2022 (11) TMI 612 - AT - Income Tax

Revision u/s 263 by CIT - assessee had claimed deduction with regard to various expenses like consultation charges, professional fees, security charges, professional expenses, brokerage expenses etc. on which no TDS was deducted - According to the Pr. CIT, omission to deduct TDS should have called for disallowance by the Assessing Officer u/s. 40(a)(ia) and hence the assessment order was erroneous in as much as prejudicial to the interest of the revenue - HELD THAT - Regarding the issue of non-deduction of TDS, the assessee has placed detailed evidences that TDS has already been deducted in respect of all payments, however, the Pr. CIT was unable to appreciate the factual and legal submission placed before him. Regarding expenses on account of labour charges in connection with the construction of underground water tank and club house facility, the assessee has already placed on record, a detailed submission in this regard before AO, which was also duly considered by him while passing 143(3) order. Accordingly, in our view, since the Assessing Officer has conducted due enquiries on these aspects (TDS on various payments and allowability of deduction for labour charges), the order passed by the ld. Assessing Officer is not erroneous and prejudicial to the interest of the revenue. Regarding the scope of enquiry u/s 263 of the Act, it may be useful to refer to jurisdictional Gujarat High Court decision in the case of Principal Commissioner of Income Tax-3 v. Minal Nayan Shah 2020 (9) TMI 825 - GUJARAT HIGH COURT . We are of the view that ld. Pr. CIT has erred in facts and in law invoking the provisions of section 263 in the instant set of facts. Accordingly, we direct that the order passed by the Pr. CIT u/s. 263 may be set aside - Decided in favour of assessee.

Issues Involved:
1. Invocation of provisions under Section 263 by the Principal Commissioner of Income Tax (Pr. CIT).
2. Alleged failure to deduct TDS on various expenses.
3. Classification of expenses for construction of underground water tank and club house as capital expenditure.

Issue-wise Detailed Analysis:

1. Invocation of Provisions under Section 263 by Pr. CIT:

The assessee contended that the Pr. CIT erred in invoking Section 263, arguing that the assessment order passed under Section 143(3) was neither erroneous nor prejudicial to the interest of revenue. The Pr. CIT's decision was challenged on the grounds that the Assessing Officer (AO) had passed a scrutiny assessment order after making a conscious application of mind and considering various jurisdictional pronouncements. The assessee argued that the Pr. CIT's order was illegal, bad in law, and without jurisdiction, as detailed replies filed in response to the notice under Section 263 were not considered. The assessee further contended that the exercise of jurisdiction by Pr. CIT was based on mere assumptions and not on any substantial basis.

2. Alleged Failure to Deduct TDS on Various Expenses:

The Pr. CIT observed that the assessee claimed deductions for various expenses such as consultation charges, professional fees, security charges, and brokerage expenses, on which no TDS was deducted. According to the Pr. CIT, this omission should have led to a disallowance under Section 40(a)(ia) of the Act. The Pr. CIT found that the assessee failed to provide sufficient documentary evidence to prove that TDS was deducted and deposited into the government account. The assessee submitted ledger accounts and quarterly TDS statements but did not provide a detailed breakdown of TDS deductions for each transaction.

3. Classification of Expenses for Construction of Underground Water Tank and Club House:

The Pr. CIT noted that the assessee paid Rs. 48,72,350 to S.V. Construction for constructing a club house and underground water tank, which was allowed as labor charges by the AO. The Pr. CIT argued that since the assessee was engaged in selling plots, the construction of these facilities was not part of the business scheme and should be classified as capital expenditure. The assessee countered that the underground water tank was necessary to provide sweet water to plot owners in Dholera, where water is salty, and that the club house was a common facility for plot holders. The assessee claimed these expenses were capitalized and shown as Work in Progress (WIP) in the financial statements.

Tribunal's Observations and Decision:

The Tribunal found that the AO had conducted due inquiries during the assessment proceedings. The assessee provided detailed evidence that TDS was deducted on all relevant payments, which the Pr. CIT failed to appreciate. Regarding the expenses for the underground water tank and club house, the Tribunal noted that these were necessary infrastructural facilities for the plot owners and had been capitalized as WIP. The Tribunal concluded that the AO had applied his mind and made a conscious decision on these issues, making the order neither erroneous nor prejudicial to the interest of revenue.

The Tribunal referred to the jurisdictional Gujarat High Court decision in the case of Principal Commissioner of Income Tax-3 v. Minal Nayan Shah, which emphasized that an order cannot be interfered with merely because another view is possible. The Tribunal highlighted that the AO's order should be considered erroneous only if it results in a substantive error or visible abnormality causing loss to the revenue.

Conclusion:

The Tribunal held that the Pr. CIT erred in invoking Section 263 and directed that the order passed by the Pr. CIT under Section 263 be set aside. The appeal of the assessee was allowed, and the Tribunal pronounced the order in the open court on 14-10-2022.

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