ADINATH BUILDCON PVT. LTD.,JAIPUR vs. PRINCIPAL CIT-CENTRAL, JAIPUR

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ITA 373/JPR/2016Status: DisposedITAT Jaipur17 April 2017AY 2007-085 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that for Section 263 to apply, the AO's order must be both erroneous and prejudicial to revenue. Since the payee declared the interest income and paid tax, and the revenue did not controvert this, the conditions for Section 263 were not met.

What were the facts?

The assessee's appeal challenges the Pr. CIT's invocation of Section 263, arguing the assessment order was neither erroneous nor prejudicial to revenue. The Pr. CIT believed the Assessing Officer (AO) erred by not verifying TDS on interest paid to Sunny Developers Pvt. Ltd.

What were the issues?

Whether the Pr. CIT was justified in invoking Section 263 when the payee had accounted for and paid tax on the interest income, thus not causing prejudice to revenue?

Which sections of the Income-tax Act were involved?

Section 263,Section 40(a)(ia),Section 143(3),Section 153A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, JAIPUR BENCHES, JAIPUR

Before: SHRI BHAGCHAND, AM & SHRI KUL BHARAT, JM vk;dj vihy la-@ITA No. 373/JP/2016

PER SHRI KUL BHARAT, JM.

This appeal by the assessee is directed against the order of Pr. CIT (Central),

Jaipur, dated 14.03.2016 pertaining to assessment year 2007-08. The assessee has

raised the following grounds of appeal :-

“1. That the ld. Pr. CIT (central), Jaipur is wrong and has erred in law in invoking the provisions of section 263 of IT Act, 1961 in cae of aesee in as much as the assessment order passed by ld. AO is neither nor prejudicial to the interest of revenue. The impugned order passed by ld. Pr. CIT (central), Jaipur is without jurisdictional.

2.

That the ld. Pr. CIT (central) is wrong and has erred in law in not considering the contention of the aseee that no disallowance can be made u/s 40(a)(ia) of the IT Act, 1961 on account of non deduction of TDS on interest of Rs. 39,65,510/- credited in the account of Sunny Developers Pvt. Ltd. in view of second proviso to said section and payment of due tax thereon by the recipient company. The assessing officer rightly allowed deduction of said interest.

2 ITA No. 373/JP/2016 M/s Adinath Buildcon Pvt. Ltd.

3.

That the appellant craves the permission to add to or amend to any of the above grounds of appeal or to withdraw any of them.”

2.

Only effective ground is against invocation of jurisdiction u/s 263 of the Act.

Thereby, revising the assessment order dated 28/03/2014 passed u/s 143(3) read

with section 153A of the Income Tax Act, 1961 (hereinafter referred to as the Act).

The ld. Counsel for the assessee submitted that, ld. CIT is not justified in invoking

the provisions of section 263 of the Act. Ld. Counsel submitted that for exercising

jurisdictional u/s 263 of the Act twin conditions are required to be satisfied. In the

present case, the Revenue has not placed any material suggesting that the order is

passed is erroneous so far it is prejudicial to the interest of the Revenue. He

submitted that the interest of the revenue is protected when the payee declared the

amount in its return of income and pays Income Tax thereon. In the present case,

the assessee has demonstrated that the payee has included the interest income

received from the assessee and paid due taxes thereon. He submitted that this fact

is not controverted by the revenue. Ld. AR further reiterated the submissions as

made in the written submissions filed during the course of hearing.

3.

On the contrary, ld. CIT (DR) vehemently opposed the submissions and

contended that there is no legality into the order of the ld. CIT. He submitted that

AO has grossly failed to verify the facts. He submitted that, there is no dispute with

regard to the fact that the assessee was required to deduct the tax on source, in

respect of the payment of the interest. He further submitted that it is an undisputed

position of law that non-deduction of tax by the assessee would attract disallowance

of interest expenditure under section 40(ia) of the Act. He submitted that this

3 ITA No. 373/JP/2016 M/s Adinath Buildcon Pvt. Ltd.

requirement is mandated by the provisions of the Act in vogue. He submitted that

the AO has failed to verify the interest expenditure and whether the tax has been

deducted on such expenditure or not. He pointed out that from the assessment

order, it is evident that the Assessing Officer has merely accepted the returned

income. In rejoinder,ld. A.R. submitted that this is not the case, where the

Assessing Officer has not made enquiry. In fact, the Assessing Officer has raised

query in this respect.

4.

We have heard the rival contentions, and perused the material available on

record and gone through the order of the authorities below. The basis of revising the

order as per the ld. CIT is that the Assessing Officer failed to verify the payment of

TDS on the sum of Rs. 39,65,510/- credited in the account of M/s Sunny Developers

Pvt. Ltd. being the interest, hence the assessment order is erroneous and

prejudicial to the interest of the revenue.

As per section 263 of the Act, the Principal CIT is empowered to call for examine the

record of any proceedings under the Income Tax Act and if he considers that any

order passed thereon by the Assessing Officer is erroneous in so far as it is

prejudicial to the interest of the revenue. He after giving opportunity for being

heard may pass such order thereon, as the circumstances of the case justifies,

including an order enhancing or modifying the order.

Therefore, the condition which requires to be satisfied for the purpose of jurisdiction

u/s 263 are that the order of the Assessing Officer should be erroneous and

prejudicial to the interest of revenue. Merely because the order is erroneous would

not meet the requirement of law for invoking the provisions of section 263. In the

case in hand, it is stated by the ld. Counsel for the assessee that the payee has

4 ITA No. 373/JP/2016 M/s Adinath Buildcon Pvt. Ltd.

included the interest income into the return of income and paid tax thereon. This

fact is not controverted by the revenue by placing any contrary material on record.

Under these facts, we are of the considered view, that it is not the fit case for

invoking the provisions of section 263. Therefore, we set aside the order of the ld.

CIT and restore the assessment order. This ground of the assessee’s appeal is

allowed.

5.

Ground no. 3 is in general in nature and needs no separate adjudication.

6.

In the result appeal of the assessee in ITA No. 373/JP/2016 is allowed.

Order pronounced in the open court on Monday, the 17th day of April 2017.

Sd/- Sd/- ¼ HkkxpUn½ ( dqy Hkkjr) ( BHAGCHAND) ( KUL BHARAT ) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member

Jaipur Dated:- 17 /04/2017. Pooja/ आदेश की प्रतिलिपि अग्रेषित@ब्वचल वf जीम वतकमत वितूंतकमक जवरू

1.

The Appellant- M/s Adinath Buildcon Pvt. Ltd., Jaipur. 2. The Respondent- Pr. Commissioner of Income-Tax (Central),Jaipur. 3. The CIT(A). 4. The CIT, 5. The DR, ITAT, Jaipur 6. Guard File (ITA No. 373/JP/2016)

vkns'kkuqlkj@ By order,

सहायक पंजीकार@ Aेेपेजंदज. त्महपेजतंत

5 ITA No. 373/JP/2016 M/s Adinath Buildcon Pvt. Ltd.

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