AO's assessment on deemed annual letting value and TDS deduction upheld, but interest on TDS revision confirmed under section 263

ITAT Pune-AT partly allowed assessee's appeal against CIT's revision order u/s 263. Tribunal held that AO's view on taxing deemed annual letting value of unsold flats at 5% under s.23(1)(a) was legally possible, making assessment not erroneous. Similarly, TDS deduction on payments to third party was properly documented during assessment proceedings. However, Tribunal upheld CIT's revision regarding interest on TDS, finding AO failed to conduct necessary inquiry on this issue, making assessment erroneous and prejudicial to revenue interests.

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Issues involved:
The issues in this case involve the correctness of the order passed under section 263 of the Income Tax Act for the assessment year 2017-18. The specific issues raised by the assessee include the jurisdiction of the Principal Commissioner of Income Tax, the taxability of deemed annual letting value, the deduction of TDS on advertisement expenses, and the treatment of interest on TDS.

Jurisdiction of Principal Commissioner of Income Tax:
The assessee contended that the order passed by the Principal Commissioner of Income Tax (PCIT) under section 263 was erroneous and beyond jurisdiction. The assessee argued that the Assessing Officer (AO) had considered all relevant details during the assessment proceedings, citing the decision in the case of Malabar Industrial Company Ltd. v. CIT. The Tribunal noted that when there are two legally possible views and the AO adopts one of them, the assessment order cannot be deemed erroneous solely on this ground.

Taxability of Deemed Annual Letting Value:
The Tribunal referred to the case of Kumar Properties and Real Estate (P.) Ltd. v. CIT and highlighted the conflicting views on the taxability of unsold flats held as stock-in-trade. It noted that the Finance Act, 2017 introduced provisions regarding the treatment of such properties, but these provisions were not applicable for the assessment year in question. Citing precedents from the Hon'ble Supreme Court and various High Courts, the Tribunal emphasized that when two legally possible views exist and the AO adopts one, the assessment order cannot be considered erroneous.

Deduction of TDS on Advertisement Expenses:
Regarding the deduction of TDS on advertisement expenses paid to Silk Route Communications, the Tribunal found that the assessee had indeed deducted the TDS and provided details to the AO during the assessment proceedings. As the assessment order was not erroneous in this regard, the order under section 263 concerning TDS on payment to Silk Route Communications was set aside.

Treatment of Interest on TDS:
The Tribunal observed that the AO had not conducted any inquiry or sought details regarding the interest on TDS. Consequently, it agreed with the PCIT that the AO had failed to carry out necessary inquiries, rendering the assessment order erroneous and prejudicial to the interest of revenue. Therefore, the order under section 263 regarding interest on TDS was upheld.

Conclusion:
The Tribunal dismissed the general issues raised in Ground Numbers 1 and 2, as each specific issue had been adjudicated on merit. The appeal of the assessee was partly allowed, with the Tribunal issuing its order on 27th June 2023.

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