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2022 (4) TMI 290 - AT - Income TaxRevision u/s 263 by CIT - case was selected for scrutiny and notice u/s 143(2) was issued to the assessee - Non deduction of TDS - disallowance of interest paid u/s 40(a)(ia) - Claim of deduction u/s 54EC - HELD THAT - We find that since the assessee failed to deduct tax, the A.O was required to make disallowance of interest u/s 40(a)(ia) of the Act on account of non-deduction of TDS. A.O also did not notice that STDR with SBI is not a long term specified asset within the meaning of sec. 54EC of the Act and allowed the claim of the assessee without going through the facts. Therefore, the order passed by the A.O is erroneous and prejudicial to the interest of revenue. See SESA STARLITE LIMITED, ERSTWHILE SESA GOA LTD. 2020 (11) TMI 102 - BOMBAY HIGH COURT and M/S BALLARPUR INDUSTRIES LIMITED 2017 (8) TMI 530 - BOMBAY HIGH COURT We are of the view that the order passed by the ld. Pr. CITM u/s 263 of the Act is proper and valid and does not call for any interference at our hands. We therefore, hold that the ld. Pr. CIT was right in invoking his jurisdiction u/s 263 of the Act and directing the A.O to make disallowance of interest u/s 40(a)(ia) of the Act on account of non-deduction of TDS and also in directing the Assessing Officer to make disallowance of the claim of deduction u/s 54EC of the Act with respect to such STDR with SBI. - Decided against assessee.
Issues Involved:
1. Disallowance of Interest Paid ?2,85,632/- under Section 40(a)(ia) of the Income Tax Act, 1961. 2. Disallowance of claim towards Exemption of Long Term Capital Gain of ?14,68,380/- under Section 54EC of the Income Tax Act, 1961. 3. Validity of the order under Section 263 of the Income Tax Act, 1961 passed by the CIT-I, Nagpur. Issue-wise Detailed Analysis: 1. Disallowance of Interest Paid ?2,85,632/- under Section 40(a)(ia): The CIT-I, Nagpur identified that the assessee had paid interest amounting to ?2,85,632/- without deducting TDS as required under Section 194A of the Income Tax Act, 1961. The assessee argued that the interest was paid to two individuals, each receiving ?1,42,816/-, and since their income was below the taxable limit, TDS was not deducted. However, the CIT-I held that the income of the payee being non-taxable is not a valid reason for the payer to avoid TDS deduction. Consequently, the CIT-I directed the Assessing Officer (A.O) to disallow the interest paid under Section 40(a)(ia) due to non-deduction of TDS, making the original assessment order erroneous and prejudicial to the interests of the revenue. 2. Disallowance of Claim towards Exemption of Long Term Capital Gain of ?14,68,380/- under Section 54EC: The assessee claimed an exemption for long-term capital gains amounting to ?14,68,380/- under Section 54EC, supported by a Special Term Deposit Receipt (STDR) with SBI for ?15,46,000/-. The CIT-I found that the STDR did not qualify as a "long term specified asset" under Section 54EC. The assessee argued that the STDR was purchased based on the advice of an SBI official, and the A.O did not disallow the claim after due consideration. However, the CIT-I concluded that the A.O failed to apply his mind to this issue, and the exemption claim was erroneously allowed. Thus, the CIT-I directed the A.O to disallow the exemption claim under Section 54EC. 3. Validity of the Order under Section 263: The CIT-I invoked Section 263, arguing that the A.O's order was erroneous and prejudicial to the interests of the revenue. The assessee contended that the A.O had taken a particular view after considering the material and explanations provided. However, the Tribunal upheld the CIT-I's invocation of Section 263, emphasizing that the A.O did not adequately examine the issues related to TDS on interest payments and the eligibility of the STDR under Section 54EC. The Tribunal referred to precedents, including the jurisdictional High Court's rulings, to support the view that non-enquiry or inadequate enquiry by the A.O renders the assessment order erroneous and prejudicial to the revenue. Conclusion: The Tribunal dismissed the appeal of the assessee, affirming the CIT-I's order under Section 263. The A.O was directed to disallow the interest paid of ?2,85,632/- under Section 40(a)(ia) due to non-deduction of TDS and to disallow the claim of deduction under Section 54EC for the STDR with SBI. The Tribunal concluded that the CIT-I's actions were justified, as the original assessment order lacked proper examination and application of mind, making it erroneous and prejudicial to the interests of the revenue. Order Pronouncement: The appeal of the assessee was dismissed, and the order was pronounced in the open Court on April 1, 2022.
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