TaxTMI 
TaxTMI 
2015 (7) TMI 612
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....ppellant had duly deducted and deposited the TDS to the credit of Central Government on management service fees and royalty expenses, after the demerger order was approved by the Hon'ble High Court but before the due date of filing the return of income for AY 2009-10. 4. That on the facts and circumstances of the case, the learned CIT erred in holding that the order passed by the learned Assessing Officer ('learned AO') is erroneous since the learned AO had allowed the claim of management service charges and royalty expenses, after proper application of his mind and verifying all the material and facts on record. 5. That on the facts and in the circumstances of the case, the learned CIT erred in not appreciating the fact that the Appellant could not deduct taxes on management service fees in PY 2008-09 since the liability towards these expenses pertained to the product division of McNally Bharat Engineering Company Limited ('MBECL') which was under the demerger process and was pending approval from the Hon'ble Calcutta High Court and upon receipt of the order of the Hon'ble Calcutta High Court dated 26 August 2013; the Appellant duly deducted taxes on ....
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.... of Rs. 3,52,76,000 and provision for royalty expenses for Rs. 1,02,87,073/-was concerned. The ld. CIT vide impugned order dated 26th March, 2014 set aside the assessment order on these two aspects , with the direction to the AO that the allowability of these two expenses should be re-assessed after bringing all the facts on records as per law. 3.2. The ld. CIT was of the view that the assessee had not deducted TDS from the payment of management service fee during the previous year and the TDS was deducted and deposited on 24th September, 2009 in contravention of the provision of section 40(a)(ia) of the Act. Similarly for royalty amount of Rs. 1,02,87,073/- the TDS was not deducted during the previous year, was instead deposited to the credit of the Government only on 15th September, 2009. 3.3. The case of the assessee as argued by the ld. Counsel is that the order passed by the ld. CIT does not disclose that the assessment order is erroneous and prejudicial to the interest of the revenue. According to the assessee, on this ground alone, the impugned order should be set aside. To support his submission the assessee has relied upon numerous judgments including CIT vs Kashi Nath &....
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....DS of Rs. 39,96,771/- u/s.194J on that payment was actually deducted by the assessee in the month of Sept.2009 in contravention of the provision of section 19 TAR also do not furnish any information on payment of TDS to Govt. A/c.The payment of management services Fee of Rs. 3,52,76,000/- attracted provisions of section 40(a)(ia) and was required to be disallowed and added back to the total income of the assessee during the year. As this was not done, there was underassessment of income of Rs. 3,52,76,000/-. ii) Royalty amount of Rs. 1,07,09,0001- was debited to P&L A/c. and from the clause 17(f) of TAR, it is observed that an amount of Rs. 10,20,38,906/- was inadmissible u/s.40(a) which included an amount of Rs. 1,02,87,073/- on account of Royalty. But, this amount of Rs. 1,02,87,073/- was not disallowed by the assessee as well as in assessment. In reply to a question on non-deduction of TDS on Royalty, the assessee stated that during the year relevant to AY. 2009- 10, provision to Royalty amounting to 1,02,87,073/- was made and the same was reversed in AY. 2010-11 before filing of return of income and consequently no tax at source was deducted. The reply of the assessee was acce....
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....nsequently no tax at source was deducted on the same. On receipt of invoice dated 14th April, 2009 from Outotech Pvt. Ltd. tax was duly deducted on these expenses and deposited to the credit of the Government on 15th September, 2009 i.e. before the due date of filing of return of income for the subject assessment year. 6. The ld. DR, on the other hand, had relied upon the order passed by the ld. CIT. 7. We have heard the submissions of both the parties. In the light of the facts stated what has to be examined is whether the ingradients of section 263 of the Act are attracted in as much as whether the assessment order u/s 143(3) of the Act was simultaneously erroneous and prejudicial to the interest of the revenue and whether the assessment could be set aside on the ground that TDS was not deposited in the time limit framed u/s 40(a)(ia) of the Act. The grounds of appeal raised are inter related and can be answered collectively by us. 7.1. Before adverting to the merits of the issue in hand it is pertinent to note the legislative history of section 40(a)(ia) of the Act which is reproduced herein below :- "The provisions of Section 40(a)(ia) of the Act were brought on Statute by ....
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....n Explanation III to Section 194C. By the taxation Laws (Amendment) Act 2006 w.r.e.f. 01.04.2006, "rent and royalty" was also brought within the purview of provisions of Section 40(a)(ia) of the Act. With a view to liberalize provisions of Section 40(a)(ia) of the Act, the Finance Act 2008 brought amendment w.r.e.f. 01.04.2005 as under In Section 40 of the Income Tax Act, in clause (a),- (a) in sub-clause (ia), with effect from the 1st day of April, 2005, - (i) for the words, brackets and figures "has not been paid during the previous year, or in the subsequent year before the expiry of the time prescribed under sub-section (1) of Section 200", the following words, brackets and figures shall be substituted and shall be deemed to have been substituted, namely:- "has not been paid, - (A) in a case where the tax was deductible and was so deducted during the last month of the previous year, on or before the due date specified in sub-section (1) of Section 139; or (B) in any other case, on or before the last day of the previous year". (ii) for the proviso, the following proviso shall be substituted and shall be deemed to have been substituted, namely :- "Provided that where in ....
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....tions raised by the assessee. The amendment made by the Finance Act 2010 extended the time of payment of tax deducted to the due date of filing of return u/s 139(1) of the Act. The tax had to be deducted only in the previous year only to avail the benefit of the amendment. Admittedly in the present case, tax had not been deducted by the assessee during the previous year and therefore disallowances ought to have been made for the payments made for management service fee as well as for royalty. The reasons stated by the assessee that the company was going through the process of demerger does not impress us at all. The provision of deduction on TDS are mandatory and strict in nature and cannot be given a go-by as done by the assessee. 7.5. We are in agreement with the reasoning given in the impugned order of the ld. CIT that the assessee had failed to deduct TDS during the previous year on payments of management service fee and royalty debited to the profit and loss account. The order passed by the AO is therefore erroneous and prejudicial to the interest of the revenue. The twin conditions as laid down by the Hon'ble Supreme Court in the case of Malabar Industrial Co.Ltd vs CIT 243 ....
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.... revenue. There must be some grievous error in the Order passed by the Income-tax Officer, which might set a bad trend or pattern for similar assessments, which on a broad reckoning, the Commissioner might think to be prejudicial to the interests of Revenue Administration. In our view this interpretation is too narrow to merit acceptance. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to erroneous order of the Income-tax Officer, the revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the revenue. The phrase prejudicial to the interests of the revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treate....
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.... merely on the ground that a different view was possible. If read as a whole, the judgment does not exclude error in assessment order, by ignoring relevant material. Not holding such inquiry as is normal and not applying mind to relevant material would certainly be 'erroneous' assessment warranting exercise of revisional jurisdiction. Judgment has to be read as a whole and an observation during the course of reasoning in the judgment should not be divorced from the context in which it was used. The judgment is neither to be interpreted as an Act of Parliament nor as a holy book. If this principle is kept in mind, we do not find any conflict in the view taken in Rajendra Singh and Daga Entrade P.Ltd. Disagreement in Daga Entrade P.Ltd is only to the interpretation which limits the ratio of the judgment by relying only one sentence in isolation divorced from the entire judgment. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being 'erroneous' non-application of mind and omission to follow natural justice is in same category." 7.9. In the case of CIT vs Deepak Kumar Garg 299 ITR 435 it was held as under :- "4. After hear....