2021 (8) TMI 1165 - AT - Income Tax

Tribunal Upholds Assessee's Appeal, Rejects PCIT's Section 263 Invocation

The Tribunal ruled in favor of the assessee, finding that the Principal Commissioner of Income Tax's invocation of Section 263 was unwarranted. The ... Revision u/s 263 by CIT - proof of AO's order as erroneous or prejudicial to the interest of revenue - violation of the provisions of section 40A(3) - Disallowance u/s 40(a)(ia) - HELD THAT:- AO as made enquiries into transactions of cash payment in excess of ₹ 20,000/-, and the action of assessing officer in accepting the claim of assessee that transactions in question were not in violation of the provisions of section 40A(3) of the Act, after detailed enquiry, is a plausible view. AO also made detailed enquiry about TDS to be deducted under section 40(a)(ia) of the Act, therefore, we find that the twin conditions required for exercising the jurisdiction u/s 263 is missing, that is, order passed by the assessing officer is neither erroneous nor prejudicial to the interest of revenue, therefore, the Ld. CIT ought not to have exercised his revisional jurisdiction under section 263 of the Act and, hence, we cancel the impugned revisional orders for assessment year 2010-11 and assessment year 2013-14 - Decided in favour of assessee. Issues Involved:1. Invocation of Section 263 by the Principal Commissioner of Income Tax (PCIT).2. Disallowance under Section 40(a)(ia) for payments made to Rameshbhai.3. Disallowance under Section 40A(3) for cash payments exceeding Rs. 20,000.Detailed Analysis:1. Invocation of Section 263 by PCIT:The assessee challenged the correctness of the orders passed by the PCIT under Section 263 of the Income Tax Act, 1961, for Assessment Years 2010-11 and 2013-14. The PCIT exercised jurisdiction under Section 263, noting that the Assessing Officer (AO) did not properly verify certain transactions, making the assessment orders erroneous and prejudicial to the interest of the Revenue.2. Disallowance under Section 40(a)(ia) for Payments Made to Rameshbhai:The PCIT observed that the assessee made a payment of Rs. 13,41,006 to Rameshbhai, a labor contractor, without deducting TDS, which should have been disallowed under Section 40(a)(ia). The assessee contended that this issue was considered during the original assessment, and the disallowance was accepted. However, the PCIT noted that the AO did not make any disallowance on this payment, concluding that the AO's order was erroneous and prejudicial to the interest of the Revenue.3. Disallowance under Section 40A(3) for Cash Payments Exceeding Rs. 20,000:The PCIT found that the assessee made cash payments exceeding Rs. 20,000 to various parties, which violated Section 40A(3). The assessee argued that these payments were covered under exceptions provided in Rule 6DD and were considered during the original assessment. The PCIT, however, determined that the AO did not properly verify these payments and directed a fresh assessment.Judgment:The Tribunal analyzed the submissions and documents provided by both parties. It noted that the AO had examined the issues during the original assessment, and the assessee had provided all necessary documents and explanations. The Tribunal emphasized that the AO had taken a plausible view based on the evidence presented.For the payment to Rameshbhai, the Tribunal found that the AO had already considered the issue and made a disallowance, which the assessee accepted. Therefore, the AO's order was neither erroneous nor prejudicial to the interest of the Revenue.Regarding cash payments exceeding Rs. 20,000, the Tribunal observed that the AO had examined these transactions and accepted the assessee's explanations, considering them under exceptions provided in Rule 6DD. Thus, the AO's order was not erroneous or prejudicial to the Revenue.The Tribunal referred to judicial precedents, including the judgments of the Hon'ble High Court of Uttarakhand in Mc Dermott International Inc and the Hon'ble Gujarat High Court in Arvind Jewellers, which established that an order could not be revised under Section 263 unless it was both erroneous and prejudicial to the Revenue.Conclusion:The Tribunal concluded that the twin conditions for invoking Section 263 were not met, as the AO's orders were neither erroneous nor prejudicial to the interest of the Revenue. Consequently, the Tribunal canceled the PCIT's revisional orders for both assessment years and allowed the assessee's appeals.