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TMI Blog2015 (7) TMI 612X X X X Extracts X X X X X X X X Extracts X X X X ..... erger does not impress us at all. The provision of deduction on TDS are mandatory and strict in nature and cannot be given a go-by as done by the assessee. We are in agreement with the reasoning given in the impugned order of the ld. CIT that the assessee had failed to deduct TDS during the previous year on payments of management service fee and royalty debited to the profit and loss account. The order passed by the AO is therefore erroneous and prejudicial to the interest of the revenue. The twin conditions as laid down by the Hon’ble Supreme Court in the case of Malabar Industrial Co.Ltd vs CIT (2000 (2) TMI 10 - SUPREME Court) and the Hon’ble Delhi High Court in the case of CIT vs Vikash Polymers (2010 (8) TMI 745 - Delhi High Court ) are satisfied simultaneously in the present case. The Order passed by the AO suffers from non application of mind in as much as the mandatory statutory provision of section 40(a)(ia) of the Act were ignored. The ld. CIT was within its jurisdiction to invoke powers u/s 263 of the Act. The object of the provision is to correct the erroneous order which is prejudicial to the interest of the revenue, as the department has no right to file an app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the said expenses in September 2009 and deposited the same to the credit of the Central Government before the due date of filing the return of income for AY 2009-10. 6. That on the facts and in the circumstances of the case, the learned CIT erred in disregarding the fact that the Appellant has not claimed any deduction towards management service fees and royalty in the subsequent AY, i.e, AY 2010-11. 7. Without prejudice to the above, the learned CIT erred in not directing that if the said expenses towards management service fees and royalty are disallowed in AY 2009-10, then the same should be allowed as deduction in AY 2010-11 since taxes have been duly deducted and deposited to the credit of Central Government in AY 20 I 0-11 and the deduction has to be allowed in at least one AY. The above grounds of appeal are mutually exclusive and without prejudice to one another. The Appellant craves leave to add, alter, amend, amplify or modify any or all of the above grounds of appeal at or before the time of hearing of the appeal. The Appellant prays that appropriate relief be granted based on the grounds of appeal and facts and circumstances of the case. 3. The brief ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elied upon numerous judgments including CIT vs Kashi Nath Co.170 ITR 28 (All), CIT vs R.K.Metal Works 112 ITR 445 (P H), Deccans Safety Glass works Pvt. Ltd. vs CIT (ITA NO.697/Kol/2014). 4. The ld. DR, on the other hand, had submitted that in the notice dated 5th December, 2013 as well as in the impugned order, it is clearly mentioned that the assessment order is erroneous and prejudicial to the interest of the revenue. 5. We have heard the rival contentions and perused the facts of the case and the judgments of the various courts of law relied upon by the assessee as well. 5.1. We are not inclined to accept the aforesaid submissions of the assessee for the reasons that the judgments relied upon are clearly distinguishable as in these cases, the ld. CIT failed to furnish any reason whatsoever to exercise powers u/s 263 of the Act. The ld. CIT in the impugned order as well as in the notice u/s 263 of the Act had clearly stated the grounds on which the assessment order was proposed to be revised u/s 263 of the Act. He has specifically recorded reasons, which according to him makes the order erroneous and prejudicial to the interest of the revenue. The ld. CIT had stated t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of return of income and consequently no tax at source was deducted. The reply of the assessee was accepted and the expenses were allowed. The non-deduction of TDS attracted provision of section 40(a). However, provision for expenditure on account of Royalty payment of ₹ 1,02,87,073/- was not an allowable deduction and therefore was required to be disallowed and added back to total income. As this was not done, there was underassessment of income of ₹ 1,02,87,073/-. 3. In view of the facts narrated above, it was apparent that the A.O. had failed to take notice of all facts and had failed to examine the correctness or otherwise of deductions as claimed by the assessee in its return of income. He had, therefore, failed to apply his mind and discharge his duty as an assessing officer during the scrutiny proceedings u/s.143(3) of the 1.T..Act.,1961. Hence the order passed by the A.O. u/s.143(3) was erroneous in so far as it is prejudicial to the interests of revenue. 5.3. The ld. AR had submitted that with regard to the management service fee, the assessee had deducted and deposited TDS to the credit of the Government on 24th September, 2009 before the date of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a)(ia) of the Act which is reproduced herein below :- The provisions of Section 40(a)(ia) of the Act were brought on Statute by Finance Act 2004, w.e.f. 01.04.2005, i.e. the same is applicable for assessment year 2005-06 and subsequent assessment years. Under the existing provisions of sub-clause (i) of clause (a) of Section 40, failure to make deduction at source from payment of interest, royalty, fees for technical services or any other sum which is payable outside India, or in India to a non-resident or to a foreign company or failure to make payment to the account of the Central Government, attracts disallowance of such payments in the hands of the payer. Deduction of such sum is, however, allowed in the computation of income if tax is deducted, or after deduction, paid in any subsequent year in computing the income of that year. Section 40(a)(ia) as introduced through Finance Act 2004 Section 40. Notwithstanding anything to the contrary in Section 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head Profits and gains of business or profession , - (a) In the case of any assessee - (i) (ia) any interest, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the previous year . (ii) for the proviso, the following proviso shall be substituted and shall be deemed to have been substituted, namely :- Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted - (A) during the last month of the previous year but paid after said due date; or (B) during any other month of the previous year but paid after the end of the said previous year, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid , Further amendment of provisions of Section 40(a)(ia) made through the Finance Act 2010 The legislature has brought further liberalization by way of amendment in provisions of Section 40(a)(ia) of the Act w.e.f. 01.04.2010 as under In Section 40 of the Income-tax Act, in clause (a), in sub-clause (ia), (a) for the portion beginning with the words has not been paid, - and ending with the words the last day of the previous year , the words, brackets and figures has not been paid on or before the due date specified in subsection (1) of Section 139 shall be substituted; (b) for the proviso, the following pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO is therefore erroneous and prejudicial to the interest of the revenue. The twin conditions as laid down by the Hon ble Supreme Court in the case of Malabar Industrial Co.Ltd vs CIT 243 ITR 83) and the Hon ble Delhi High Court in the case of CIT vs Vikash Polymers (2010) 194 Taxman 57 (Delhi) are satisfied simultaneously in the present case. 7.6. The Order passed by the AO suffers from non application of mind in as much as the mandatory statutory provision of section 40(a)(ia) of the Act were ignored. The ld. CIT was within its jurisdiction to invoke powers u/s 263 of the Act. The object of the provision is to correct the erroneous order which is prejudicial to the interest of the revenue, as the department has no right to file an appeal against the order of AO. Whether the ingradients of the section are satisfied will depend on the facts of each case. 7.7. The interpretation of this section has been a subject matter of discussion in various judicial pronouncements. In the case of Malabar Industrial co. Ltd. (supra) the Hon ble Supreme court has held as under :- There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sible in law and it has resulted in loss of revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the Income-tax Officer is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the revenue. Rampyari Devi Saraogi Vs. Commissioner of Income-tax [67 ITR 84] and in Smt. Tara Devi Aggarwal Vs. Commissioner of Incometax, West Bengal [88 ITR 323]. In the instant case, the Commissioner noted that the Income-tax Officer passed the order of nil assessment without application of mind. Indeed, the High Court recorded the finding that the Income-tax Officer failed to apply his mind to the case in all perspective and the order passed by him was erroneous. It appears that the resolution passed by the board of the appellant-company was not placed before the Assessing Officer. Thus, there was no mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erroneous non-application of mind and omission to follow natural justice is in same category. 7.9. In the case of CIT vs Deepak Kumar Garg 299 ITR 435 it was held as under :- 4. After hearing rival submissions and considering material available on record, we are of the view that the Tribunal's order is unsustainable. At the outset, it is clarified that we have no quarrel with the principles laid down in the cases relied upon by the learned senior counsel for the assessee. After going through them, we can safely say that no thumb rule of universal application is evolved or laid down for the exercise of revisional power under Section 263 of the Act. It will depend on facts of each case but Commissioner must be satisfied of existence of the twin conditions, viz. that the order of the assessing officer is erroneous and that it is prejudicial to the interest of revenue. We are also conscious of the fact that Section 263 cannot be resorted to, to correct each and every type of mistake or error, unless aforesaid two elements exist in the order of assessing officer. In the case in hand, after hearing Authorised Representative, the Commissioner has recorded a clear finding that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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