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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 ..... ion 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 and consequential disallowance whether to be made u/s 40(a)(ia) of the Act. Hence, to that extent, there is not o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after carefully considering assessee's submissions and keeping in view the relevant statutory provisions as well as ratio laid down in the PEC Electricals Ltd. [2015 (2) TMI 889 - ANDHRA PRADESH HIGH COURT] & Thomas Muthoot [2012 (12) TMI 641 - ITAT COCHIN] , which assessee may rely upon. The AO must decide the issue independently without being influenced by the observations of the CIT. Accordingly, we set aside the order of the CIT on the issue of disallowance u/s 40(a)(ia) of rent paid to Kamma Sangham and remit the matter back to the file of the AO for deciding afresh and in accordance with law after affording a reasonable opportunity of being heard to the assessee. - Decided in favour of assessee. - ITA No. 776/Hyd/2013 - - - Date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, CIT issued a notice to the assessee directing him to show cause why the assessment order passed u/s 143(3) being erroneous and prejudicial to the interests of the revenue should not be revised u/s 263 of the Act. In response to the show cause notice, the assessee submitted its reply stating therein that security transaction tax (STT) being a statutory levy has been claimed as expenditure in the profit and loss account. It was submitted that as the expenditure was incurred for the purpose of statutory compliance it is admissible as business expenditure. So far as disallowance of rent paid to Kamma Sangham by invoking provisions of section 40(a)(ia), it was submitted by the assessee that Kamma Sangham is a public charitable trust registere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rules. 4. We have heard the parties and perused the materials on record as well as the orders of the revenue authorities. The learned AR has contended before us that the payee Kamma Sangham is a public charitable trust registered u/s 12A of the Act and it has filed its return of income for the AY 2008-09 showing nil income after claiming exemption u/s 11 of the Act, though the rental income received from the assessee was disclosed in the return of income. In this context, the learned AR referred to registration certificate at page 93 of the paper book and approval u/s 80G(5) at page 94 of the assessee's paper book. He also referred to the return of income filed by Kamma Sangham for the AY 2008-09 placed at page 95 of the paper book. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proviso to section 201(1) also is attracted, hence assessee cannot be considered to be a assessee in default so as to disallow rent payment u/s 40(a)(ia) of the Act. The learned AR submitted that when the deductee has no tax liability the deductor would not be even liable for payment of tax and interest u/s 201(1) and 201(1A). For such proposition, he relied on the decision in case of Thomas Muthoot Vs. DCIT [2012] 12 TMI 641 (ITAT, Cochin). 5. The learned DR, on the other hand, submitted that disallowance u/s 40(a)(ia) is not dependent upon the declaration of the assessee as a assessee in default u/s 201(1) of the Act. He submitted that if tax is not deducted in terms with section 194-I of the Act, the provisions contained u/s 40(a)(ia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplication of mind on the part of the AO. Therefore, the CIT was correct in holding that the assessment order passed u/s 143(3) is erroneous and prejudicial to the interests of the revenue for not considering the applicability of section 194-I and issue of disallowance u/s 40(a)(ia) of the Act. However, we are of the view that CIT was not correct in straightaway directing the AO to make disallowance u/s 40(a)(ia) of the Act without properly considering the contentions raised by the assessee. It is a fact on record that the payee Kamma Sangham at the relevant time was a charitable trust registered u/s 12A of the Act. It is also a fact on record that it has filed its return for the AY 2008-09 claiming exemption u/s 11 of the Act though it has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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