2011 (6) TMI 454 - AT - Income Tax

Tribunal Upholds CIT Order for AO's Failure to Inquire Properly

The Tribunal upheld the CIT's order under Section 263, finding the AO's failure to inquire properly and apply the law correctly. The appeal was dismissed, ... Revision of orders prejudicial to Revenue – non-deduction of TDS - Motor Fleet Hire Charges – dis-allowance of expenses @10% but while computing 1% is disallowed - Held that:- The main ground on which the CIT exercised jurisdiction u/s 263, was the failure on the part of the Assessing Officer to make inquiries with regard to the applicability of the provisions of section 194C to the payments made by the assessee to other truck owners in the course of his business of transportation of cargo and the consequent dis-allowance that could be made under the provisions of section 40(a)(ia) of the Act. In said order, the applicability of the provision has been considered, and no opinion is expressed. Thus the assessee is at liberty to raise all the plea that he has sought to put forth in the proceedings pursuant to the order u/s 263. Similarly the dis-allowance of expenses whether they are to be 1% or 10% is also a matter which requires examination by the Assessing Officer. Therefore, the order passed under section 263 of the Act is proper and has to be upheld. Appeal of the assessee is dismissed. Issues Involved:1. Applicability of Section 263 of the Income Tax Act, 1961.2. Applicability of Section 194C of the Income Tax Act, 1961.3. Disallowance of expenses under Section 40(a)(ia) of the Income Tax Act, 1961.4. Typographical error in the assessment order regarding disallowance of expenses.Issue-wise Detailed Analysis:1. Applicability of Section 263 of the Income Tax Act, 1961:The appeal was filed against the order dated 6/3/2009 of CIT-XXIII, Mumbai, under section 263 of the Income Tax Act, 1961. The CIT exercised his powers under section 263, noticing errors in the assessment order passed by the AO. The CIT found that the AO did not make proper inquiries regarding the major expenditure of Rs. 3,14,41,098/- on Motor Fleet Hire Charges and failed to examine the applicability of Section 194C and the consequent disallowance under Section 40(a)(ia). The CIT also identified an under-assessment error of Rs. 14,96,322/- due to a typographical mistake in the computation of disallowed expenses.2. Applicability of Section 194C of the Income Tax Act, 1961:The CIT observed that the assessee made payments to other truck owners for transportation services without deducting tax at source as required under Section 194C. The assessee argued that these payments were for single, separate contracts, each less than Rs. 20,000/-, and the aggregate payments did not exceed Rs. 50,000/-, thus not attracting TDS provisions. However, the CIT found inconsistencies in the assessee's claims and noted that the AO did not verify these details. The CIT held that the AO's failure to examine these aspects rendered the assessment order erroneous and prejudicial to the revenue's interest.3. Disallowance of expenses under Section 40(a)(ia) of the Income Tax Act, 1961:The CIT concluded that the AO did not properly apply Section 40(a)(ia) concerning the non-deduction of TDS under Section 194C. The CIT emphasized that the AO should have disallowed the expenditure of Rs. 3,14,41,098/- for non-compliance with TDS provisions. The CIT directed the AO to re-examine the assessee's liability under Chapter XVII-B for TDS deduction and determine the disallowable amount under Section 40(a)(ia).4. Typographical error in the assessment order regarding disallowance of expenses:The CIT identified a typographical error in the AO's assessment order, where 10% of certain expenses (diesel, repairs, salaries) amounting to Rs. 1,66,25,805/- was disallowed, but only Rs. 1,66,258/- was added to the total income instead of Rs. 16,62,580/-. The CIT directed the AO to correct this error and verify whether the disallowance should be 1% or 10% based on past assessments.Conclusion:The Tribunal upheld the CIT's order under Section 263, agreeing that the AO failed to make necessary inquiries and apply his mind regarding the applicability of Section 194C and the consequent disallowance under Section 40(a)(ia). The Tribunal dismissed the assessee's appeal, allowing the AO to re-examine the issues in light of the CIT's directions. The assessee was granted the liberty to raise all relevant issues before the AO in the subsequent proceedings. The appeal was dismissed, and the order was pronounced in the open court on June 15, 2011.