Revision 263 merely for difference in income as per P&L Account & TDS statement quashed as assessment order was not erroneous & prejudicial to Revenue
ABCAUS Case Law Citation:
ABCAUS 3127 (2019) (08) ITAT
Important case law relied upon by the parties:
Malabar Industrial Co. Ltd-vs-CIT (2000) 243 ITR 83 (SC)
CIT-vs-Vikas Polymers reported in 341 ITR 537
The instant appeal was filed by the assessee against the order passed by the Pr. Commissioner of Income Tax under section 143(3) of the Income Tax Act, 1961 (‘the Act’).
The assessee company was engaged in the business of trading which filed its return of income declaring loss which was processed u/s 143(1) of the Act. Subsequently, a scrutiny notice u/s 143(2) was served upon the assessee and the assessment was finalized after making disallowances.
However, the PCIT found such assessment order erroneous and prejudicial to the interest of the Revenue inter alia on the ground that the assessee had claimed tax deducted at source (TDS) which was deducted on the income which was much higher than the income offered to tax by the assessee. According to PCIT this had resulted in under assessment.
Accordingly, the PCIT invoked jurisdiction u/s 263 and show-cause was served upon the assessee as to why appropriate order u/s 263(1) of the Act should not be passed.
In response to the said show-cause, the assessee filed a reply and explained that the presumption of the Revenue that income should also be indirect proportion to the amount of TDS was not correct. At times there are some timing difference between Revenue recognition and deduction tax at source.
The assessee’s case was this that the deductor has also effected TDS on account of “service tax” included in the Bill. The service tax collected by the service provider ( the assessee) was not income and hence the same was not reflected in his Profit and Loss account. Further it was explained that the deductor had also effected TDS on “reimbursement” expenses which was also not income of the assessee and thus not reflected in the Profit and Loss account.
Apart from that the difference on account of timing difference, the assessee furnished a reconciliation statement of difference between service income as per Profit and Loss account and as worked out based on TDS. However, such submission was not found acceptable by the PCIT.
The PCIT therefore, held the assessment order passed u/s 143(3) of the Act was erroneous and prejudicial to the interest of Revenue and directed the AO to make fresh assessment of the total income.
Before the Tribunal, the assessee submitted that in order to invoke revisionary jurisdiction u/s 263 of the Act the twin conditions being the AO’s order must be erroneous and also prejudicial to the interest of Revenue need to be fulfilled. Unless the twin conditions are fulfilled revisionary jurisdiction cannot be invoked by the Revenue In support of his submission, he placed reliance in the judgment passed by the Hon’ble Apex Court.
The Tribunal opined that when an issue has been examined at the original assessment stage but the same has not been reflected in the final assessment order, then that, by itself, would not lead to a conclusion that order of AO calls for interference by the Learned CIT u/s 263 of the Act.
The Tribunal observed that the case of the assessee was that the service tax calculated by the service provider since not the income , it was not been reflected in the P&L account. Similarly, TDS effected on “reimbursement” of expenses was neither the income of the assessee, hence not reflected in P&L account. So far as the difference on account of timing difference was concerned, the Tribunal noted that reconciliation statement of difference between service income as per P&L account and as worked out on the basis of the TDS was also furnished before the appellate authority but the same was not taken into consideration in its proper prospective.
Revision u/s 263 merely for difference of income in P&L Account & TDS statement invalid
The Tribunal opined that merely because there was some difference in the service income as per P&L Account and as worked out based on TDS the assessment order cannot be said to be erroneous and prejudicial to the interest of the Revenue.
Further it was observed that while framing assessment u/s 143(3) the AO specifically mentioned in the order that the credit for “prepaid tax” (i.e. TDS) had been given after verification and its calculation as per ITNS 150. Thus the issue was already examined by the AO.
Apart from above, the Tribunal opined that the legal point being fulfillment of twin conditions that the order of the AO be erroneous and also prejudicial to the interest of Revenue had not been satisfied before invoking jurisdiction u/s 263 of the Act.
Resultantly, the Tribunal deleted the impugned addition upon invocation of jurisdiction u/s 263 of the Act by the CIT.
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