2017 (10) TMI 244 - AT - Income Tax

Tribunal overturns CIT decision on TDS applicability, supports Assessing Officer's ruling

The Tribunal held that the CIT should not have exercised jurisdiction under section 263 of the Income Tax Act as the Assessing Officer's decision ... TDS u/s 194C not deducted - Revision u/s 263 - AO erroneously omitted to make addition in respect of payment as venue charges, payment to principals of schools and colleges and payment to examiners - non deduction of tds - Held that:- AO has chosen to make addition of TDS on foreign remittance but has not chosen to make any addition in respect of the payments made to resident in India because he was satisfied that each of the payments were less than the limits for which TDS has to be made in terms of section 194C of the Act. The presumption of the CIT in the impugned order is that the AO was satisfied that even the payments referred to in the show cause notice required compliance of Sec.194C of the Act, but were omitted to be disallowed u/s.40(a)(ia) of the Act. There is no basis on which the CIT has drawn such inference. Therefore we agree with the submissions of the ld. Counsel for the assessee that it was a conscious decision of the AO not to make any disallowance in respect of these payments by invoking the provisions of Section 40(a)(ia) of the Act. At best it can be said that two views were possible on the question whether TDS provisions were attracted to 3 payments as mentioned above to examiners by the Assessee. The AO has adopted one view which is permissible in law. The jurisdiction u/s 263 of the Act cannot be invoked in a case where two views are possible and the AO has taken one view with which the CIT does not agree. The decision of the Hon’ble Supreme Court in the case of Malabar Industries Ltd. (2000 (2) TMI 10 - SUPREME Court) clearly supports the plea of the assessee in this regard. - Decided in favour of assessee. Issues Involved:1. Whether the Assessee was required to deduct tax at source (TDS) under section 194C of the Income Tax Act, 1961 for payments made towards venue charges, payments to principals of schools and colleges, and payments to examiners.2. Whether the order passed by the Assessing Officer (AO) was erroneous and prejudicial to the interest of the revenue as per section 263 of the Act.Issue-wise Detailed Analysis:1. TDS Obligation under Section 194C:The Assessee, an individual running a business under M/s Mahua Enterprise, provided services to Merit Trac Services Pvt. Ltd. The AO observed that the Assessee received Rs. 4,37,78,625/- from Merit Trac for venue booking charges and deducted TDS of Rs. 1,23,53,685/-. The AO identified TDS violations for payments made to venues and principals in Nepal, disallowing Rs. 1,18,000/- and Rs. 86,000/- under section 40(a)(ia) of the Act. The Assessee contended that each payment made was below the threshold limit for TDS under section 194C, providing detailed payment information in a CD. The AO concluded that payments to domestic entities did not attract TDS as they were below the prescribed limits. However, the CIT disagreed and issued a show cause notice under section 263, questioning why payments totaling Rs. 52,79,866/- for venue hire, Rs. 32,64,500/- to principals, and Rs. 28,07,393/- to examiners were not disallowed for TDS non-compliance. The Assessee maintained that these payments were reimbursements from Merit Trac, and thus not subject to TDS.2. Erroneous and Prejudicial Order under Section 263:The CIT exercised powers under section 263, asserting that the AO's decision not to disallow the aforementioned payments was erroneous and prejudicial to revenue interests. The CIT directed the AO to re-examine the TDS applicability and disallowances under section 40(a)(ia). The Assessee appealed, arguing that the AO had thoroughly examined the payments and concluded they did not attract TDS, as each payment was below the threshold limit. The Tribunal found that the AO had indeed considered the TDS obligations and consciously decided not to disallow these payments, as evidenced by the detailed payment records and the AO's specific queries during the assessment. The Tribunal noted that the CIT's presumption of AO's error lacked basis, and the AO's decision was a permissible view under the law. Citing the Supreme Court's decision in Malabar Industries Ltd. 243 ITR 83 (SC), the Tribunal held that section 263 jurisdiction cannot be invoked where two views are possible, and the AO has taken one view.Conclusion:The Tribunal concluded that the CIT should not have exercised jurisdiction under section 263 of the Act, as the AO's decision was a permissible view and not erroneous. The Tribunal quashed the CIT's order under section 263, allowing the Assessee's appeal. The Tribunal emphasized that thorough examination by the AO and the absence of any TDS obligation on the payments in question justified the AO's original order.Order Pronounced:The appeal of the Assessee was allowed, and the order was pronounced in the Court on 04.10.2017.