Commissioner of Income Tax vs Rakshit Transport

The Court: The Assessing Officer by his order dated 29th December, 2009 passed u/s 143(3) of the Income Tax Act, hereinafter referred to as the said Act, held as follows:

Considering the above discussion, I am inclined to treat the above payment as payments made to transport contractors for which the assessee is liable to deduct TDS u/s 194C of the I.T. Act. After giving concession for those payment where the single payment does not exceed Rs. 20,000 and Rs. 50,000 in an aggregate in year for which 194C is not attracted amounting to Rs. 12,34,540/- and on the remaining amount of Rs. 1,20,52,564/- the assessee is liable to deduct TDS u/s 194C. This amount of Rs. 1,20,52,564/- represents payment to transport contractors.

However, as information from all the parties were not available at time of assessment and inspection is done on random basis on selected parties. Considering the above I am disallowing on estimate basis 20% of the balance i.e. Rs. 1,20,52,564/- amounting to Rs. 24,10,512/- u/s 40a(ia) of the I T Act as the assessee fails to deduct TDS under 194C of the said act.

The CIT in exercise of power u/s 263 passed an order dated 20th March, 2012 holding that the assessment order was erroneous and prejudicial to the interest of the revenue. The reasons assigned by the CIT, inter alia, were as follows:

On verification of record it has come to my notice that the reimbursed amount of Rs. 1,32,87,104/- was bifurcated by the assessing officer in two components: (i) Rs. 12,34,540/- being the sum total of payments not exceeding Rs. 20,00 (individual payment/credit in a day) or Rs. 50,000/- (aggregate payment/credit during the year to a particular person) and (ii) Rs. 1,20,52,564/- being the sum total of payments/credit which attracts provision of Sec. 194C of the Act. Accordingly, the AO made disallowance U/s. 40a(ia) only on 20% of Rs. 1,20,52,564/-, which comes to Rs. 24,10,512/-. However, I find that there is no provision for disallowing part expenses U/s. 40a(ia) of the Act.

We are told that the assessee had also preferred an appeal against the assessment order dated 29th December, 2009, which is still pending before the CIT(A).

Aggrieved by the order passed u/s 263, the assessee preferred an appeal before the Income Tax Appellate Tribunal, which by its impugned judgment and order dated 22nd May, 2013 held as follows:

A perusal of the order sheet noting recorded in the course of assessment also clearly supports this view. Further, a perusal of the order passed u/s. 263 of the I.T. Act, 1961 clearly shows that the Ld. CIT has directed the re-examination and re-verification of an issue which is already being verified and assessed by the AO. The powers u/s. 263 of the I.T. Act, 1961 cannot be used for directing a re-verification. Once an opinion has been formed by the AO the Ld. CIT by taking recourse to the powers u/s. 263 of the I.T. Act, 1961 cannot take a stand that the examination done by the AO was not adequate. Adequate enquiry is a subjective issue and just because the Ld. CIT feels that the AO should have done more enquiries does not make it a case for invoking the powers u/s. 263 of the I.T. Act, 1961. This view of ours also finds support from the decision of the coordinate Bench of this Tribunal in the case of Elite Shoe Company in ITA No. 772/Kol/2011 dated 22.05.2012 where under similar circumstances the revision order passed u/s. 263 of the I.T. Act, 1961 have been quashed. In view of the above, we are of the view that the revision as directed by the Ld. CIT by invoking his powers u/s. 263 of the I.T. Act, 1961 cannot be sustained and consequently the said order stands quashed.

Aggrieved by the aforesaid order of the learned Tribunal, the revenue has come up in appeal.

Ms. Ghutghutia, learned advocate appearing for the revenue, submitted that the order passed by the learned Tribunal is altogether misconceived and bad in law. She submitted that the CIT in exercise of power u/s 263 passed the following order as would appear from the last paragraph of the judgment and order dated 20th March, 2012.

Hence, in the light of the above discussion, and in the interest of natural justice, I am of the considered view that the instant case needs further re-examination and re-verification. Therefore, the instant case is hereby set aside to the file of the Assessing Officer and the assessing officer is hereby directed to make the assessment afresh by re-considering and re-examining all the facts, as raised during the proceeding u/s. 263 of the Act. The AO should afford reasonable opportunity of being heard to the assessee before the assessment is reframed by him.

She submitted that what the CIT has done is to direct the assessing officer to make the assessment afresh by re-examining and reconsidering the facts and circumstances of this case, which the CIT was entitled to do u/s 263 itself. She drew our attention to Section 263, which provides as follows:

263(1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the [Assessing] Officer is erroneous in so far as it is prejudicial to the interest of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justified, including an order enhancing or modifying the assessment, or canceling the assessment and directing a fresh assessment.

She contended that no elaborate reasoning is required to demonstrate that the direction issued by the CIT is within the permissible limits of sub-section 1 of Section 263. The learned Tribunal was wrong in setting aside the order of the CIT.

Mr. Majumdar, learned advocate appearing for the assessee, submitted that the assessment was made after thorough investigation u/s 133(6) of the Act. Thereafter, the order of assessment was passed. After the matter has been finally adjudicated by the Assessing Officer, there was no reason or scope to direct the Assessing Officer to re-investigate the matter. He added that in the event this Court interferes with the order passed by the learned Tribunal, the appeal preferred by his client against the assessment order dated 29th December, 2009 shall also become nugatory. He, therefore, invited this Court to refrain from interfering with the order passed by the learned Tribunal.

We have considered the rival submissions of the learned advocates for the parties and are of the opinion that the submission of Ms. Ghutghutia must be upheld. Investigation and verification of the claims and contentions of the assessee including examination of the evidence collected or produced by the assessee are all part of the assessment. These are the steps, which have to be taken for the purpose of making an assessment under sub-Section 3 of Section 143, depending upon the facts and circumstances on each case. The CIT had in fact by the order u/s 263 remanded the matter directing the Assessing Officer to make the assessment afresh which the CIT was entitled to do. The learned Tribunal erred in not taking into account the order passed by the CIT in its entirety. The CIT has demonstrated reasons as to why is the order of the Assessing Officer erroneous and prejudicial to the interest of the revenue. It is the substance and not the form of the order which is material. We are as such unable to agree with the views expressed by the learned Tribunal.

The apprehension expressed by Mr. Majumdar, learned advocate for the assessee, that in the event the order of the learned Tribunal is set aside, the pending appeal by the assessee against the order of assessment would become nugatory, is also without any foundation. The appeal preferred by the assessee stood automatically allowed by the order of the CIT u/s 263 of the Act. The assessment order dated 29th December, 2009 stood set aside. Therefore, the object of the assessee was achieved. Whether the assessee is entitled to any deduction on account of payment allegedly made on account of freight charges is a question, which shall be gone into by the Assessing Officer once again. The assessee shall be entitled to make his submission both on facts and in law. Therefore, there is no reason why the submissions made by Mr. Majumdar should deter us from setting aside the order passed by the learned Tribunal.

For the aforesaid reasons, the order under challenge is set aside and the order of the CIT(A) is restored. The appeal is, thus, allowed.