2016 (7) TMI 848 - AT - Income Tax

Revision u/s 263 - proportionate disallowance u/s 40(a)(ia) of the Act for short deduction of tax at source - Held that - We find that this issue has been held in favour of the assessee by the co-ordinate bench decision of this tribunal in the case of DCIT vs S K Tibrewal 2011 (10) TMI 10 - ITAT KOLKATA wherein it was held that in the case of short deduction of tax at source no disallowance u/s 40(a)(ia) of the Act could be made in the hands of the assessee and the assessee could be proceeded against only under section 201 of the Act in such cases. Hence it could be safely concluded that the ld AO had followed the jurisdictional tribunal decision while adjudicating the issue of disallowance u/s 40(a)(ia) of the Act though he might not have mentioned the same in his assessment order. In such circumstances the order passed by the ld AO cannot be construed as erroneous. Moreover the decision of the tribunal purportedly relied by the ld AO had been approved by the Hon ble High Court. In these circumstances we can safely conclude that the ld AO had taken one of the possible view. - Decided in favour of assessee

Summary

Issues:
1. Jurisdiction of CIT to invoke revisionary jurisdiction u/s 263 of the Income Tax Act.
2. Disallowance u/s 40(a)(ia) of the Act for short deduction of tax at source.

Analysis:

Issue 1: Jurisdiction of CIT under Section 263
The appeal arose from a revision order of the CIT, Kolkata-III, invoking jurisdiction under section 263 of the Income Tax Act, 1961. The key contention was whether the CIT was justified in exercising revisionary jurisdiction in the given circumstances. The CIT observed discrepancies in the assessment related to TDS deductions made by the assessee to two parties and concluded that there was a short deduction of TDS, warranting disallowance under section 40(a)(ia) of the Act. The CIT held that the order passed by the AO was erroneous and prejudicial to the interest of revenue due to non-compliance and lack of proper TDS deductions. The CIT emphasized the wide supervisory jurisdiction under section 263 and dismissed objections raised by the assessee. The Tribunal, however, noted that the AO had followed a jurisdictional tribunal decision while making the assessment, which was after the said decision. Therefore, the Tribunal concluded that the AO had taken a plausible view, and as one of the twin conditions stipulated in section 263(1) was not satisfied, the revision order was quashed.

Issue 2: Disallowance u/s 40(a)(ia) of the Act
The primary argument raised by the assessee was against the disallowance under section 40(a)(ia) for short deduction of tax at source. The assessee contended that no disallowance could be made under this section for short TDS deductions, citing a decision by the Calcutta High Court. The Tribunal referred to a previous case where it was held that in instances of short deduction of tax at source, disallowance under section 40(a)(ia) could not be made in the hands of the assessee. The Tribunal noted that the AO had framed the assessment post this decision and had implicitly followed the tribunal's decision. As the AO had taken a plausible view based on a judicial decision, the Tribunal concluded that the order was not erroneous. Additionally, the Tribunal highlighted that the decision relied upon by the AO had been approved by the High Court. Consequently, the Tribunal allowed the appeal of the assessee, quashing the revision order passed under section 263 of the Act.

In conclusion, the Tribunal upheld the assessee's appeal, emphasizing that the AO had acted in accordance with a valid judicial decision, thereby dismissing the revision order under section 263 and ruling against the disallowance under section 40(a)(ia) for short deduction of tax at source.