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2025 (3) TMI 1412 - AT - Income TaxRevision u/s 263 - lack of proper inquiry and verification regarding the deduction of Tax Deducted at Source (TDS) and the classification of income - HELD THAT - It is clear from the order u/s 143(3) r.w.s 144B of the Act that the AO has passed a cryptic order in a perfunctory manner. He has not passed a speaking order containing the conclusion and the reasons that have led to such conclusion; especially considering the fact that the case was selected for complete scrutiny. The assessee was engaged in the business of construction of water supply projects and underground drainage projects. The main issues of the complete scrutiny were refund claim contract receipts or fees and income from house property. The main issues of the complete scrutiny were refund claim contract receipts or fees and income from house property. The assessee had filed two submissions vide letters dated 03.02.2021 and 02.03.2021. The details as per reply dated 03.02.2021 include unsecured loans sundry creditors other liabilities interest payments details of expenses party-wise such as sub-contractor purchases labour charges and wages etc. In the reply dated 02.03.2021 the assessee had furnished reply in respect of unsecured loan other liabilities professional fees etc. It is therefore clear that details of TDS on various expenses as pointed out by the PCIT in the show cause notice and the order u/s 263 have not been called for by the AO. He has not examined as to whether TDS provisions u/s 194C 194J and 192 of the Act were duly complied with by the assessee. The AO has not even seen the audit report of the assessee where in the Annexure to Form No.3CD all the columns of details of deduction or collection of tax as per provisions of Chapter XVII-B or XVII-BB of the Act are blank. It is therefore evident that the AO has not conducted even the basic inquiry and verification before passing the assessment order. He was required to put specific query to the assessee on the issue of TDS because huge expenses of more than Rs. 31 crore has been claimed by the assessee on various expenses which are prima facie covered under provisions of section 194C 194J and 192 of the Act. It is well settled that the AO performs dual role i.e. he is not only an adjudicator but also an investigator. He is supposed to carry out proper inquiry and investigation and pass the order after confronting the assessee about the result of enquiry which emerge from the investigation and scrutiny carried out by him during the assessment proceedings. As discussed earlier the AO has not properly inquired about the non-compliance of the assessee regarding the provisions of Chapter XVII-B and XVII-BB. He has also failed to examine the issue in terms of provisions of section 40(a)(ia) of the Act. It is also seen that the assessee has shown income from house property which was actually required to be offered as capital gain u/s 45 of the Act. The difference between the value determined by the SVA and declared consideration which was 9.02% and was more than the tolerance limit of 5% for the subject assessment year. The assessment order and the details called for and submitted during assessment proceedings are totally silent on these issues. In view of these facts the order of the AO was certainly erroneous in so far as it is prejudicial to the interests of revenue within the meaning of section 263 of the Act. The ld. PCIT has rightly invoked provisions of section 263 of the Act which is upheld. Whether the direction issued by the ld. PCIT to disallow 30% of various expenses due to alleged failure of assessee to deduct TDS and addition u/s 50C is correct in the given facts and circumstances of the case? - It is not clear from the submission of the appellant that the daily wages and labour charges were for daily wage labourers or labour on contract basis. Therefore the direction of the ld. PCIT is modified accordingly. In other words the order of ld. PCIT to set aside the assessment order of AO is upheld but the AO is directed to verify requirement of TDS deduction on daily wage and labour charges. If there is no requirement of deduction due to the amount being less than the threshold limit of Rs. 30, 000/- for single payment or Rs. 1 lakh in aggregate during the financial year then such expenses should be allowed and only the remaining expenditure should be disallowed and added to the total income. This ground is partly allowed. Difference between the stamp duty value and sale consideration - The percentage of variation is 9.02% (16, 06, 112 / 1, 78, 06, 112) x 100 . The appellant submitted that the variation is less than 10% and hence no addition is needed. We find that during the subject AY.2018-19 the permissible limit was 5% and not 10%. The words five per cent were substituted by the words ten per cent by the Finance Act 2020 w.e.f. 01.04.2021. Hence it is applicable for AY.2021-22 and the subsequent assessment years. The order of ld. PCIT on this issue is accordingly upheld. This ground is dismissed. Appeal of the assessee is partly allowed.
ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are:
ISSUE-WISE DETAILED ANALYSIS 1. Justification for Initiating Proceedings under Section 263
2. Error and Prejudice in AO's Assessment Order
3. Direction to Disallow 30% of Expenses and Add Income Difference
SIGNIFICANT HOLDINGS
The appeal was partly allowed, with the Tribunal directing further verification by the AO on specific issues.
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