2018 (3) TMI 523 - AT - Income Tax

Revision u/s 263 - disallowance u/s 40(a)(ia) - Held that - As per the provisions of I.T. Act, the interest and remuneration is required to be allowed as evidenced by the partnership deed. Since the partnership deed filed in the paper book permits the payment of remuneration and interest, the AO has not committed any error in allowing the interest and remuneration paid to the partners from the estimated income. Hence the assessment made by the AO in estimation of income is neither erroneous nor prejudicial to the interest of the revenue giving scope for invoking the jurisdiction u/s 263. Similarly, in case, the assessment is completed u/s 143(3) by rejecting the books of accounts and estimating the income as held in the case of Indwell Constructions Ltd. (1998 (3) TMI 121 - ANDHRA PRADESH High Court), no other disallowance is required to be made. The view of the CIT that the AO has not considered the disallowance u/s 40(a)(ia) is also a difference of opinion and does not give any possibility for invoking the jurisdiction u/s 263. Hence, we set aside the orders of the Ld.CIT passed u/s 263 and allow the appeals of the assessee.

Summary

Issues:
- Delay in filing appeals against order under section 263
- Assessment proceedings based on incomplete records and estimation of income
- Revision under section 263 due to alleged errors in assessment
- Disallowance under section 40(a)(ia) for non-deduction of tax at source
- Appeal against orders passed under section 263

1. Delay in filing appeals against order under section 263:
The assessee filed appeals with a delay of 74 days against the order passed under section 263. The appeals should have been filed before ITAT on or before 08.06.2012 but were filed on 21.08.2012. The assessee explained the reasons for the delay, and after hearing both parties, the delay was condoned, and the appeals were admitted.

2. Assessment proceedings based on incomplete records and estimation of income:
The assessee, engaged in the sand business, did not maintain proper books of accounts. The AO estimated income based on loose sheets and daily records found during a survey. The CIT found the AO's orders to be erroneous and prejudicial to revenue's interest as the AO did not consider income and expenditure workings based on loose sheets. The CIT directed to redo the assessments considering the evidence found during the survey.

3. Revision under section 263 due to alleged errors in assessment:
The Ld.CIT revised the assessments for the years 2007-08 and 2008-09 under section 263, finding the AO's orders erroneous and prejudicial to revenue's interest. The CIT observed discrepancies in the income and expenditure details, non-deduction of tax at source, and other issues, setting aside the orders for reassessment.

4. Disallowance under section 40(a)(ia) for non-deduction of tax at source:
The Ld.CIT noted violations of TDS provisions by the assessee for machine hire charges, leading to disallowance under section 40(a)(ia). The AO's failure to make this disallowance was considered an error, contributing to the revision under section 263.

5. Appeal against orders passed under section 263:
The assessee appealed against the CIT's order under section 263, arguing that the estimation of income was justified due to lack of proper records. The ITAT found that the AO's estimation was reasonable, and the disallowance under section 40(a)(ia) was a matter of difference of opinion, leading to the setting aside of the CIT's orders under section 263.

Separate Judgement:
In a related appeal, the ITAT dismissed appeals against orders passed under section 263 for non-prosecution. However, upon reconsideration, the ITAT set aside the CIT's orders under section 263, allowing the appeals of the assessee for fresh adjudication before the CIT(A).

In conclusion, the ITAT's detailed analysis upheld the AO's estimation of income, rejected the CIT's revision under section 263, and provided directions for reassessment, addressing issues related to incomplete records, disallowances, and procedural matters effectively.