BHUPATI TENNIS ACADEMY PRIVATE LIMITED,BANGALORE vs. INCOME TAX OFFICER, WARD-1(1)(3), BANGALORE

The facts relating to the issue are stated in brief. The assessment in the hands of the assessee for the year under consideration was completed under section 143(3) of the Act on 10.02.2016. Subsequently, the AO initiated rectification proceedings under section 154 of the Act. The reasons for initiation of rectification proceedings are stated as under by the AO in the rectification order:

Before the AO, the assessee objected to the initiation of rectification proceedings and it appears the assessee did not file details called for by the AO. Hence, the AO completed the assessment by adding a sum of Rs.4,16,200/- under section 40(a)(ia) of the Act to the assessed income.

The Ld AR submitted the mistakes alleged to be apparent from record are taken by the AO from the objections raised by “internal audit party” and not from assessment record. He submitted that there is no mistake apparent from record as alleged by the AO, which would warrant initiation of rectification proceedings under section 154 of the Act. He submitted that the Internal Audit Party has presumed short deduction of TDS from the payments made towards professional charges and advertisement charges. With regard to the professional fees, the Ld AR submitted that the assessee had paid professional fees aggregating to Rs.38.40 lakhs. The assessee had deducted tax at source from the amount of Rs.33.39 lakhs. The assessee was not liable to deduct tax at source from the balance amount of Rs.5.01 lakhs, as the payment made to each of the parties was less than the threshold limit prescribed in sec.194J of the Act. Inviting my attention to page 14 of the Paper Book, the Ld AR submitted that the breakup details of payments made to various persons, the details of tax deducted at source and the details of payment which are not liable for TDS were furnished to the AO in the form of a statement during the course of assessment proceedings. The AO has accepted the factual position after examining the statement. With regard to the advertisement expenses, the Ld AR submitted that the assessee has furnished copy of the payment voucher wherein it is stated that the advertisement expenses were incurred at various places with different parties. Hence, there was no liability to deduct tax at source from the said payments also. The Ld AR further submitted that the internal audit party has drawn inference that the assessee has not deducted tax at source on the basis of certain mathematical calculations on surmises and conjectures. Hence such kind of inferences, opposed to facts available on record, cannot be the basis for initiating rectification proceedings under section 154 of the Act.

The Ld DR, on the contrary, submitted that the AO was constrained to initiate rectification proceedings in view of the short deduction of tax at source from the expenditure accounted for by the assessee.

Having heard the rival submissions, I am of the view that there is no mistake apparent on record as alleged by the AO, which would warrant initiation of rectification proceedings. From the reasons given for initiation of rectification proceedings, which are extracted above, I notice that the internal audit party has gone by presumptions and accordingly taken the view that there was shortfall in deduction of TDS which would warrant disallowance expenditure under section 40(a)(ia) of the Act. On the contrary, the Ld AR demonstrated before me that the details of professional charges as well as advertisement expenses were duly furnished before the AO during the course of original assessment proceedings. The assessee has also submitted before the AO that some of the payments are not liable for deduction of tax at source since the payments made to each of the parties was less than the threshold limit prescribed in the respective section for deduction of tax at source. Under the set of facts, it cannot be said that there were mistakes apparent from record in the assessment order passed by the AO under section 143(3) of the Act. As submitted by the assessee, the AO has entertained the view that there were mistakes apparent from record only from the objections given by Internal Audit Party and not from the assessment record. Accordingly, I am of the view that the very initiation of rectification proceeding under section 154 of the Act is bad in law and accordingly the impugned rectification order is liable to be quashed. Accordingly, I set aside the order passed by Ld CIT(A) and quash the rectification order passed by the AO under section 154 of the Act.

In the result, the appeal filed by the assessee is allowed.