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2016 (10) TMI 893 - AT - Income Tax


Issues:
1. Revision of assessment order under section 263 of the Income Tax Act, 1961 based on non-deduction of tax at source on subcontract payments.
2. Disallowance of hire charges under section 40(a)(ia) of the Act due to non-deduction of tax at source on payments exceeding ?75,000 to subcontractors.
3. Jurisdiction of Principal CIT to revise assessment order and the correctness of the order.

Analysis:
1. The appeal was against the revision of the assessment order for the assessment year 2011-12 under section 263 of the Income Tax Act, 1961. The Principal CIT proposed revision due to non-deduction of tax at source on subcontract payments, as the AO failed to verify the applicability of TDS provisions. The CIT observed that certain omissions in the assessment order were prejudicial to the revenue's interest. The CIT directed the AO to disallow hire charges amounting to ?12,05,000 claimed by the assessee, leading to the appeal.

2. The assessee contended that the AO had examined the issue of TDS on hire charges and made adhoc disallowances after receiving satisfactory explanations. The assessee argued that the CIT erred in finding the assessment order erroneous and prejudicial to the revenue. The issue was whether the AO adequately examined the TDS applicability on hire charges. The ITAT found that the AO did not conduct a proper inquiry, leading to an erroneous assessment order. However, considering the special bench decision, no revenue prejudice was caused, and the CIT's order was upheld with modifications to re-do the assessment.

3. The Principal CIT's jurisdiction to revise the assessment order was based on the AO's failure to examine TDS provisions on hire charges. The ITAT acknowledged that the issue was covered by a special bench decision, and no revenue loss occurred. Despite the lack of appearance by the assessee before the CIT, the ITAT upheld the CIT's jurisdiction to revise the assessment order. The ITAT modified the directions to disallow expenditure and directed the AO to re-do the assessment, providing an opportunity for the assessee to be heard.

In conclusion, the ITAT partly allowed the appeal, upholding the Principal CIT's jurisdiction to revise the assessment order while modifying the directions for disallowance and instructing a fresh assessment by the AO.

 

 

 

 

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