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TMI Blog2012 (6) TMI 617X X X X Extracts X X X X X X X X Extracts X X X X ..... o as "the Tribunal") passed in I. T. A. No. 327/Chandi/2009 in respect of the assessment year 2004-05 : "(i). Whether, in the facts and circumstances of the case and in law, the Income-tax Appellate Tribunal was justified in setting aside the order passed by the Commissioner under section 263 of the Act hold- ing that it does not contain any firm decision that the order passed by the Assessing Officer under section 143(3) was erroneous and pre- judicial to the interests of the Revenue ? 2. After the Assessing Officer made assessment, the Commissioner exer- cising the powers under section 263 of the Act called for record for examination and set aside the order with the observations (i) that the books of account were not produced as per order sheet of the Assessing Officer. (ii) The order recorded that the Assessing Officer had seen the books of account but the order did not reflect any checking or verification of the books of account. (iii) The correctness or the genuineness of the closing stocks, details of purchases and verification of transportation was not carried out. (iv) The assessee had paid commission to its partners but did not deduct tax at source under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reditor, whereas you have debited purchases of Rs. 79,38,749 during the month of March. Even the copies of accounts of these parties have not been called for by the Assessing Officer. (iii) Further, you have shown interest of Rs. 4,53,249 on FDRs and debited a sum of Rs. 2,60,778 on account of interest on unsecured loans to family members. The same has been allowed without verification, i.e., at which rate the interest has been paid and what was the rate of interest of FDRs. The issue should have been examined under section 40A(2)(b) of the Income-tax Act, 1961 . . . The points on which the assessee could not offer any satisfactory explanation are discussed as below : (i) Non-production of books of account : From the perusal of assessment record it was observed that on May 24, 2006, the Assessing Officer had made a noting that the books of account of the assessee have not been produced. However, the assessment order mentions that the books of account were produced and examined and the expenses debited to the profit and loss account have been test checked with reference to evidence maintained. How- ever, the order sheet entry on August 10, 2006, does not m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmission or remuneration by whatever name called and there is no principal and agent relationship between the partner and the firm and hence the provisions of section 194H are not applicable. The argument given by the counsel of the assessee is not con- vincing. Whenever a firm/party pays commission to any person (including partner of a firm) the relationship of principal and agent comes into places. The firm in this case was required to deduct TDS on commission paid to partners. In any case this issue has not been examined by the Assessing Officer and thus the order is not only erroneous but also prejudicial to the interests of the Revenue. (iv) The Assessing Officer has failed to examine the issue under section 40A(2)(b) of the Income-tax Act regarding rate of interest at which interest has been given on unsecured loan to family members vis-a-vis the interest income on FDRs and thus the order passed by him is not only erroneous but also prejudicial to the interests of the Revenue. 4. I have carefully considered the fact of the case, the submissions made by the assessee and the relevant provisions of the Income-tax Act, 1961. The assessment made by the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecified person have to be evaluated in the context of the market value of such goods or services. In other words, if the interest paid to the family members is required to be disallowed under section 40A(2)(b) of the Act, the requirement of the law is to compare the same with the interest rates prevailing in the market on unsecured loans. Instead, the Commissioner has referred to the rate of interest earned by the assessee on FDRs with the bank. Ostensibly the basis adopted by the Commissioner in the context of section 40A(2)(b) is misconceived. In fact, on this issue, the Commissioner has furnished his opinion as to justification for applying the provisions of section 40A(2)(b) of the Act and has merely directed the Assessing Officer to examine the same." 10. A perusal of the reasons given by the Tribunal as also the Commissioner quoted above shows that the Tribunal assumed it to be the requirement that the Commissioner should have recorded final conclusion on taxability. This view is legally erroneous. The Commissioner could have proceeded under section 263 of the Act if the Assessing Officer had made assessment without application of mind. The Commissioner held that as per ..... X X X X Extracts X X X X X X X X Extracts X X X X
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