2017 (10) TMI 244 - AT - Income Tax

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

Smt. Mahua Palit Versus Pr. C.I.T., Circle-17, Kolkata

Smt. Mahua Palit Versus Pr. C.I.T., Circle-17, Kolkata - TMI 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.