2021 (4) TMI 408 - HC - Income Tax

Revision u/s 263 - ITAT set aside revision order passed u/s 263 by the CIT - whether assessee is not required to deduct TDS when the sub-contract amounts were credited into the ledger account of the subcontractor's which is against the provision of Section 194C? - whether Tribunal was right in holding that the Commissioner of Income Tax has not examined whether such payments was less than ₹ 20,000/- and cumulative payment was less than ₹ 50,000/- which is contrary to the material evidence filed by the assessee before the Assessing Officer? - HELD THAT - What has been credited by the assessee was only a provision towards possible liability and the said liability may be an actual liability or a contingent liability or the provision must have been made as a result of ample precaution by the assessee. The fact that the assessee has made a provision for TDS in its accounts does not in fact decide whether the assessee is bound by the provisions of the TDS or not. As already stated, the Commissioner of Income Tax has not given any finding that the assessee has made payments in excess of the mandatory limit prescribed for TDS or the assessee has credited the accounts of the sub-contractors with commensurate amounts. Though the order passed by the Assessing Officer may be prejudicial to the interest of the Revenue, it cannot be termed as erroneous. In such case, the order passed by the Commissioner of Income Tax cannot be sustained. The Tribunal taking into consideration all these aspects, rightly set aside the order passed by the Commissioner of Income Tax and allowed the appeal. We do not find any ground much less any substantial question of law to interfere with the order passed by the Appellate Tribunal. The appeal is liable to be dismissed.

Summary

Issues involved:
1. Challenge to the order passed by the Income Tax Appellate Tribunal for the assessment year 2007-08.
2. Interpretation of provisions related to TDS under Section 194C.
3. Examination of the Commissioner of Income Tax's decision regarding disallowance of a portion of sub-contract payments.
4. Determination of whether the provision made by the assessee for TDS in its accounts binds the assessee to TDS provisions.
5. Assessment of the correctness of the Commissioner of Income Tax's order and the subsequent decision by the Income Tax Appellate Tribunal.

Issue 1: Challenge to the ITAT order
The Revenue challenged the order passed by the Income Tax Appellate Tribunal (ITAT) for the assessment year 2007-08. The substantial questions of law admitted for consideration included the correctness of the revision order passed by the Commissioner of Income Tax (CIT) Madurai under Section 263, the requirement of TDS deduction on sub-contract amounts credited to the subcontractor's ledger account under Section 194C, and the examination of payment thresholds for TDS applicability.

Issue 2: Interpretation of TDS provisions
The CIT found a discrepancy in sub-contract payments and disallowed a portion based on the assessment. The CIT held the assessment order as erroneous and prejudicial to Revenue's interest. The assessee argued that individual payments did not exceed ?20,000 and cumulative payments were below ?50,000, thus TDS was not applicable. The CIT disagreed, leading to a further disallowance. The ITAT, however, observed that the CIT erred in rejecting the assessee's claim without examining the payment thresholds, emphasizing technicality over substance.

Issue 3: Provision for TDS and liability determination
The judgment highlighted that the provision made by the assessee for TDS did not conclusively establish TDS applicability. The absence of findings on payment limits or crediting subcontractor accounts with corresponding amounts raised doubts on the necessity of TDS compliance. The judgment emphasized the need for a thorough examination before disallowing deductions.

Issue 4: Correctness of CIT's order
While acknowledging the potential prejudice to Revenue's interest, the judgment differentiated between an erroneous and prejudicial order. It noted that the CIT's decision lacked essential findings on payment thresholds and compliance, leading to the ITAT's justified reversal of the CIT's order. The judgment concluded that the ITAT's decision was sound, dismissing the appeal with no costs.

This detailed analysis of the judgment from the Madras High Court covers the various issues involved, including challenges to the ITAT order, interpretation of TDS provisions, assessment of liability, and the correctness of the CIT's decision, providing a comprehensive understanding of the legal nuances addressed in the case.