2024 (11) TMI 1199 - AT - Income Tax

Partnership firm's revision under section 263 quashed for double TDS credit as no actual revenue prejudice found

United Brothers Multiplast LLP (Successor to M/s. United Brothers) Versus Pr. Commissioner of Income Tax-17, Mumbai

ITAT Mumbai held that revision proceedings u/s 263 against a partnership firm for double grant of TDS credit were invalid. The firm received TDS credit ... Revision u/s 263 - double grant of TDS credit - revisionary proceedings were initiated in the case of the partnership firm on the basis that vide assessment order passed u/s 147 r.w.s. 144B TDS credit as granted to the partnership firm even though no income has been offered to tax by the partnership firm in its return of income filed - HELD THAT:- Since the TDS as appearing in the name of the partnership firm was only allowed to the partnership firm and not to the LLP, despite the fact that the corresponding income was offered to tax by the LLP, we are of the considered view that no prejudice has been caused to the Revenue in the present case. Hon’ble Supreme Court in Malabar Industrial Co. Ltd. [2000 (2) TMI 10 - SUPREME COURT] held that in order to invoke the provisions of section 263 of the Act, the assessment order must be erroneous and also prejudicial to the interest of the Revenue, and if one of the limbs is absent, i.e., if the order of the Income-tax Officer is erroneous but is not prejudicial to Revenue or if it is not erroneous but is prejudicial to Revenue, recourse cannot be had to section 263 of the Act. Since both the conditions for invoking section 263 of the Act are not satisfied in the present case, therefore, the impugned order passed by the learned PCIT under section 263 of the Act is quashed. Accordingly, the grounds raised by the assessee are allowed. Issues Involved:1. Invocation of revisionary proceedings under Section 263 of the Income Tax Act, 1961.2. Alleged erroneous assessment order prejudicial to the interest of the Revenue.3. Grant of TDS credit to the partnership firm instead of the LLP.Detailed Analysis:1. Invocation of Revisionary Proceedings under Section 263:The primary issue in this case revolves around the invocation of revisionary proceedings under Section 263 of the Income Tax Act by the Principal Commissioner of Income Tax (PCIT). The assessee, originally a partnership firm, was converted into a Limited Liability Partnership (LLP) and claimed that all income was duly accounted for in the LLP's return. The PCIT initiated proceedings under Section 263 on the basis that the assessment order dated 15.03.2022, which accepted the returned income of the partnership firm, was erroneous and prejudicial to the interest of the Revenue. The PCIT alleged that the Assessing Officer (AO) failed to conduct due verification, especially concerning the TDS credit granted to the partnership firm despite no income being offered by it for the Assessment Year 2016-17.2. Alleged Erroneous Assessment Order Prejudicial to the Interest of the Revenue:The PCIT contended that the assessment order was erroneous as it resulted in a refund being issued to the partnership firm despite the absence of taxable income. The PCIT's position was that the AO did not perform the necessary inquiries expected under the circumstances, thus rendering the order prejudicial to the Revenue's interest. However, the Tribunal found that the AO had indeed issued statutory notices and considered the responses from the partnership firm, which clarified that the income belonged to the LLP and not the dissolved partnership firm. The Tribunal concluded that the AO had conducted adequate verification, and the assessment order was neither erroneous nor prejudicial to the Revenue.3. Grant of TDS Credit to the Partnership Firm Instead of the LLP:The dispute also involved the grant of TDS credit amounting to Rs. 15,84,582 to the partnership firm, even though the income was offered by the LLP. The assessee argued that the TDS was erroneously deducted in the name of the partnership firm due to mistakes by certain deductors. The Tribunal noted that the LLP had duly accounted for the income and paid taxes without claiming the TDS credit. The Tribunal found that the TDS credit was granted only to the partnership firm and not to the LLP, ensuring no double benefit. Citing the decision of the Delhi High Court in a similar context, the Tribunal emphasized that procedural errors should not obstruct justice, and since no prejudice was caused to the Revenue, the invocation of Section 263 was unwarranted.Conclusion:The Tribunal held that both conditions for invoking Section 263-error and prejudice to Revenue-were not satisfied. The assessment order was not erroneous as the AO had conducted due verification, and it was not prejudicial to the Revenue since the TDS credit was granted only once. Consequently, the Tribunal quashed the order under Section 263 and allowed the appeal by the assessee.