AJAY ENGINEERING & AGRI EQUIPMENT COMPANY,AURANGABAD vs. PR COMMISSIONER OF INCOME-TAX, NASHIK

आदेश / ORDER

PER R.S.SYAL, VP : This appeal by the assessee arises out of the order dated 19- 03-2021 passed by the Principal CIT, Nashik-1 u/s.263 of the Income-tax Act, 1961 (hereinafter also called ‘the Act’) in relation to the assessment year 2015-16. 2. Briefly stated, the facts of the case are that the assessee is engaged in the business of sale of Tractors, Tractor parts, Two wheelers and spare parts etc. The assessee filed its return declaring total income at Rs.32,37,270/-. The assessment was

2 ITA No. 156/PUN/2021

finalized at the same income. Invoking the powers u/s.263, the ld.

Pr. CIT held the assessment order to be erroneous and prejudicial

to the interest of the Revenue on the five counts, namely,

(i) Disallowance of Professional Fees at Rs.73,000/- u/s.40(a)(ia)

for non-deduction of tax at source u/s.194J;

(ii) Disallowance of Transport Expenses of Rs.37,19,441/-

u/s.40(a)(ia) on account of failure to deduct TDS u/s.194C;

(iii) Mismatch of Sales Turnover at Rs.1,72,62,558/-;

(iv) Improper verification of Sundry Creditors; and

(v) Interest on refund u/s.244A at Rs.24,969/- not offered for

taxation.

submitted explanation in respect of all the five items jotted down

above. The ld. Pr.CIT discussed these issues one by one and held

that there was failure on the part of the AO to examine each of

them thereby rendering the assessment order both erroneous and

prejudicial to the interest of the Revenue. He, therefore, set-aside

the assessment order and directed the AO to re-frame the

assessment as per law. Aggrieved thereby, the assessee has come

up in appeal before the Tribunal.

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the relevant material on record. The ld. Pr.CIT has invoked the

jurisdiction u/s.263 of the Act, which pre-supposes satisfaction of

the twin conditions, viz., the assessment order should be

erroneous and also it should be prejudicial to the interest of the

Revenue. Both the above conditions must be cumulatively

satisfied so as to render an assessment order amenable to revision

u/s.263. If an order is only erroneous but not prejudicial to the

interest of the Revenue or vice-versa, the power u/s.263 is ousted.

In hue of the above background, we now proceed to determine the

five issues raised by the ld. Pr. CIT for exercising revisionary

power.

(i) Disallowance of Professional Fees at Rs.73,000/- u/s.40(a)(ia)

for non-deduction of tax at source u/s.194J :

5.1. The ld. Pr. CIT noticed that the Aurangabad Branch of the

assessee-firm paid Professional fees of Rs.73,000/-. He opined in

the show cause notice that deduction of tax at source was

warranted u/s.194J @10%, which the assessee failed to do and

hence disallowance u/s.40(a)(ia) of the Act was called for. In

response, the assessee submitted that the total professional fees

debited to Aurangabad Branch was albeit Rs.73,000/-, but no

4 ITA No. 156/PUN/2021

individual payment or aggregate of amounts paid to a single party

exceeded a sum of Rs.30,000/-, which was a condition precedent

for deduction of tax at source. The assessee tendered break-up of

Rs.73,000/- which has been incorporated at para 3.1.2 of the

impugned order. Not convinced, the ld. Pr. CIT held the

assessment order to be erroneous and prejudicial to the interest of

the Revenue on the ground that the AO did not examine this

aspect.

5.2. It can be seen that none of the individual items of payments

or aggregate to one party exceeds Rs.30,000/-. Once the position

is such, the case gets covered under the first proviso to section

194J(1), requiring no deduction of tax at source on professional

fees or technical fees in terms of section 194J. The ld. Pr.CIT,

without controverting the factual position stated before him, failed

to consider that the assessee was, in fact, not required to deduct

tax at source in view of the first proviso to section 194J. When

the AO impliedly accepted the assessee’s contention, the

assessment order cannot be held as prejudicial to the interest of

the Revenue inasmuch as there is no loss to the Revenue

warranting disallowance u/s.40(a)(ia) of the Act. The assessment

order may be termed as erroneous from the standpoint of the ld.

5 ITA No. 156/PUN/2021

Pr.CIT for not having discussed the issue in the assessment order,

but it cannot be branded as prejudicial to the interest of the

Revenue because there is no loss to the revenue inasmuch as the

issue is tax neutral. In the absence of the cumulative satisfaction

of the twin conditions, we hold that the ld. Pr.CIT was not

justified in treating the assessment order as erroneous and

prejudicial to the interest of the Revenue on this score.

(ii) Disallowance of Transport Expenses of Rs.37,19,441/-

u/s.40(a)(ia) on account of failure to deduct TDS u/s. 194C :

6.1. The ld. Pr.CIT observed in the show cause notice that the

AO ought to have made disallowance of Transport Expenses of

Rs.37,19,441/- u/s.40(a)(ia) for failure on the part of the assessee

to deduct tax at source u/s.194C of the Act. The assessee

submitted before the ld. Pr.CIT that the case was covered under

sub-section (6) of section 194C which states that no deduction

shall be made from any sum credited or paid to a contractor

during the course of business of plying, hiring or leasing goods

carriages where such contractor owns ten or less carriages on any

time during the previous year and furnishes a declaration to the

effect along with Permanent Account Number to the persons

paying such sum. The assessee furnished necessary details with

6 ITA No. 156/PUN/2021

the amount paid to each party along with their PAN Numbers,

which have been tabulated in para 4.1.2 of the impugned order.

The ld. Pr.CIT still held that the AO failed to conduct inquiry on

this issue, which rendered the assessment order amenable to the

revision.

6.2. Even though the AO did not make a mention of the issue in

the assessment order, the same cannot be considered as

prejudicial to the interest of the Revenue because the provisions

of sub-section (6) of section 194C did not require deduction of tax

at source. The position so stated before the ld. Pr.CIT, giving all

the necessary details which have been tabulated in the impugned

order, has not been controverted in any manner. We, therefore,

hold that the ld. Pr.CIT was not justified in exercising the

revisionary power on this issue because the twin conditions for

revision were not satisfied.

(iii) Mismatch of Sales Turnover at Rs.1,72,62,558/- :

7.1. The ld. Pr.CIT observed that there was mismatch in Sales

Turnover reported in Audit report and Income-tax return. He

noticed that the audit report of the assessee showed sales turnover

at Rs.38,74,74,192/- as against Rs.40,47,36,750/- shown in the

income-tax return, leading to difference of Rs.1,72,62,558/-,

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which was not verified by the AO. In response, the assessee

submitted before the ld. Pr.CIT that the sales turnover declared in

the return at Rs.38,74,74,192/- matched with the actual turnover.

Not convinced, the ld. Pr.CIT held the assessment order liable for

revision because the AO did not examine this fact.

7.2 We have gone through the relevant material in this regard.

Page 33 of the paper book is a copy of Annexure 1 Part B of the

Tax Audit report in which the amount of turnover has been shown

at Rs.40,47,36,750/-. As against that, the amount of turnover as

per the Trading Account, appearing at page 8 of the paper book,

has been declared at Rs.38,74,74,192/-. It is this latter amount of

turnover which has been actually considered for the purposes of

computation of total income. Even though there is a mistake in

mentioning the figure of turnover in Tax Audit report but that

mistake does not affect the total income inasmuch as the amount

of profit shown in the Profit and loss account has been considered

for the purposes of computation of total income. In fact, the

same audit report having Annexure 1 Part B gives the amount of

net profit/loss to be taxed as per the Profit and loss account at

Rs.3,08,72,691/-, which matches with the amount of profit as per

the Profit and loss account. Albeit, the AO did not conduct any

8 ITA No. 156/PUN/2021

inquiry on wrong mentioning of the amount of total turnover in

the Tax Audit report, which was although correctly considered in

return of income, but the assessment order cannot be considered

as prejudicial to the interest of the Revenue because the amount of

profit has been correctly reflected. As such, the assessment order

cannot be said to pass the test of satisfying the dual conditions

laid down in section 263 of the Act.

(iv) Improper verification of Sundry Creditors:

8.1. The ld. Pr.CIT noticed that the case was selected for

scrutiny because there was much increase in sundry creditors as

compared to the preceding year but the AO failed to verify this

aspect. On notice, it was stated before the Pr.CIT that the AO did

inquire about all the creditors whose balances were more than

Rs.1.00 lakh. The assessee also furnished a list of sundry

creditors, as incorporated in para 3.4 of the impugned order,

showing copious details of all the sundry creditors including the

creditors with balances of Rs.1.00 lakh or more that were duly

confirmed by the respective parties also. Only small balances

below Rs.1.00 lakh were without confirmation. It can be seen

from the details of such sundry creditors as given in the impugned

order itself that large chunk of total sundry creditors got

9 ITA No. 156/PUN/2021

exhausted in the balances of more than Rs.1.00 lakh, for which

proper verifications were done. Some small balances here and

there below Rs.1.00 lakh even though not examined by the AO,

did not render the assessment order erroneous and prejudicial to

the interest of the Revenue unless the ld. Pr.CIT demonstrates

something amiss in them, which is actually not the case.

(v) Interest on refund u/s.244A at Rs.24,969/- not offered for

taxation :

9.1. The ld. Pr.CIT observed in the show cause notice that

interest on refund amounting to Rs.24,969/- received by the

assessee u/s.244A of the Act was not offered for taxation, which

the AO did not examine. In response, the assessee submitted that

the amount of interest was included in the Interest income, which

got taxed. A copy of the ledger account was also produced before

the ld. Pr.CIT, who still held the assessment order to be erroneous

because the AO did not conduct any inquiry on this issue.

9.2. We have gone through the copy of Interest account from the

assesse’s ledger which has been placed at pages 102 and 103 of

the paper book. It can be seen that the amount of interest on

income-tax refund at Rs.24,969/- has been duly credited on 16-

07-2014. The total closing balance from such account at

10 ITA No. 156/PUN/2021

Rs.10,27,788/- has been taken to the Profit and loss account

which has been considered for declaring the income chargeable to

tax. Under these circumstances, we fail to appreciate as to how

the assessment order can be termed as prejudicial to the interest of

the Revenue when the assessee disclosed the amount of interest

on income-tax refund in its interest income account.

the assessment order as erroneous and prejudicial to the interest of

the Revenue, we find that none of them justifies the revision

because the ld. Pr.CIT, even though observed that the assessment

order did not discuss these issues, but failed to point out as to how

it was prejudicial to the interest of the Revenue. All these fives

items are of such a nature that either no disallowance was called

for or the income was properly offered for taxation, even though

the AO did not specifically discuss these issues in the assessment

order.

issues of assessment in his order. Unless an issue is of grave

importance or has serious implications or prima facie warrants

examination, the AO needs to incorporate discussion in the

assessment order only on such issues, with which he does not

11 ITA No. 156/PUN/2021

agree with the treatment given by the assessee. For instance, if an

assessee has claimed a deduction or exemption, with which the

AO does not concur, he needs to discuss the same in the body of

the assessment order and incorporate his reasons before making

such an addition or disallowance. Other items of usual or

repetitive nature from year to year, with which the AO agrees

with the assessee, need not be specifically discussed before

accepting claim. Simply non-discussion of an issue in the

assessment order per se does not render an assessment order

erroneous and prejudicial to the interest of the revenue so as to

empower the CIT to invoke the provisions of section 263 of the

Act. Once a show cause notice is issued u/s 263 on the ground

that a particular expenditure was liable to the disallowed and the

AO has not made any discussion of the same in the assessment

order, then the reply of the assessee needs to be examined. If a

satisfactory reply is given to Pr. CIT which shows that

notwithstanding the factum of non-discussion in the assessment

order, the expenditure was liable to be allowed as deduction, then

the Pr. CIT cannot hold the assessment order erroneous and

prejudicial to the interest of the revenue because of the AO not

discussing the issue in the assessment order. It is only where

12 ITA No. 156/PUN/2021

either no reply is given by the assessee to the Pr. CIT or the reply

so given does not justify deduction, the assessment order would

qualify for revision as a case of non-application of mind by the

AO.

though the AO did not specifically discuss such five issues in the

assessment order, but the assessment order does not satisfy the

second condition of being prejudicial to the interest of the

Revenue. Ex consequenti, we hold that the ld. Pr.CIT was not

justified in revising the assessment order. We, therefore, set-aside

the same.

Sd/- Sd/- (S.S.VISWANETHRA RAVI) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; �दनांक Dated : 20th January, 2022 Satish

13 ITA No. 156/PUN/2021

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order is forwarded to: 1. अपीलाथ� / The Appellant; 2. ��यथ� / The Respondent; 3. The Pr.CIT-1, Nashik िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे “A” / DR ‘A’, 4. ITAT, Pune गाड� फाईल / Guard file 5.

आदेशानुसार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune

Date 1. Draft dictated on 19-01-2022 Sr.PS 2. Draft placed before author 19-01-2022 Sr.PS 3. Draft proposed & placed before the JM second member 4. Draft discussed/approved by Second JM Member. 5. Approved Draft comes to the Sr.PS/PS Sr.PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order.

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