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TMI Blog2015 (11) TMI 1870X X X X Extracts X X X X X X X X Extracts X X X X ..... which a search & seizure operation u/s 132 of the I.T. Act was conducted on 10.02.2010, Accordingly, the case was centralized u/s 127 of the I.T. Act, 1961 vide CIT-I, Kolkata's order No. CIT/Kok-1/Trans of Juris (Madhav Group, Mandi Gobindgarh)/127/10-ll/64 dated 30.11.2011.After recording due reasons/satisfaction notice u/s 153C of the I.T. Act, 1961 was issued in the case of assessee company on 07.01.2011. Assessee filed its return declaring income of Rs.430/- on 07.03.2011. In this case, assessment u/s 143(3)/153C of the I.T. Act, 1961 was completed on 21.12.2011 at Rs.27,250/- as against returned income of Rs.430/-. 2. On perusal of records, it is noticed that assessment order has become erroneous in so far as it is prejudicial to the interest of revenue on account of following issues : (I) In course of the said assessment proceedings, the then Assessing Officer observed that the assessee had in its profit & loss account claimed 'Expenses incurred in connection with commission' to the tune of Rs.5,91,40,500/-. On the other hand, sum of Rs.5,99,78,310/- has been shown as 'commission received' on credit side of profit and loss account. On being asked to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 40(a)(ia), no deduction of expenditure debited to profit and loss account on which tax as deductible at source under chapter-XVII-B is allowed if the tax has not been deducted or after deduction, not paid on or before due date of filing of return of income. Relevant part of section 40(a)(ia) is reproduced as under :- (ia) any interest, commission or brokerage, [rent, royalty,] fees for professional services or fees for technical services payable to a resident," or amounts payable to a contractor or subcontractor, being resident, for carrying 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, [has not been paid on or before the due date specified in sub- section (1) of section 139:] [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]" It is clear from the facts of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is necessary to restrict the addition to the incriminating material found as a result of search and since no such material was found, no such disallowance can be made. As regards the payment made to various suppliers, it was submitted that disallowance under section 40(a)(ia) of the Act cannot be made. Further, detailed submissions were made as to the legality of show cause issued under section 263 of the Act. It was submitted that since the issue of payment of these various parties were quite open to the Assessing Officer during the course of assessment proceedings and the Assessing Officer having taken one of the permissible views, provisions of section 263 of the Act cannot be invoked in this case. Submissions were also made on the merits of the issue stating that since the payments have been made for procurement of raw material, the provisions of section 40(a)(ia) of the Act are not applicable to the same. Rejecting all the contentions of the assessee, the learned Commissioner of Income Tax formed an opinion that the assessee has claimed expenses of Rs.5,91,40,500/-, which has been shown in the Profit & Loss Account as expenses in connection with commission on which tax at sou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Corporation Ltd. was mainly for their project at Siliguri, West Bengal. A certificate in respect of the same was enclosed with this letter. It was further clarified that with regard to payment against subcontract, confirmations of various parties to whom payments were made were enclosed and all the payments were made through cheques only. In another letter dated 6.11.2011 attached at page 50 of the Paper Book, at para 2 regarding TDS, it has been submitted by the assessee before the Assessing Officer that during the year major work was supply of earth(mittee) and stones to Sahara India Commercial Corporation Ltd. for their project at Siliguri, West Bengal. As this was supply of material, no TDS was deducted by our company from the parties who supplied the said material. In a separate letter dated 16.11.2011 placed at page 51 of the Paper Book filed before the JCIT, the assessee has again clarified that since the payments were made for supply of material, no TDS was required to be deducted. All these papers were shown to us to emphasize the fact that the issue of TDS was there with the Assessing Officer. The issue was specifically taken up by the Assessing Officer, specific queries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... source from the said payments. This is also not disputed by the learned Commissioner of Income Tax that the Assessing Officer was well aware of these facts as he himself in his show cause notice under section 263 of the Act has quoted from the order of the Assessing Officer. This is also not disputed that issue of non-deduction of TDS was specifically raised by the Assessing Officer to the assessee which was also duly replied by the assessee. In the said circumstances, the Assessing Officer had applied the provisions of section 271C of the Act for non-deduction of tax at source. However, the bone of contention in the mind of the learned Commissioner of Income Tax is that even after observing that the TDS was required to be deducted from the said payments, the Assessing Officer has not invoked the provisions of section 40(a)(ia) of the Act. Now the issue to be decided by us is that whether in the said facts and circumstances of the case, the invoking of provisions of section 263 of the Act are warranted or not. 6. It is a trite law that the Commissioner of Income Tax can assume jurisdiction under section 263 of the Act if he finds the order of the Assessing Officer to be erroneous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this juncture, we refer to the case records brought by the learned D.R. during the course of hearing. Enquiries were made by the Assessing Officer by issuing query letters to the persons to whom impugned payments have been made. Due replies from them have also been received. A few copies of the said replies have also been placed on record. On perusal of these replies, we find that all these payees have confirmed that the payment to them have been made for supply of earth, mitti and stones etc. Since payment for supply of material is not exigible to TDS, there was no need for the assessee to deduct such tax at source and resultantly the provisions of section 40(a)(ia) do not come into play. In this way, there was no need for the Assessing Officer to make disallowance of these expenses. Since these letters are a part of assessment records, we are of the view that the Assessing Officer did not invoke the provisions of section 40(a)(ia) and did not make disallowance, getting convinced by the fact that the payments were made for supply of material. The fact that the Assessing Officer in his order did not mention these investigations made by him does not itself make his action illegal. H ..... X X X X Extracts X X X X X X X X Extracts X X X X
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