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Income Tax Appellate Tribunal, BENGALURU BENCH B, BENGALURU
Before: SHRI. B. R BASKARAN
per accounting principles, it had created provision for expenses for the expenses relating to the year. He submitted that the liability to deduct tax at source shall arise only when the bills were received from the concerned suppliers/service providers. Accordingly he submitted that the auditors have mentioned in the notes that the liability to deduct tax at source did not arise on the provisions so made.
7.2 It was also submitted that when the A.O has examined the audit report, there was no reason to hold that the A.O has not examined this aspect. It is settled principle that merely because the assessment order does not explicitly state that a particular issue has been examined does not mean that the issue has not been examined by the A.O. However, the CIT mechanically held that no enquiry was made by the A.O and set aside the assessment, thereby exercising the revisional power without any foundation. The CIT has failed to make out a case that proper enquiry has not been made, which has resulted in the order being erroneous and prejudicial to Revenue. The order was neither erroneous nor prejudicial to revenue. There was no foundational basis for invoking the provisions of Section 263.
7.3 Further, the learned AR submitted the assessee furnished full details of the liabilities created during the year end which has been paid in the months of April/ May of the next year and TDS has been paid on such payments. It was submitted that all these details were available on the record of the A.O, which could have been easily verified and were also filed before CIT. It was submitted that all
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these details along with the payment details have been entered in the quarterly TDS returns which have been filed on time and were available with the A.O, which could have been verified. It was also submitted that these details were furnished to the CIT also, during the proceedings u/s 263 and if only the CIT had made even a cursory enquiry, he could have easily deduced that the TDS payments have been made before the due date of filing of the return of income, as per law and no disallowance was warranted. Instead, the CIT has merely remanded the matter the A.O for a fresh examination, which is not in tune with law and the decisions of the Courts in this regard.
7.4 It was also submitted by the assessee that the ITO (TDS) has initiated proceedings u/s 201 and 201A and has since accepted that the payments have been made. The AR, during the course of hearing, furnished a copy of order passed under 201 and 201A confirming the deposit of TDS before the due date for filing the return of income. In the ITO (TDS) order, it was mentioned as under:
Order U/s.201(1A) and demand notice for A.Y. 2008-09:
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Order U/s.201(1A) and demand notice for A.Y. 2009-10 :
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Depreciation on Effluent/ Sewage treatment plant
7.5 On this issue, the learned AR submitted that the Certificate from the Pollution Control Board (PCB) dated 15.08.2007 allowing the company to operate the plant w.e.f that date shows that the plant
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was put to use in August 2007. Also, even in the document relied upon by the CIT, all the invoices relating to supply and installation are before August and only few invoices related to installation like additional pipes, painting etc., and commissioning are after August.
Per contra, the learned DR strongly defended the order of the CIT and drawn our attention to various paragraphs of order and She relied upon the order giving effect order passed by the AO dated 26.08.2013, in which, AO had confirmed the additions in terms of direction of CIT. The Ld D.R placed her reliance on the decision rendered by Hon’ble Calcutta High Court in the case of Sigma Commodities P Ltd vs. ITO (2014)(365 ITR 276), and submitted that the assumption of incorrect facts or incorrect application of law may be brought within the purview of erroneous order. The Ld D.R submitted that the AO has not discussed anything on the impugned issues in both the years and hence the assessment orders are rendered erroneous and in support of this proposition, the DR relied upon the decision of Jurisdictional High court in the matter of Infosys Technologies Ltd 17 Taxmann.com 203. The Ld D.R also furnished a copy of assessment order passed by the AO in pursuance of revision order passed by Ld CIT and submitted that the AO has made the additions pointed out by Ld CIT.
09 We have considered the rival contentions and submissions including the decisions relied upon by both the sides. At the time of argument the Ld. AR had relied on the order passed by the AO u/s.201 & 201(1A) and the Ld. DR relied on the order giving effect passed by the AO pursuant to direction issued by the CIT u/s.263 of
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the Act. In our view, we have to test the legality of the order passed by the CIT u/s.263 of the Act, based on the material available with him at the time of passing of the order.
Under the provisions of the Act, the CIT may call for and examine the record of any preceding this Act and pass an order only if the twin conditions are satisfied, namely, the order passed by the Assessing Officer is erroneous; and also prejudicial to the interest of the revenue. The Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. Vs CIT (2000) 243 ITR 83 (supra) has held that both of the above conditions have to be satisfied. It has been held that, “A bare reading of section 263 of the Income-tax Act, 1961, makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the Income-tax Officer 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 Assessing Officer 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 Income-tax Officer 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 section 263(1) of the Act. The provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase “prejudicial to the interests of the Revenue" is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to erroneous order of the Income-tax Officer, the Revenue is
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losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue. The phrase "prejudicial to the interest of the Revenue" has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer, cannot be treated as prejudicial to the interests of the Revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law.” A similar view has also been taken by the Hon’ble Apex Court in the case of CIT Vs Max India Ltd. (2007) 295 ITR 282 (supra), wherein it has been held as under:
“The phrase "prejudicial to the interests of the Revenue" in section 263 of the Income-tax Act, 1962, has to be read in conjunction with the expression "erroneous" order passed by the Assessing Officer, Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when the Assessing Officer adopts one of two courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Assessing Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the Revenue, unless the view taken by the Assessing Officer is unsustainable in law.” That the twin tests of the order being erroneous and prejudicial to the interest of revenue are both necessary has been elaborated by the Hon’ble Rajasthan High court in the case of CIT-1, Jaipur vs M/s Green Triveni Developer, ITA No. 114 / 2015, wherein it was held that,
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It is no longer res integra that the revisional jurisdiction available to a Commissioner under section 263 of the Act is essentially circumscribed by the determinant that the order of the Assessing Officer is erroneous so much so that it is prejudicial to the interests of the Revenue. This statutory enjoinment carves out an extremely constricted ambit of such discretionary jurisdiction. The word "considers" applied in the statutory provision involved, signifies a genuine satisfaction of that authority that the order of the Assessing Officer is erroneous and that the interests of the Revenue is prejudicing thereby. Any exercise of the revisional jurisdiction, bereft of such satisfaction and/or finding that the order of the Assessing Officer is erroneous and that it is prejudicial to the interests of the Revenue and that too, based on tangible materials on record, is impermissible rendering the resultant order void. 10. Judged on the above touchstone, we are of the unhesitant opinion, having regard to the materials on record, that no interference with the impugned order of the learned Tribunal is warranted, in the facts and circumstances of the case. No substantial question of law, as contemplated by section 260A of the Act, exists to be examined. The principle that emerges out of the above cited decisions are that the twin requirement of the order being erroneous and prejudicial to the interests of revenue should be satisfied and that the CIT should invoke the powers u/s 263 only after an enquiry by him to establish the twin conditions.
There is one more condition imposed upon the Ld CIT before invoking revisional power u/s 263 of the Act. In the matter of Pr. CIT v. Delhi Airport Metro Express P. Ltd [ITA.705/2017, dt.05.09.2017], ITO v. D.G. Housing Projects Ltd. 2012 (343) ITR 329 (Delhi), decided by Delhi High Court and also in the case of CIT v. Nirav Modi, 390 ITR 292, it was held that it is incumbent on the CIT to conduct some minimum enquiry before invoking the
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jurisdiction u/s.263 and set aside the order passed by the AO. In the case of Nagesh Knitwears P Ltd (2012)(345 ITR 135), the Hon’ble Delhi High Court has elucidated and explained the scope of the provisions of sec. 263 of the Act and the same has been extracted by the Delhi High court in the case of CIT Vs. Goetze (India) Ltd (361 ITR 505) as under:-
“Thus, in cases of wrong opinion or finding on merits, the Commissioner of Income tax has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under section 263 is passed. In such cases, the order of the Assessing Officer will be erroneous because the order is not sustainable in law and the said finding must be recorded. The Commissioner of Income tax cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the Commissioner of Income tax must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the Commissioner of Income tax and he is able to establish and show the error or mistake made by the Assessing officer, making the order unsustainable in law. In some cases possibly though rarely, the Commissioner of Income tax can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the
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Assessing officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under section 263 of the Act. In such matters, to remand the matter to the Assessing Officer would imply and mean the Commissioner of Income tax has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question….” Similar view has been expressed by Hon’ble Madras High Court in the case of CIT Vs. Amalgamations Ltd (238 ITR 963).
The law interpreted by the High Courts makes it clear that the Ld Pr. CIT, before holding an order to be erroneous, should conduct minimum enquiries or verification in order to show that the finding given by the assessing officer is erroneous.
On the basis of above discussed legal propositions on the revisional power of Ld CIT, we are required to examine whether the action of the CIT fulfilled the twin test or not and whether the Ld CIT has conducted minimal enquiry or not. With respect to the ground pertaining non-deduction of TDS from the year-end provisions, the CIT has relied on the Form 3CD forming part of the audit report, where the auditor has mentioned Clause 27B(i) is reproduced below:
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As far as the issue of TDS on year-end provisions, admittedly the CIT has based his decision on the observations made in the Audit report, which was very much before the A.O when he made the assessment. Also, the assessee has submitted the full invoice-wise details of the payments made out of the liabilities created, which was very much on record. The assessee has also given the details of payment of the TDS on these amounts, from which it is seen that all payments have been made in the months of April/ May of the next financial year, which is well before the due date of filing of the return of income. Also, the assessee had filed TDS return showing the details of the TDS payments on these invoices, which were also available on record. The case of Ld CIT, as stated earlier, that the assessee should have deducted tax at source from the provisions so made and for this purpose, he has relied upon the provisions of sec.194C(2) of the Act which reads as under:-
“194C(2) : Where any sum referred to in sub-section (1) is credited to any account, whether called “Suspence Account” or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to
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be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.”
Under section 194C(1), a person is liable to deduct tax at source from the payment at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is less. It appears that certain persons were crediting the “Suspence Account” or such kind of account in any other name, instead of crediting the amount to the account of contractor, in order to escape the liability to deduct tax at source. Hence the provisions of sec.194C(2) of the Act makes it clear that such kind of crediting Suspense Account or such type of account in any other name shall be deemed to be credit of such income to the account of payee.
The crucial words used in sec.194C(2) is “in the books of the person liable to pay such income”. The provisions of sec.194C(2) shall apply only if the liability to pay such income has already arisen to the assessee. In the instant case, it is the submission of the assessee that the liability to pay has not arisen, since it has not received the bills from the suppliers/service providers. There is merit in the said submissions. The liability of the assessee to make payment shall arise only if it receives bills from the concerned supplier/service provider. Since the assessee has already availed services, as per the accounting principles, it had provided for those expenses on estimate basis by crediting the account of “Provision for expenses”. Accordingly it was submitted that the credit is not in respect of suppliers account but to expenditure account.
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Accordingly it was submitted that the “Provision for expenses account” cannot be considered as “Suspense Account” as referred to in sec. 194C(2) of the Act, since the expenses were accounted for on estimate basis. Accordingly, the auditors have also expressed the opinion that the TDS liability shall not arise on the provisions of expenses so made on estimate basis.
In our view, there is merit in the contentions of the assessee. There is no dispute with regard to the fact that the assessee has deducted tax at source when the actual bills were received by the assessee from the suppliers/service providers. The said bills were debited to the “Provision for expenses” account and hence there is no question of any double deduction. The TDS so deducted has been paid within the due dates. On these set of facts, we are of the view that the interpretation given by Ld CIT to the provisions of sec.194C(2) of the Act does not appear to be correct, since the liability to the assessee to make payment shall arise only upon receipt of bills. It was submitted that the assessee has furnished all these details before the AO and the AO has also accepted the same without making any addition. Hence, in our view, it has to be held that the view so taken by the AO is one of the possible views, in which case, the revision made by the Ld CIT on this issue is not sustainable.
The CIT had passed the orders for AY 2008-09 and 2009-10 on 01.04.2013 and 06.03.2014. By that time the amendment to provision to section 40(a)(ia) was brought into the statute book w.e.f.01.04.2010.
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40a(ia) any interest, commission or brokerage, 91[rent, royalty,] fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, 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, 92[has not been paid on or before the due date specified in sub-section (1) of section 139 :] 93[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.] The above said provisions states that in case the assessee had delayed in depositing the TDS amount in the year under consideration, but had deposited the same before the due date for filing return of income, then the assessee would be entitled to the deduction of the said expenditure, i.e., no disallowance u/s 40(a)(ia) is called for. The above said section along with the proviso would make is clear that the disallowance u/s 40(a)(ia) is not required to be made, if the TDS amount is paid on or before the due date for filing return of income.
By virtue of the decisions rendered in the matter of Virgin Creations (Calcutta order dated 23.11.2011); CIT v. Ansal Landmark Township P. Ltd [61 taxmann.com 45], the amendment made to sec.40(a)(ia) by Finance Act, 2010 was held to be declaratory and curative in nature with retrospective effect from 01.04.2005. Similar proposition of law was also in down rendered by the coordinate bench in the matter of Piyush C. Mehta [ITA.1321/Mum/2009, dt.11.04.2012], holding that the provision is retrospective in nature and would be applicable from 01.04.2005.
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However the CIT while invoking the jurisdiction u/s.263 of the Act, mainly relied upon the circular issued by the Board in the year 2009 and had ignored the amendment brought into the statute by the Finance Act, 2010. In our view, the order passed by the CIT u/s.263 was based on a wrong premise and on incorrect interpretation of the provisions of sec. 194C. Further the CIT has also not considered the amended provision which came into effect from 01.04.2010, which was held to applicable retrospectively from 01.04.2005. In this view of the matter, we are of the view that the Ld CIT has failed in his duty to make minimal enquiry as mandated u/s 263 of the Act. Since there is no requirement to make any disallowance u/s 40(a)(ia) of the Act as per the amended provision and also as per the provisions of sec.194C(2) of the Act, it cannot be held that the impugned assessment orders are prejudicial to the interests of the revenue. Hence one of the twin mandatory conditions fails in the facts of the present cases.
Further we also notice that the CIT in para 5.2 records that the details were available on the record. However despite the details being available with the CIT, with respect to TDS provisions made by the assessee on the last month of the of the due date for filing the return of income and deposit of tax before the due date of filing of the return, however, the CIT has glossed over these essential findings and has categorically mentioned that the AO has not made any enquiries in this regard. It was incumbent upon the CIT to conduct basic enquiry himself once the CIT records that the enquiries were not made by the AO to verify the record. However
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no enquiries were made by the CIT to verify the record and based on the audit reports the CIT has passed the impugned order.
In our opinion it requires minimal effort to find out from the record to ascertain whether the assessee had deposited the TDS or not before filling the return of income, as it is common knowledge that Ld CIT by inspecting record, or calling the report from the AO or himself verifying it from e-portal of the department can easily verify all the deposits made by the assessee which had debited in his account and credited in the account of Payee. Not even a cursory enquiry was made by the CIT to ensure the fulfillment of twin conditions of the order being erroneous and prejudicial to revenue.The CIT without even looking from this angle, and without verifying facts whether the TDS was deposited, in the Government account or not before the date of filing of the return of income had passed order. In the present case, mere reliance on the audit report by the CIT selectively (by ignoring the opinion of TDS liability) for coming to the conclusion that there is a loss to the Revenue does not hold good, as it is a fact that the TDS were deposited prior to filing the returns of income which could be ascertained with little efforts by the CIT.
As noticed earlier, this aspect is covered in favour of assessee in the matter of Pr. CIT v. Delhi Airport Metro Express P. Ltd [ITA.705/2017, dt.05.09.2017] , ITO v. D.G. Housing Projects Ltd. 2012 (343) ITR 329 (Delhi),decided by Delhi High Court and CIT v. Nirav Modi, 390 ITR 292 wherein it was held that it is incumbent CIT to conduct some minimum enquiry before on the
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invoking the jurisdiction u/s.263 and set aside the order passed by the AO. In the present case no such enquiry was conducted by the CIT. In view of the discussions made earlier, it can also be said that the AO has taken a plausible view in not making the addition u/s 40(a)(ia) of the Act.
The Ld D.R placed her reliance on the decision rendered by the jurisdictional High Court in the case of Infosys Technologies Ltd (supra). We have gone through the said decision and notice that the issue that was considered by Ld CIT in the above said case was with regard to the deduction of tax claimed under DTAA entered with Canada and Thailand. The AO allowed the deduction as claimed by the assessee without specifying the manner of computation in the assessment order. It is in the above said context, the Hon’ble Karnataka High Court has held that the assessment order is rendered erroneous and accordingly rejected the contentions that the assessee had submitted the relevant details before AO and hence there should be a conclusion that the AO has applied his mind. Thus, we notice that the Hon’ble jurisdictional High Court has rendered its decision on the facts prevailing in the above said case. Hence we are of the view that the revenue cannot take support of the above said decision.
To sum up, the order of the Commissioner setting aside the order passed by the assessing officer for non-deduction of tax (TDS) is required to be set aside firstly Commissioner has not correctly interpreted the provisions of sec.194C(2) of the Act and also did not consider the law amended in sec.40(a)(ia) which is held
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to be applicable retrospectively from 1 April 2005; secondly the order of the Commissioner was not correct as the Commissioner failed to verify and conduct the minimal enquiry about the status of alleged non-deduction of TDS and deposit of TDS in the government treasury before the due date for filing the return of income, despite availability of material on record and thirdly, the order passed by the CIT does not satisfy both the twin tests laid by the Hon’ble Supreme Court in Malabar Industrial Co.(supra) and Max India Ltd (supra). On account of these reasons, exercise of power by CIT u/s.263 cannot be sustained. In view of the above, the order passed by the CIT u/s.263, for non-deduction of TDS, for both the assessment years is required to be quashed and accordingly we quash the same.
As regards the issue of depreciation on the ETP/ STP, the action of the CIT was based on the dates mentioned in the invoices which were submitted by the assessee. The CIT has examined the records, made preliminary finding that some of the invoices related to the machinery are of dates after August, thereby leading to a suspicion that the machinery could have been in use for less than 182 days. This finding of fact arising out of the enquiry of the CIT is not controverted by the assessee. While the assessee has tried to explain the same, the fact remains that this issue needed verification and this requirement has arisen after a preliminary enquiry by the CIT. Therefore, we do not find any infirmity in the action of the CIT. As regard the conclusion recorded by the CIT for 2009-10 Ld. AR for the assessee had submitted no objection to the addition of
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depreciation, the same issue requires no adjudication and verification.
The Grounds raised on this issue are dismissed.
As regards the issue of interest u/s 244A wrongly allowed to the assessee, it is the contention of the assessee that it is a computational issue and remedy lies in rectification u/s 154 and not revision u/s 263. It is true that various remedies available for rectifying the mistakes of the assessing officer operate in their own sphere and use of one remedy in a place where the other needs to be used may not be appropriate. However, in this case, considering that the mistake of grant of refund u/s 244A was detected after an enquiry on the amount of tax and considering that the assessee has itself accepted the action of the CIT, the action of the CIT is upheld.
In the result, both the appeals of the assessee are partly allowed.
Order pronounced in the open court on 22nd day of March, 2019. Sd/- Sd/- (B. R BASKARAN) (LALIET KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER Bengaluru Dated : 22.03.2019 MCN*
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Copy to: 1. The assessee 2. The Assessing Officer 3. The Commissioner of Income-tax 4. Commissioner of Income-tax(A) 5. DR 6. GF, ITAT, Bangalore By order Assistant Registrar, Income Tax Appellate Tribunal, Bangalore.