TMI Blog2022 (8) TMI 683X X X X Extracts X X X X X X X X Extracts X X X X ..... ing primarily, it was not before either the AO or the Ld. PCIT and secondly in the revision proceedings, the assessee shall get an opportunity to produce the material documentary evidence with certification of third parties if any required including CA s certificate which would not cause any prejudice to the assessee. The assessee in proceedings before learned CIT u/s 263 of the Act and also before us, failed to demonstrate that all the facts were before the AO and how the AO has taken a conscious decision on merits which is a plausible decision which does not warrant interference u/s 263 of the Act to revise concluded assessment. We have also considered all the replies given by the assessee on merits before AO and CIT as well before us. We find that the assessee has failed to demonstrate on merits that the view taken by the AO before passing assessment order was a plausible view as being taken after due enquiries on the issue under consideration. Thus, we uphold the finding of the PCIT in categorizing the assessment as erroneous so far as prejudicial to the interest of the Revenue and as such order of the ld. PCIT passed u/s 263 of the act is sustained. - Decided against ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st the retiring partners and continuing partners that continuing partners will make the payment of capital to retiring partners. However since capital of retiring partners was not repaid, assessee firm credited interest to their account as under:- Name of Partner Interest Amount Period for which interest is credited Shri Ram Babu Agarwal Rs.5,13,511/- 01.04.2016 to 31.03.2017 Shri Sanjay Gupta Rs.9,26,313/- ---------do---------- Shri Vinod Goyal Rs.20,67,413/- ---------do---------- Total Rs.35,07,237/- 3. The Ld. PCIT vide notice u/s 263 dated 19.02.2022 notedthatorder passed by AO u/s 143(3) dated 28.12.2019 is erroneous in so far as prejudicial to the interest of revenue for the reason that assessee firm has paid interest of Rs.35,07,236/- on unsecured loan of 3 ex-partners but not deducted TDS on the interest amount so paid as per provision of section 194A of the Act and therefore the AO was required to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 assessee vide this office letter No. ITBA/REV/F/REV1/2021-22/1039927565(1) dated 19.02.2022to explain as to why the assessment order passed by the ITO Ward-4(5), Jaipur on 28.12.2019 may not be revised u/s 263 and may not be treated as erroneous and prejudicial to the interest of the revenue as the assessment order was passed mechanically without application of mind for the reason mentioned in the notice. 1. The submissions put forth by the assessee firm have been considered but not found tenable for the reasons:- 1. The firm has submitted that interest prior to 12.09.2016 have been paid to the partners as interest on capital, but has not submitted any reply on the issue of interest paid to these retiring partners post 12.09.2016. As per the deed of retirement, the new partners of the firm had admitted that the retiring partners shall be paid their capital on retiring from business. Since the capital was not paid to the retiring partners, this amount was converted as unsecured loan on which interest was payab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons 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)(iv) of the Act and therefore there is no requirement to deduct tax at source at least on the interest relatable to the period 01.04.2016 to 12.09.2016 i.e.upto the date of retirement. 3. It may be noted that second proviso to section 40(a)(ia) of the Act provides that where an assessee fails to deduct whole or any part of the tax in accordance with the provision of Chapter XVII-B on any such sum but is not deemed to be an assessee in default under the first proviso to sub section (1) of section 201, then for the purpose of this sub clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the payee referred to in the said proviso. First proviso to section 201(1) reads as under:- Provided that any person, including the principal officer of a company who fails to deduct whole or any part of tax in accordance with the provision of this chapter on the sum paid to a payee or on the sum credited to the account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 source on interest credited to the account of these persons post retirement. Thus, the order passed by the PCIT u/s 263 is not sustainable. 6. The Ld. PCIT at Pg 6 of the order has held thatthe amount of interest on which no deduction of tax was made is liable to be disallowed and therefore, the submission put forth by the assessee is rejected but at the same time has set aside the assessment order by holding it to be erroneous so far as prejudicial to the interest of revenue under clause (a) (b) of Explanation 2 to section 263. It may be noted that both these clauses are not applicable in the facts of the present case in as much as assessee has furnished the certificate of CA under first proviso to section 201(1) of the Act which is a part of the record and therefore, section 40(a)(ia) is not applicable. Further assessee has not claimed any expenditure on account of interest payment but has capitalised it to the cost of inventory. Thus, when no expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X
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