TMI Blog2019 (3) TMI 1588X X X X Extracts X X X X X X X X Extracts X X X X ..... be declaratory and curative in nature with retrospective effect from 01.04.2005. CIT while invoking the jurisdiction u/s.263 of the Act, mainly relied upon the circular issued by the Board in the year 2009 and had ignored the amendment brought into the statute by the Finance Act, 2010. In our view, the order passed by the CIT u/s.263 was based on a wrong premise and on incorrect interpretation of the provisions of sec. 194C. Further the CIT has also not considered the amended provision which came into effect from 01.04.2010, which was held to applicable retrospectively from 01.04.2005. In this view of the matter, we are of the view that the Ld CIT has failed in his duty to make minimal enquiry as mandated u/s 263. Since there is no requirement to make any disallowance u/s 40(a)(ia) as per the amended provision and also as per the provisions of sec.194C(2) of the Act, it cannot be held that the impugned assessment orders are prejudicial to the interests of the revenue. Hence one of the twin mandatory conditions fails in the facts of the present cases. 0rder of the Commissioner setting aside the order passed by the assessing officer for non-deduction of tax (TDS) is required to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed. - I.T.A. No. 782/Bang/2013 AND I.T.A. No. 594/Bang/2014 - - - Dated:- 22-3-2019 - SHRI. B. R BASKARAN, ACCOUNTANT MEMBER For the Assessee : Smt. Anitha R, CA For the Revenue : Smt Neera Malhotra, CIT-DR ORDER PER LALIET KUMAR, JUDICIAL MEMBER : These are two appeals filed by the assessee against the separate orders of the CIT, Bangalore-III, Bengaluru, dt.27.03.2013 and 03.03.2014, for the assessment years 2008-09 and 2009-10 respectively, wherein the CIT, vide proceedings u/s.263 of the Act, has set aside the assessments. The assessee has raised the following grounds of appeal: A. Y. 2008-09 : A. Y. 2009-10 : 02. The brief facts for A.Y 2008-09 are that the assessee filed return of income showing income of ₹ 80,19,35,473/-. The case was selected for scrutiny and assessment order u/s 143(3) dated 30.11.2010 was passed assessing the income at ₹ 100,04,43,688 which was later rectified to ₹ 108,16,84,718. Subsequently the CIT, Bangalore -3 initiated proceedings u/s 263 of the Act, on the following issues : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4C(2), the assessee should have deducted tax at source. The Ld Pr. CIT has taken cognizance of this expenses so provided on the basis of note given in audit report. It is the case of the assessee that the view so entertained by Ld CIT is not sustainable as the company has credited the audit fees, freight charges and other expenses on estimate basis. It was submitted that due taxes were deducted subsequently when the bills were actually received and the tax so deducted at source was paid before the due date for filing return of income. Further the assessee also relied upon the Board Circular No.1/2009, dt.27.03.2009. However, the CIT, without examining the submissions and record submitted by the assessee for both the assessment years, has concluded the proceedings u/s.263 by passing the detailed orders. 06. Aggrieved with the aforesaid orders of the Ld CIT, the assessee has come before us in the present appeals. During the course of hearing, the learned A R of the assessee submitted a detailed written submission on the various issues raised by the CIT in his order. Reliance was placed on the decision in the case of Torrent Pharmaceuticals Ltd.,(I.T.A. No. 164/Ahd/2018), wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ptible to Section 263 of the Act and, in turn, will cause serious unintended hardship to the tax payer concerned for no fault on his part. Apparently, this is not intended by the Explanation. v) Howsoever wide the scope of Explanation 2(a) may be, its limits are implicit in it. It is only in a very gross case of inadequacy in inquiry or where inquiry is per se mandated on the basis of record available before the AO and such inquiry was not conducted, the revisional power so conferred can be exercised to invalidate the action of AO. The AO in the present case has not accepted the submissions of the assessee on various issues summarily but has made inquiry and verifications. vi) It was therefore submitted that the foundation for exercise of revisional jurisdiction is missing in the present case and hence the order u/s 263 deserves to be cancelled. 7. As regards the facts of the individual issues, the assessee made the following submissions: TDS on year-end provisions: 7.1 It was submitted that the only reason for setting aside the assessment by the CIT was the note in the Audit report on the issue of TDS on year-end provisions (Clau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng erroneous and prejudicial to Revenue. The order was neither erroneous nor prejudicial to revenue. There was no foundational basis for invoking the provisions of Section 263. 7.3 Further, the learned AR submitted the assessee furnished full details of the liabilities created during the year end which has been paid in the months of April/ May of the next year and TDS has been paid on such payments. It was submitted that all these details were available on the record of the A.O, which could have been easily verified and were also filed before CIT. It was submitted that all these details along with the payment details have been entered in the quarterly TDS returns which have been filed on time and were available with the A.O, which could have been verified. It was also submitted that these details were furnished to the CIT also, during the proceedings u/s 263 and if only the CIT had made even a cursory enquiry, he could have easily deduced that the TDS payments have been made before the due date of filing of the return of income, as per law and no disallowance was warranted. Instead, the CIT has merely remanded the matter the A.O for a fresh examination, which is not in tu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sides. At the time of argument the Ld. AR had relied on the order passed by the AO u/s.201 201(1A) and the Ld. DR relied on the order giving effect passed by the AO pursuant to direction issued by the CIT u/s.263 of the Act. In our view, we have to test the legality of the order passed by the CIT u/s.263 of the Act, based on the material available with him at the time of passing of the order. Under the provisions of the Act, the CIT may call for and examine the record of any preceding this Act and pass an order only if the twin conditions are satisfied, namely, the order passed by the Assessing Officer is erroneous; and also prejudicial to the interest of the revenue. The Hon ble Supreme Court in the case of Malabar Industrial Co. Ltd. Vs CIT (2000) 243 ITR 83 (supra) has held that both of the above conditions have to be satisfied. It has been held that, A bare reading of section 263 of the Income-tax Act, 1961, makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erroneous order passed by the Assessing Officer, Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when the Assessing Officer adopts one of two courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Assessing Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the Revenue, unless the view taken by the Assessing Officer is unsustainable in law. That the twin tests of the order being erroneous and prejudicial to the interest of revenue are both necessary has been elaborated by the Hon ble Rajasthan High court in the case of CIT-1, Jaipur vs M/s Green Triveni Developer, ITA No. 114 / 2015, wherein it was held that, 9. It is no longer res integra that the revisional jurisdiction available to a Commissioner under section 263 of the Act is essentially circumscribed by the determinant that the order of the Assessing Officer is erroneous so much so that it is prejudicial to the interests of the Revenue. This statutory enjoinment carves o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will be erroneous because the order is not sustainable in law and the said finding must be recorded. The Commissioner of Income tax cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the Commissioner of Income tax must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the Commissioner of Income tax and he is able to establish and show the error or mistake made by the Assessing officer, making the order unsustainable in law. In some cases possibly though rarely, the Commissioner of Income tax can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the Assessing officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a cond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. Under section 194C(1), a person is liable to deduct tax at source from the payment at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is less. It appears that certain persons were crediting the Suspence Account or such kind of account in any other name, instead of crediting the amount to the account of contractor, in order to escape the liability to deduct tax at source. Hence the provisions of sec.194C(2) of the Act makes it clear that such kind of crediting Suspense Account or such type of account in any other name shall be deemed to be credit of such income to the account of payee. The crucial words used in sec.194C(2) is in the books of the person liable to pay such income . The provisions of sec.194C(2) shall apply only if the liability to pay such income has already arisen to the assessee. In the instant case, it is the submission of the assessee that the liability to pay has n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, 92[has not been paid on or before the due date specified in sub-section (1) of section 139 :] 93[Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid.] The above said provisions states that in case the assessee had delayed in depositing the TDS amount in the year under consideration, but had deposited the same before the due date for filing return of income, then the assessee would be entitled to the deduction of the said expenditure, i.e., no disallowance u/s 40(a)(ia) is called for. The above said section along with the proviso would make is clear that the disallowance u/s 40(a)(ia) is not required to be made, if the TDS amount is paid on or before the due date for filing return of income. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it requires minimal effort to find out from the record to ascertain whether the assessee had deposited the TDS or not before filling the return of income, as it is common knowledge that Ld CIT by inspecting record, or calling the report from the AO or himself verifying it from e-portal of the department can easily verify all the deposits made by the assessee which had debited in his account and credited in the account of Payee. Not even a cursory enquiry was made by the CIT to ensure the fulfillment of twin conditions of the order being erroneous and prejudicial to revenue.The CIT without even looking from this angle, and without verifying facts whether the TDS was deposited, in the Government account or not before the date of filing of the return of income had passed order. In the present case, mere reliance on the audit report by the CIT selectively (by ignoring the opinion of TDS liability) for coming to the conclusion that there is a loss to the Revenue does not hold good, as it is a fact that the TDS were deposited prior to filing the returns of income which could be ascertained with little efforts by the CIT. 16. As noticed earlier, this aspect is covered in favour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ests laid by the Hon ble Supreme Court in Malabar Industrial Co.(supra) and Max India Ltd (supra). On account of these reasons, exercise of power by CIT u/s.263 cannot be sustained. In view of the above, the order passed by the CIT u/s.263, for non-deduction of TDS, for both the assessment years is required to be quashed and accordingly we quash the same. 19. As regards the issue of depreciation on the ETP/ STP, the action of the CIT was based on the dates mentioned in the invoices which were submitted by the assessee. The CIT has examined the records, made preliminary finding that some of the invoices related to the machinery are of dates after August, thereby leading to a suspicion that the machinery could have been in use for less than 182 days. This finding of fact arising out of the enquiry of the CIT is not controverted by the assessee. While the assessee has tried to explain the same, the fact remains that this issue needed verification and this requirement has arisen after a preliminary enquiry by the CIT. Therefore, we do not find any infirmity in the action of the CIT. As regard the conclusion recorded by the CIT for 2009-10 Ld. AR for the assessee had submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X
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