2022 (2) TMI 325 - AT - Income Tax

Revision u/s 263 by CIT - disallowance under Section 40(a)(ia) - HELD THAT - Assessing Officer vide order passed in pursuance of order under Section 263 of the Act, has given a finding that assessee has produced the copies of details of TDS certificate and details of suppliers and also the material which were not supplied to the assessee. AO found that the assessee had deducted TDS on the expenses as mandated by Section 194C(3), hence no addition was made. Thus, the issue of 40(a)(ia) of the Act as raised by the ld. Pr. CIT in the impugned order is no longer in issue and hence on this score matter is decided in favour of the assessee. It is an admitted fact that this issue was covered in favour of the assessee by various orders of the Tribunal in the earlier years and the only reason assigned by the ld. Pr. CIT for setting aside the assessment order is that the AO has not seen the history of the case and the issue has not been settled. Thus, it cannot be held that the assessment order is either erroneous or prejudicial to the interest of Revenue. Accordingly, on this issue also the order of the Pr. CIT cannot be sustained. The order of the ld. Pr. CIT is set aside and the appeal of the assessee is allowed.

Summary

Issues:
1. Challenge to observations and findings of the Principal Commissioner of Income Tax under Section 263
2. Provision for warranty as revenue expenditure
3. Disallowance under Section 40(a)(ia) of the Income Tax Act

Analysis:
1. The appeal was filed against the order by the Principal Commissioner of Income Tax under Section 263 for the assessment year 2011-12. The assessee challenged various observations and findings made by the Principal Commissioner in his revisionary jurisdiction. The issues raised included the provision for warranty and disallowance under Section 40(a)(ia) of the Act.

2. Regarding the provision for warranty, the Principal Commissioner set aside the assessment order, questioning the allowability of the provision as revenue expenditure. The assessee argued that the provision had been allowed in previous years and was not taxable. The Principal Commissioner's main point for setting aside was the unsettled nature of the issue, as it was under appeal for previous assessment years. The Assessing Officer had not examined this issue in the current year, leading to the order being deemed prejudicial to revenue. However, the Tribunal had previously ruled in favor of the assessee on this matter, and the lack of settlement did not make the assessment order erroneous or prejudicial to revenue.

3. In terms of disallowance under Section 40(a)(ia) of the Act, the Principal Commissioner directed the Assessing Officer to verify the applicability of Section 194C(3) and whether the assessee had excluded the value. The Assessing Officer, after verification, found that the TDS had been deducted as required, and no addition was made. Therefore, this issue was resolved in favor of the assessee, and the matter was no longer in dispute.

4. Ultimately, the Tribunal found that the assessment order was not erroneous or prejudicial to the interest of revenue on both the provision for warranty and disallowance under Section 40(a)(ia) issues. The order of the Principal Commissioner was set aside, and the appeal of the assessee was allowed.