TaxTMI 
TaxTMI 
2022 (8) TMI 683
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....a) record for the purpose of section 263 includes all record relating to any proceeding under this Act available at the time of examination by the PCIT and therefore, the details filed before her in these proceedings ought to have been considered by her (b) no tax is required to be deducted on capital balance of the partner prior to retirement (c) in view of first proviso to section 201(1), no tax is required to be deducted on the interest paid/ credited on the outstanding balance of partners post retirement in as much as they have included such interest in the income and thus assessee is not deemed to be assessee in default and hence section 40(a)(ia) is not applicable (d) interest so credited in the account of these persons is not claimed as expenditure in the P&L A/c and thus section 40(a)(ia) is not applicable. 4. The appellant craves to alter, amend and modify any ground of appeal. 4. Necessary cost be awarded to the assessee." 2. The brief facts of the case are that the assessee appellant firm engaged in real estate activity was constituted vide partnership deed dated 17.05.2007. Three partners namely Shri Sanjay Gupta, Shri Vinod Goyal & Shri Rambabu Agarwal retir....
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....tners on their capital while from 12.09.2016, these were retiring partners and the amount of their capital was converted into unsecured loans. On perusal of their ledger accountit is noticed they have advanced other amounts as unsecured loan to the firm. Interest was credited in their account on 31.03.2017 and on that date, these retiring partners, were not partner of the firm. Therefore, the interest paid/credited to their accounts was not interest to partner, but was to the creditor of the firm. Further, it was obligatory on the part of the firm to deduct tax u/s 194A of the Act on such payment/credit of interest. Since no tax has been deducted by the firm, therefore, disallowance (c)30% of the payment, was required to be made u/s 40(a)(ia) of the Act. 2. Therefore, it is factually clear that the A.O. has not properly addressed the issue while completing the assessment. In view of this position, it appears that the assessment order passed u/s 143(3) of the I.T. act 1961 for A.Y. 2017-18 on 28.12.2019 is erroneous in so far as it is prejudicial to the interest of the revenue. 1. Considering the above facts, a show-cause notice u/s 263 of the I.T. Act, 1961was issued to the ass....
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....as under:- 1. At the outset it is submitted that in the assessment proceedings assessee has furnished the supplementary partnership deed dt. 12.09.2016 as also the capital account of all the partners including the retiring partners as is evident from Pg 2 of the assessment order. After considering the same the AO made certain disallowance u/s 40(a)(ia) of the Act. This fact is also evident from the order passed by Ld. PCIT u/s 263 of the Act where it is categorically admitted that the material is available on record but AO has failed to apply his mind to the information available. Thus, when the AO has passed the order after examining the information available on record, his order cannot be held to be erroneous in so far as it is prejudicial to the interest of revenue. 2. It is submitted that provision to section 194A(3)(iv) of the Act provides that no TDS is required to be deducted at source on interest income credited or paid by a firm to a partner of the firm. Since all these three persons were partner of the firm and interest is paid by the firm on the capital contribution made by them during their partnership, hence interest so paid falls within the scope of section 194A(3....
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....ot applicable. 5. It is a settled law that for invoking revisionary power u/s 263 of the Act, twin conditions being the order passed by AO is erroneous as well as prejudicial to the interest of revenue are to be satisfied. Hon'ble Supreme Court in case of Malabar Industrial Co. Ltd. Vs. CIT 243 ITR 83 at para 7 of the order held as under:- "7. A bare reading of this provision makes it clear that the prerequisite to the exercise of jurisdiction by the Commissioner suomotu under it, is that the order of the ITO is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the AO sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent-if the order of the ITO is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue-recourse cannot be had to s. 263(1) of the Act." From the submission made above, it can be noted that order passed by AO cannot be held to be prejudicial to the interest of revenue as there is no loss to the revenue on account of non-deduction of tax at sour....