PANKAJ MADHUSUDAN TRIVEDI,VADODARA vs. THE PR. COMMISSIONER OF INCOME TAX, VADODARA-1, VADODARA

The assessee has raised the following grounds of appeal:- “1. The Order u/s. 263 of the Act has been passed beyond the period of limitation prescribed u/s. 263(2) of the Act and is thus illegal and bad in law. 2. The Ld. PCIT has grossly erred in law and on facts in assuming jurisdiction u/s. 263 of the Act on the erroneous ground that the impugned assessment order is erroneous in so far as it is prejudicial to the interest of the revenue. 3. The Ld. PCIT has grossly erred in not appreciating that in order to invoke S.263, two conditions must be fulfilled viz. the impugned assessment order must be erroneous and that error must be prejudicial to the interest of the revenue. In the present case, Ld. AO passed the assessment order after analysing and being satisfied

The brief fats of the case are that the assessee had filed original return of income on 13.10.2018 declaring total income at Rs. 3,32,72,650/-. Thereafter, the assessee filed revised return of income on 05.02.2019 declaring total income at Rs. 3,20,88,190/-. The scrutiny proceedings were completed under Section 143(3) of the Act vide order dated 25.02.2021, accepting the returned income of Rs. 3,20,88,190/-.

The Principal Commissioner of Income Tax initiated proceedings under Section 263 of the Act on the ground that assessee had not deducted tax at source on part of the salary amounting to Rs. 1,94,800/- and on account of non-deduction of tax on commission / brokerage payment of Rs.

The assessee is in appeal before us against the aforesaid order passed by Ld. PCIT holding the assessment order to be erroneous and prejudicial to the interest of the Revenue. Before us, the Counsel for the assessee submitted that in order to invoke revisionary jurisdiction under Section 263 of the Act, the twin conditions of the assessment order being erroneous and also assessment order being prejudicial to the interest of the revenue need to be fulfilled simultaneously. The Counsel for the assessee submitted that in the instant either of the two conditions are not satisfied, and therefore, CIT cannot invoke revisionary jurisdiction. In the instant case, the Counsel for the assessee submitted that so far as the non-deduction of salary of Rs. 1,94,800/- paid to Shri Nirav Bhatt is concerned, though admittedly, the assessee failed to deduct tax at source, but Nirav Bhatt has filed returned of income under Section 139 of the Act and has duly offered the sum of Rs. 1,94,800/- as his income while computing his total income and has also paid due taxes on such income. It was submitted that this fact was specifically brought to the notice of the Ld. PCIT during the course of 263 proceedings, however, he committed to consider the same. The Counsel for the assessee submitted that since the recipient of income has already paid due taxes on such salary income, there is no loss to the revenue and hence no

With respect to non-deduction of TDS on commission / brokerage payment amounting to Rs. 42,71,900/-, the Counsel for the assessee submitted that such commission is related to transfer of land by the assessee during the impugned assessment year. The Counsel for the assessee submitted that the assessee has not claimed the aforesaid commission / brokerage as expenses while computing business income and therefore, there is no question of making disallowance under Section 40(a)(ia) of the Act. In support of the aforesaid contention, the Counsel for the assessee submitted acknowledgement of ITR and statement of total income, Annual Report (Schedule-21) and ITR-3 (Commission). Accordingly, it was submitted that since there was no question of making disallowance under Section 40(a)(ia) of the Act in the first instance, the assessment order is neither erroneous nor prejudicial to the interest of the Revenue on account of non-deduction of TDS on the sum of Rs. 40,10,900/-. The Counsel for the assessee further submitted that the recipient of commission income of Rs. 40,10,900/- (M/s. R.K. Associates) has filed return of income and offered the above amount as it’s business income. The recipient has paid due taxes on such income and therefore, there is no loss to the Revenue. Therefore, in view of Second Proviso to Section 40(a)(ia) of the Act the assessee is not an “assessee in default” on account of non-deduction of taxes at source. The Counsel for the assessee placed relevant documents on

In response, the Ld. D.R. placed reliance on the observation made by the PCIT in the 263 order.

We have heard the rival contentions and perused the material on record.

We are in agreement with the contentions of the Ld. Counsel for the assessee that once the recipient of income has offered the income on which no taxes were deducted by the assessee at source and paid due taxes thereon, in view of Second Proviso to Section 40(a)(ia) of the Act, the assessee is deemed to have deducted and paid taxes on such sum and the assessee is not an “assessee in default”. In the instant case, it has been argued before us that so far as salary amounting to Rs. 1,94,800/- and commission of Rs. 40,10,900/- is concerned, the recipient has offered such income in their respective returns of income and have paid due taxes thereon. However, the Ld. PCIT has omitted to consider and analyze these arguments during the course of 263 proceedings. Accordingly, in so far as the issue of non-deduction of TDS on aforesaid two payments are concerned, we are of the considered view that the assessee was not could