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TMI Blog2015 (5) TMI 110X X X X Extracts X X X X X X X X Extracts X X X X ..... er articles etc. For the AY under dispute the assessee had filed its return of income 13/09/2008 declaring total income of Rs. 3,43,64,912/-. Assessment in case of the assessee was completed u/s 143(3) of the Act vide assessment order dated 15/10/2010 by accepting the income returned. The CIT in exercise of power conferred u/s 263 of the Act while examining the assessment record for the impugned assessment year was of the view that the assessment order passed u/s 143(3) of the Act is erroneous and prejudicial to the interests of the revenue for the following reasons: 1. Deduction claimed towards STT and brokerage amounting to Rs. 45,599/- is not allowable as they are attributable to exempted income. 2. Assessee has paid rental income amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... granted u/s 12A of the Act to Kamma Sangham, income tax return filed by Kamma Sangham for the AY 2008-09 claiming exemption u/s 11, etc. Thus, it was submitted by the assessee as Kamma Sangham is enjoying exemption u/s 11 of the Act, TDS is not required to be made on the rent paid to Kamma Sangham therefore question of disallowance u/s 40(a)(ia) of the Act will not arise. The CIT, however, was not convinced with the argument of the assessee. He held that section 194-I does not in any manner provide exemption from deduction of tax in case of a payee being a charitable trust. He, therefore, directed the AO to disallow the rent paid u/s 40(a)(ia) of the Act. Further, the CIT also directed the AO to disallow the deduction claimed towards paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 201(1) of the Act, so as to invoke the provisions of section 40(a)(ia) for disallowing the deduction claimed towards rent paid. The learned AR submitted that as the assessee cannot be termed as an assessee in default in terms of section 201(1) of the Act, no disallowance can be made u/s 40(a)(ia) in view of the second proviso to section 40(a)(ia) of the Act which has been brought to the statute by Finance Act, 2012 with effect from 01/04/2013. The learned AR submitted that the aforesaid proviso to section 40(a)(ia) of the Act being clarificatory in nature will apply retrospectively. In this context, he relied upon the decision of the Hon'ble AP High Court in case of CIT Vs. PEC Electricals Ltd., ITTA No. 236 of 2013, dated 12 th July ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wance to be made u/s 40(a)(ia) of the Act. So far as the direction of the CIT in respect of disallowance of deduction claimed towards STT and brokerage and considering the issue of proportionate disallowance of finance charges the assessee has accepted the view of the CIT. Therefore, CIT's observation that the assessment order passed is erroneous and prejudicial to the interests of the revenue and consequent exercise of power u/s 263 has to be upheld. Even so far as the issue of disallowance u/s 40(a)(ia) is concerned, on a perusal of the assessment order as well as other materials on record, we are of the view that the AO has not at all examined the issue of applicability of section 194-I to the expenditure claimed towards rent paid an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be examined in the context of argument advanced by the assessee. It is apparent from the order of the CIT that without making an indepth analysis of the entire issue he has abruptly come to a conclusion that assessee's contentions are not acceptable and accordingly directed disallowance u/s 40(a)(ia) of the Act. In the aforesaid view of the matter, we modify the order of the CIT by directing the AO to examine the issue of disallowance u/s 40(a)(ia) of the Act in so far as the payment of rent to Kamma Sangham is concerned after carefully considering assessee's submissions and keeping in view the relevant statutory provisions as well as ratio laid down in the decisions, which assessee may rely upon. The AO must decide the issue ind ..... X X X X Extracts X X X X X X X X Extracts X X X X
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