2012 (8) TMI 96 - AT - Income Tax

Tribunal quashes CIT's order under Section 263 for lack of error, benefitting the assessee.

The Tribunal quashed the Commissioner of Income Tax's order under Section 263, finding that the Assessing Officer's order was not erroneous and ... Deduction of TDS without surcharge - revision u/s.263 - assessment order u/s 143(3) should be treated as erroneous and prejudicial to the interest of the revenue - Held that:- No finding has been given by CIT to come to the conclusion that the as to which payments the assessee was required to deduct TDS along with surcharge but has not done so and therefore cannot be allowed as deduction. CIT has not been able to establish and show the error or the mistake made by the AO which makes the order unsustainable in law. As it is seen that the assessee has deducted TDS at appropriate rate including education cess and the surcharge was not required to be added at all as aggregate of the payments to none of the payees exceeded the limit of Rs.10 lacs or Rs.1 crore, as the case may be - AO having exercised his mind over the issue, the order of the AO passed under Section 143(3) cannot be termed as erroneous and prejudicial to the interest of the Revenue - in favour of assessee. Issues Involved:1. Action of the Commissioner of Income Tax (CIT) under Section 263 of the Income Tax Act, 1961.2. Deduction of Tax Deducted at Source (TDS) without surcharge.3. Allowability of depreciation on Written Down Value (WDV) of the block of building.4. Examination of disallowance under Section 40a(ia) by the Assessing Officer (AO).Detailed Analysis:1. Action of the Commissioner of Income Tax (CIT) under Section 263:The assessee appealed against the CIT-I, Ahmedabad's order dated 23.01.2012, passed under Section 263 of the Income Tax Act, 1961, which set aside the AO's order dated 31.12.2009 under Section 143(3). The CIT considered the AO's order erroneous and prejudicial to the interest of the Revenue due to the deduction of TDS without surcharge and issues related to depreciation on WDV of the block of building.2. Deduction of Tax Deducted at Source (TDS) without surcharge:The CIT issued a show cause notice to the assessee for not deducting TDS with the surcharge. The assessee responded that as per Section 2(6) of the Finance Act 2007, the surcharge applies only if the payment exceeds Rs.10 lacs for individuals, HUF, AOP, BOI, and Rs.1 crore for domestic companies. Since none of the payments exceeded these limits, the TDS was deducted at the appropriate rate excluding the surcharge. The CIT, however, found the assessee's submissions unconvincing and held the AO's order erroneous and prejudicial to the Revenue.3. Allowability of depreciation on Written Down Value (WDV) of the block of building:The CIT also questioned the allowability of depreciation on WDV of the block of building, but specific details and findings on this issue were not elaborated in the judgment.4. Examination of disallowance under Section 40a(ia) by the Assessing Officer (AO):The AO had examined the issue of disallowance under Section 40a(ia) during the assessment proceedings, issuing a show cause notice to the assessee and subsequently disallowing Rs.3,83,541/- for non-deduction of TDS. The assessee contended that the AO had applied his mind and made the disallowance after due examination. The Tribunal noted that the AO had indeed scrutinized the details and the CIT did not adequately address the assessee's contentions regarding the non-requirement of surcharge.Legal Principles and Judgments Cited:- The Supreme Court in Malabar Industrial Co. Ltd (2000) 243 ITR 83 (SC) stated that the CIT must be satisfied that the AO's order is both erroneous and prejudicial to the interests of the Revenue.- The Bombay High Court in CIT Vs Gabriel India Ltd [1993] 203 ITR 108 [Bom] emphasized that an order cannot be termed erroneous unless it is not in accordance with law.- The Delhi High Court in CIT Vs. Hero Auto Ltd (2012) 343 ITR 342 (Del) and CIT Vs Sunbeam Auto Ltd (2011) 332 ITR 167 (Del) discussed the distinction between lack of inquiry and inadequate inquiry, asserting that the CIT must record clear findings of error to exercise jurisdiction under Section 263.Conclusion:The Tribunal concluded that the CIT did not provide specific instances where the assessee was required to deduct TDS with surcharge but failed to do so. The AO had exercised his mind over the issue, and the order passed under Section 143(3) could not be termed erroneous and prejudicial to the Revenue. Consequently, the Tribunal quashed the CIT's order and allowed the assessee's appeal.Result:The assessee's appeal was allowed, and the order of the CIT under Section 263 was quashed.