2008 (1) TMI 895

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....eing disposed of together for the sake of convenience. 2. In ITA No. 749/Hyd/07, the assessee is aggrieved against the demand of Rs. 3,28,468 raised u/s 201(1) of the Act and in ITA No. 748/Hyd/07, the assessee is aggrieved against the levy of interest of Rs. 61,664 u/s 201(1A) of the Act. 3. It was observed by the Assessing Officer that the assessee had debited a sum of Rs. 12 lacs towards rent which had been credited to the account of the payee during the end of the financial year. The amount of tax deducted at source (TDS) of Rs. 2,52,000 was shown as outstanding TDS liability. It was further noticed that TDS amounts of Rs. 10,000, Rs. 52,000 and Rs. 14,468 deducted from salaries, contract payments and professional charges payments....

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.... reversed in financial year 2004-05 and having reversed the entry, the liability for TDS no longer remained. The entry pertaining to rent was reversed in view of the adverse financial conditions of the assessee. Thus, so far as the year under consideration was concerned, there was no liability to pay rent and consequently no liability for TDS. His second submission was that the payee of the rent itself was in huge losses and since it had huge carried forward losses it had no liability to pay any tax. It was contended that though these submissions were made before the CIT(A), the latter failed to consider the same. With regard to other payments, the submissions were the same as they were before the CIT(A). For his various submissions, the le....

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....ssee is expected to know that the payee will not have any tax liability in view of huge brought forward losses. The assessee can also legitimately expect that the return would be filed in time by Surana Steels Ltd. Under these circumstances, the assessee before us can harbour a legitimate belief that since there is no tax liability on Surana Steels, it need not deduct any tax at source. This does not tantamount to taking law in one's own hands. The clear facts on record justify the belief of the assessee. Therefore, on this ground we do not hesitate to hold that the assessee was not liable to deduct tax at source and hence the demand raised in respect of rent payments is cancelled. In fact, the assessee has placed a copy of the assessme....