2023 (12) TMI 394 - AT - Income Tax

CIT revision under section 263 upheld when AO fails enquiry on TDS interest disallowance and deemed rent

ITAT PUNE upheld CIT's revision u/s 263 against the assessee. The tribunal found that the AO failed to conduct any enquiry or verification regarding ... Revisionary jurisdiction under section 263 - Explanation 2 to section 263 - order passed without making inquiries or verification - Order deemed to be erroneous insofar as prejudicial to the interests of the revenue - Deemed rental income on unsold flats - Interest on TDS not deductible as business expenditureRevisionary jurisdiction under section 263 - Explanation 2 to section 263 - order passed without making inquiries or verification - Order deemed to be erroneous insofar as prejudicial to the interests of the revenue - Deemed rental income on unsold flats - Interest on TDS not deductible as business expenditure - Validity of the Principal Commissioner's invocation of revisionary jurisdiction under section 263 on the ground that the assessment order was passed without making inquiries or verification into interest on TDS and taxability of deemed rent on unsold flats. - HELD THAT: - The Tribunal upheld the PCIT's order under section 263. Explanation 2 to section 263 is a deeming provision which declares an assessment order to be erroneous and prejudicial to the revenue where the Assessing Officer has passed the order without making inquiries or verification which should have been made. The record shows the AO did not conduct any enquiry or verification regarding (a) the disallowance of interest paid on TDS and (b) applicability of deemed rental income on unsold flats held as stock-in-trade. Because the AO failed to carry out such enquiries, the assessment order is deemed erroneous and prejudicial to the revenue under Explanation 2(a) to section 263, and the PCIT was justified in exercising revisionary jurisdiction. The Tribunal noted that had the AO conducted the requisite enquiry, the assessee's alternative statutory argument (relying on the amendment to the provision governing annual value and the contention that annual value would be nil for the relevant period) might have been relevant; however, that matter was not determinative because the threshold defect - absence of enquiry - was established and attracts the deeming provision. [Paras 5]Order passed by the Principal Commissioner under section 263 was upheld; the assessment order was held to be deemed erroneous and prejudicial to the interests of the revenue for lack of requisite inquiries or verification, and the assessee's appeal is dismissed.Final Conclusion: The Tribunal affirmed the PCIT's exercise of revisionary jurisdiction under section 263 on the ground that the Assessing Officer failed to make inquiries or verifications regarding interest on TDS and deemed rental income on unsold flats, rendering the assessment order deemed erroneous and prejudicial to the revenue; the assessee's appeal is dismissed. Issues involved:The judgment involves the revisionary jurisdiction exercised by the Principal Commissioner of Income Tax (PCIT) under section 263 of the Income Tax Act, 1961 regarding the assessment order for the assessment year 2018-19.Revisionary Jurisdiction - Interest on TDS:The PCIT observed that the assessee had claimed expenses for interest on TDS but did not add it back while computing total income, and the Assessing Officer (AO) did not disallow it in the assessment order. The PCIT found that the AO failed to conduct any verification or inquiry on this issue, leading to a lack of application of mind on the part of the AO. The PCIT held that the assessment order was erroneous and prejudicial to the interest of the Revenue due to the non-consideration of disallowance of interest on TDS.Revisionary Jurisdiction - Deemed Rental Income:The PCIT noted that the assessee had unsold flats held as stock-in-trade, which were not considered for deemed rental income during the assessment proceedings. The PCIT found that the AO did not carry out any inquiry regarding the taxability of deemed rental income on this issue. The PCIT concluded that the AO's failure to conduct verification/enquiry on this matter showed a lack of application of mind, rendering the assessment order erroneous and prejudicial to the interest of the Revenue.Arguments and Decision:During the hearing, the assessee argued that the PCIT did not arrive at any satisfaction regarding the arguments presented during the proceedings under section 263. The assessee contended that the revisionary jurisdiction could not be invoked without such satisfaction. However, the Tribunal upheld the order of the PCIT under section 263, stating that the AO's failure to conduct any inquiry or verification on the disputed issues rendered the assessment order erroneous and prejudicial to the interest of the Revenue. The Tribunal emphasized the deeming provision under explanation 2 to section 263, which considers an order erroneous if passed without necessary inquiries or verifications. The Tribunal dismissed the appeal raised by the assessee, affirming the PCIT's decision.Conclusion:The Tribunal upheld the PCIT's order under section 263, emphasizing the importance of conducting necessary inquiries and verifications in assessment proceedings. The Tribunal found no infirmity with the PCIT's decision and dismissed the appeal of the assessee.