order as none of the issues raised were prejudicial to the Revenue. The assessment order was set aside, and the appeal was allowed on 20th January 2022.