2015 (10) TMI 311 - AT - Income Tax

Revision u/s 263 - assessee has not made TDS on granite export expenses for ocean freight charges - Held that - Regarding the shipping charges, there is a Circular issued by the CBDT No.723 dated 19.9.1995 states that where the provisions of sec.172 are to apply, the provisions of sections 194C and 195 relating to tax deduction at source are not applicable. Acting on the above Circular, ITAT, Ahmedabad Bench C , has held in the case of DCIT v. Hasmukh J. Patel 2011 (3) TMI 353 - ITAT, Ahmedabad that where the provisions of sec.172 would apply, no deduction of tax is required under sec.194C. Also see ACIT vs. Leaap International (P.) Ltd. 2011 (5) TMI 700 - ITAT CHENNAI . We find that the above circular and the Tribunal decisions support the case of the assessee on merit that the assessee was not under an obligation to deduct tax on freight charges paid to shipping agencies. - Decided in favour of assessee. Expenditure towards machinery spare parts was a capital expenditure - Held that - In the show cause notice, the observation of the Commissioner of Income-tax is that the said expenditure would be of capital nature. But in the revision order passed by him, the Commissioner of Income-tax has disallowed the said expenditure under sec.40(a)(ia). Because of this contradiction, this objection made by the Commissioner of Income-tax cannot survive. Moreover, the view taken by the Assessing Officer on machinery spare parts as revenue expenditure is a possible view.- Decided in favour of assessee. Granite marking and inspection charges - non deduction of TDS - Held that - Those charges were made by the assessee outside India for the purpose of export trade. All services are rendered outside India except for quality verification of granites in India. Where such payments are made for the purpose of business carried outside India and payments made to non-residents, there is no requirement of deducting any tax at source, as held by the Hon ble High Court of Madras in the case of CIT v. Faizan Shoes (P.) Ltd. 2014 (8) TMI 170 - MADRAS HIGH COURT . Therefore, the said objection also does not survive against the assessee. - Decided in favour of assessee. Regarding the question of TDS, the provision of disallowance is applicable only to those amounts payable and not to the amounts already paid. ITAT, Chennai B Bench in the case of ITO vs. M/s. Theekathir Press 2015 (4) TMI 616 - ITAT CHENNAI has held that the disallowance under sec.40(a)(ia) applies only to those amounts payable and not to those amounts paid . In the present case, therefore, the question of disallowance should apply only those amounts remained payable. But what is shown as payable in the balance sheet, has already been paid by the assessee before the due date of filing of return. Therefore, that portion of TDS amount does not remain as payable. On that ground also disallowance is not justified.- Decided in favour of assessee. Quarry development expenses would have been treated as a capital expenditure. That is also a case of divided opinion. Therefore, the Commissioner cannot take it as a ground to revise the assessment. - Decided in favour of the assessee.

Summary

Issues involved:
1. Revision order passed under sec.263 of the Income-tax Act, 1961.
2. Assessment of business activities including purchase and sale of slacked lime powder, granites, and mining.
3. Observations by Commissioner of Income-tax on various expenses.
4. Appeal against revision order before Appellate Tribunal ITAT Chennai.

Detailed Analysis:

1. The appeal was filed by the assessee against the revision order passed by the Commissioner of Income-tax-II under sec.263 of the Income-tax Act, 1961, for the assessment year 2008-09. The Commissioner identified several aspects for further scrutiny, including TDS issues, capital expenditures, and other expenses related to the business activities of the assessee.

2. The Commissioner raised objections regarding TDS not made on certain expenses, classification of machinery spare parts expenditure as capital, granite marking and inspection charges, quarry development expenses, royalty payments, and trade debtors. The Commissioner proposed to revise the assessment order based on these objections, leading to a significant increase in the total income of the assessee.

3. The assessee contested the Commissioner's observations, providing explanations and attending hearings. The assessee argued that the assessment order was not erroneous or prejudicial to the Revenue's interests. However, the Commissioner rejected the explanations and passed the revision order, making substantial additions to the assessed income.

4. In response to the grounds raised by the assessee in the appeal, the Appellate Tribunal analyzed each objection raised by the Commissioner. The Tribunal considered legal precedents, circulars, and previous decisions to determine the validity of the objections.

5. The Tribunal found that the objections raised by the Commissioner regarding TDS on certain expenses were not sustainable in law. Legal provisions, circulars, and tribunal decisions supported the assessee's position on these matters, leading to the rejection of the Commissioner's objections.

6. Additionally, the Tribunal addressed objections related to capital expenditures, trade debtors, and other expenses, concluding that the Commissioner's grounds for revising the assessment order were not valid. The Tribunal emphasized the necessity for an assessment order to be both erroneous and prejudicial to the Revenue to warrant revision under sec.263.

7. Consequently, the Appellate Tribunal allowed the appeal filed by the assessee, setting aside the revision order passed by the Commissioner of Income-tax. The Tribunal pronounced the order in favor of the assessee on September 23, 2014, in Chennai.

This detailed analysis highlights the legal proceedings, objections raised, arguments presented, and the final decision made by the Appellate Tribunal ITAT Chennai in response to the appeal against the revision order under sec.263 of the Income-tax Act, 1961.