2024 (1) TMI 1186 - AT - Income Tax

Revision u/s 263 - Disallowance u/s 40(a)(ia) on non deduction of TDS - HELD THAT - As assessee has demonstrated that invoices were indeed raised and payments were made to the mentioned parties during the subsequent financial year, i.e., Financial Year 2010-11, for which the TDS was duly deducted and remitted to the Government. In support of its claims, the assessee has furnished a copy of the work orders, Form No.16A, a comprehensive chart delineating the details of the invoices, payments, and TDS payments, along with ledger accounts pertaining to both parties. Details furnished convincingly indicate that the work carried out by the two parties was quantified and crystalised during the subsequent year. Assessee's genuine admission of inadvertently including the names of the aforementioned parties in the list of entities with no TDS deduction, which was duly recognized by the AO during the framing of the assessment under section 143(3), it becomes evident that there is no justifiable ground for the Principal CIT to invoke power u/s 263 of the Act. As important to note that there is no revenue implication, and no prejudice has been inflicted upon the Revenue, as the applicable tax rate for the invoice payment in the subsequent year, during which the invoice payment was properly accounted for, included the appropriate TDS deduction. Considering the lack of substantial grounds for the CIT to exercise authority u/s 263 of the Act, and in light of the absence of justifiable reasons to alter the assessment framed by the AO u/s 143(3) we hereby quash and set aside the impugned order of the CIT passed u/s 263 and restore the original assessment order of the AO passed under section 143(3) of the Act. Assessee appeal allowed.

Summary

Issues Involved:
1. Legality of the Pr.CIT's order under section 263 of the Income Tax Act, 1961.
2. Application of section 40(a)(ia) regarding non-deduction of TDS.
3. Validity of the assessment order passed under section 143(3) r.w.s 263 r.w.s 153(3) of the Act.

Summary:

Issue 1: Legality of the Pr.CIT's order under section 263 of the Income Tax Act, 1961
The assessee challenged the order of the Pr.CIT, which held that the assessment order dated 13-02-2013 under section 143(3) was erroneous and prejudicial to the interest of revenue, invoking the provisions of section 263. The Pr.CIT observed that the assessee had credited payments amounting to Rs. 1,69,44,850/- to the accounts of contractors without deducting TDS, thus requiring disallowance under section 40(a)(ia). The assessee argued that the payments pertained to the subsequent financial year and TDS was deducted accordingly, asserting that the inclusion of these payments in the current year was a clerical error. The Tribunal found that the Pr.CIT misinterpreted the facts and that the AO had already considered and accepted the assessee's explanation during the assessment proceedings. Therefore, the Tribunal quashed the order of the Pr.CIT under section 263, restoring the original assessment order.

Issue 2: Application of section 40(a)(ia) regarding non-deduction of TDS
The Pr.CIT directed the AO to disallow the payments made to two contractors under section 40(a)(ia) due to non-deduction of TDS. The assessee provided evidence that the payments were made in the subsequent financial year, and TDS was duly deducted and deposited. The Tribunal noted that the AO had verified and accepted this explanation during the assessment proceedings. The Tribunal concluded that the Pr.CIT's reliance on the erroneous inclusion of these payments in the current year was unjustified.

Issue 3: Validity of the assessment order passed under section 143(3) r.w.s 263 r.w.s 153(3) of the Act
The Tribunal found that the AO had conducted a proper inquiry and accepted the assessee's explanation regarding the payments and TDS deductions. The Tribunal emphasized that there was no revenue loss or prejudice to the Revenue, as the applicable tax rate and TDS deductions were correctly applied in the subsequent year. Citing the decision of the Hon'ble Calcutta High Court in the case of Pr.CIT Vs. Britannia Industries Ltd., the Tribunal held that the Pr.CIT's order under section 263 lacked justification and was liable to be quashed.

Conclusion:
The Tribunal allowed the appeal of the assessee in ITA No.1119/Ahd/2015, quashing the Pr.CIT's order under section 263 and restoring the original assessment order. Consequently, the appeal in ITA No.1765/Ahd/2017 was disposed of as academic, given the quashing of the 263 order. The decision was pronounced on 24th January, 2024, at Ahmedabad.