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2025 (3) TMI 985 - AT - Income TaxRevision u/s 263 - wrong application of provisions of section 194I - HELD THAT - It is pertinent to note that the tax to be deducted at source u/s 194I is 10% whereas the tax to be deducted at source u/s 194C of the Act is 2%. PCIT says the AO ought to have applied the provisions of section 194C as per the decision of PURI CONSTRUCTIONS 2024 (2) TMI 756 - DELHI HIGH COURT . We find that the AO had erred on the revenue side by charging 10% TDS rate as per section 194I of the Act in the instant case and hence there cannot be any prejudice that could be caused to the interest of the revenue in the instant case. The order passed by the Learned AO is prejudicial to the interest of the assessee and the revision order passed by the CIT is prejudicial to the interest of the revenue. Hence the mandatory twin conditions for initiation of revision proceedings u/s 263 does not get satisfied in the instant case and respectfully following the decisions in the case of Malabar Industrial Co 2000 (2) TMI 10 - SUPREME COURT and Max India Ltd 2007 (11) TMI 12 - SUPREME COURT we have no hesitation to quash the revision order passed by CIT u/s 263 of the Act. Accordingly the grounds raised by the assessee are allowed.
ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are:
ISSUE-WISE DETAILED ANALYSIS 1. Jurisdiction under Section 263 of the Income Tax Act Relevant legal framework and precedents: Section 263 of the Income Tax Act empowers the Commissioner to revise any order passed by the Assessing Officer if it is deemed erroneous and prejudicial to the interests of the revenue. The twin conditions of "erroneous" and "prejudicial" must be cumulatively satisfied. Court's interpretation and reasoning: The Tribunal examined whether the CIT(TDS) had correctly invoked Section 263 jurisdiction. The Tribunal noted that for the CIT to assume jurisdiction, both conditions of the order being erroneous and prejudicial to revenue must be met. Key evidence and findings: The Tribunal found that the Assessing Officer had applied a higher TDS rate of 10% under Section 194I, which was more beneficial to the revenue than the 2% under Section 194C, as per the High Court's ruling. Application of law to facts: Since the application of Section 194I resulted in a higher deduction, it could not be deemed prejudicial to the revenue. Thus, the CIT(TDS) lacked jurisdiction under Section 263. Treatment of competing arguments: The Tribunal considered the CIT(TDS)'s argument that the AO's order was erroneous for not applying Section 194C, but found this did not meet the "prejudicial" condition. Conclusions: The Tribunal concluded that the CIT(TDS) did not have jurisdiction under Section 263 as the AO's order was not prejudicial to the revenue. 2. Application of TDS Provisions on EDC Payments Relevant legal framework and precedents: The Tribunal referred to the Delhi High Court's decision in Puri Construction Pvt Ltd, which held that EDC payments should fall under Section 194C, not Section 194I. Court's interpretation and reasoning: The Tribunal noted that the High Court had determined EDC payments were for civil work, thus falling under Section 194C, which requires a 2% TDS. Key evidence and findings: The Tribunal found that the AO's application of a 10% rate under Section 194I was incorrect, but not prejudicial to revenue. Application of law to facts: The Tribunal applied the High Court's interpretation, which favored a 2% deduction under Section 194C. Treatment of competing arguments: The Tribunal acknowledged the CIT(TDS)'s position but emphasized that the AO's error did not harm revenue interests. Conclusions: The Tribunal agreed with the High Court's interpretation but found the CIT(TDS)'s revision unjustified as the AO's error was not prejudicial. SIGNIFICANT HOLDINGS Preserve verbatim quotes of crucial legal reasoning: "The order passed by the Learned AO is prejudicial to the interest of the assessee and the revision order passed by the Learned CIT is prejudicial to the interest of the revenue. Hence the mandatory twin conditions for initiation of revision proceedings under section 263 of the Act does not get satisfied." Core principles established: The Tribunal reaffirmed that for a revision under Section 263, the assessment order must be both erroneous and prejudicial to the interest of the revenue. An error that results in a higher TDS rate than necessary does not meet the "prejudicial" criterion. Final determinations on each issue: The Tribunal quashed the revision order by the CIT(TDS) and allowed the appeal, holding that the conditions for invoking Section 263 were not satisfied.
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