2014 (12) TMI 352 - AT - Income Tax

Tribunal overturns Commissioner's decision on tax deduction, emphasizing valid AO's decision.

The tribunal held that the Commissioner of Income Tax (CIT) erred in exercising jurisdiction under section 263 of the Income Tax Act regarding the ... Jurisdiction of CIT u/s 263 – Whether the TDS on reimbursement of freight charges to the suppliers had already been considered by the AO after due application of mind in the original order passed u/s 143(3) or not – Held that:- Assessee contended that the assessee had not made any freight payment to the transporters – in Malabar Industries vs CIT [2000 (2) TMI 10 - SUPREME Court] - it has been held that the CIT has to satisfy twin conditions, the order of the AO sought to be revised is erroneous and it is prejudicial to the interests of the Revenue - If any one of them is absent CIT cannot exercise jurisdiction u/s 263(1) - every loss of revenue as a consequence of an order of the AO cannot be treated as prejudicial to the interest of the Revenue – the amount of freight was included in the bills for supplies received from suppliers - assessee has only reimbursed the freight payment made by the suppliers of the goods - AO has decided that no disallowance u/s 40(a)(ia) of the Act is called for - reimbursement of expenses cannot be said to be payment of freight which may call for deduction of TDS u/s 40(a)(ia) - the view adopted by the AO cannot be said to be unsustainable in law – thus, the exercise of jurisdiction by the CIT u/s 263 is not sustainable - AO has done proper enquiry and thereafter he has formed an opinion which cannot be said to be prima facie unsustainable - CIT’s conclusion that AO has not applied his mind is also not sustainable – thus, the order of the CIT passed u/s 263 is set aside – Decided in favour of assessee. Issues Involved:- Jurisdiction of CIT u/s 263 on deduction of tax at source on reimbursement of freight chargesDetailed Analysis:Issue 1: Jurisdiction of CIT u/s 263 on deduction of tax at source on reimbursement of freight chargesAnalysis:The main issue in this appeal was whether the ld.CIT erred in exercising jurisdiction u/s 263 on the matter of deduction of tax at source on reimbursement of freight charges to suppliers, which had already been considered by the AO in the original assessment order u/s 143(3) of the Income Tax Act, 1961. The ld.CIT found the original assessment order to be erroneous and prejudicial to the interest of revenue due to non-deduction of tax at source on freight charges paid by the assessee. The CIT initiated proceedings u/s 263 based on the non-deduction of tax at source on freight charges totaling a specific amount during the financial year 2008-09. The CIT contended that the failure to deduct tax at source made the amount not allowable u/s 40(a)(ia) of the IT Act, rendering the assessment order erroneous and prejudicial to revenue's interest.Analysis Continues:In response to the show cause notice, the assessee explained that the freight payments were reimbursed to suppliers who had already paid the freight to carriers, and there was no requirement to deduct tax at source as it was only reimbursement of expenses. The CIT disagreed with the assessee's explanation, highlighting discrepancies in the assessment order where the AO failed to examine certain issues related to freight charges and tax deduction liability. The CIT concluded that even in debatable cases, the power u/s 263 could be exercised, citing relevant case laws and emphasizing that the disclosure of facts by the assessee does not grant immunity from revisional jurisdiction.Analysis Concludes:Upon hearing both parties, the tribunal noted that the AO had considered the issue and applied his mind, leading to a valid decision. Referring to relevant legal provisions and case laws, the tribunal found that the AO's decision was not unsustainable in law, and the CIT's exercise of jurisdiction u/s 263 was not justified. Consequently, the tribunal set aside the CIT's order u/s 263 of the IT Act, allowing the appeal filed by the assessee. The tribunal's decision was based on the principles that every loss of revenue does not necessarily indicate prejudice to revenue's interest and that the AO's decision, even if debatable, should not be interfered with unless unsustainable in law.