Sannareddy Sudheer Kumar v. ITO, Ward-1(3), Visakhapatnam
[Citation -2016-LL-1007-101]

Citation 2016-LL-1007-101
Appellant Name Sannareddy Sudheer Kumar
Respondent Name ITO, Ward-1(3), Visakhapatnam
Court ITAT-Visakhapatnam
Relevant Act Income-tax
Date of Order 07/10/2016
Assessment Year 2011-12
Judgment View Judgment
Keyword Tags non-deduction of tax • tax audit report • revenue loss • hire charges
Bot Summary: The Principal CIT, proposed to revise the assessment order for the reason that on examination of assessment records, certain omissions and commissions were noticed which render the assessment order erroneous in so far as it is prejudicial to the interest of the revenue, in terms of section 263 of the Act. The Principal CIT, further observed that the A.O. has completed the assessment without examining the issue of 2 ITA No.301/Vizag/2016 Sannareddy Sudheer Kumar, Visakhapatnam applicability of TDS provisions, by making certain adhoc disallowance of expenditure which render the assessment order erroneous in so far as it is prejudicial to the interest of the revenue. With these observations, revised the assessment order passed u/s 143(3) of the Act dated 31.12.2013 and directed the A.O. to disallow the impugned hire charges of 12,05,000/- claimed by the assessee and added back to the total income assessed in the assessment order u/s 143(3) of the Act dated 31.12.2013. The Principal CIT assumed jurisdiction to revise the assessment order for the reason that the A.O. has not conducted proper enquiry before completion of assessment, thereby the assessment order passed by the A.O. u/s 143(3) of the Act dated 31.12.2013 is erroneous in so far as it is prejudicial to the interest of the revenue. The CIT revised the assessment order for the reason that the A.O. has completed the assessment without examining the issue of applicability of TDS provisions u/s 194C of the Act, on hire charges paid by the assessee. The A.O. without examining the issue, simply completed assessment by making certain adhoc disallowances of expenditure different from the hire charges which render the assessment order erroneous in so far as it is prejudicial to the interest of the revenue. The Principal CIT, may hold the assessment order passed by the A.O. may be erroneous, but it cannot be prejudicial to the interest of the revenue, as there is no prejudice is caused to the revenue, as the issue involved is squarely covered by the decision of jurisdictional ITAT the Principal CIT was erred in 7 ITA No.301/Vizag/2016 Sannareddy Sudheer Kumar, Visakhapatnam holding that the assessment order passed by the A.O. is erroneous in so far as it is prejudicial to the interest of the revenue.


ITA No.301/Vizag/2016 Sannareddy Sudheer Kumar, Visakhapatnam IN INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER I.T.A.No.301/Vizag/2016 (Assessment Year: 2011-12) Sannareddy Sudheer Kumar, ITO, Ward-1(3), Visakhapatnam Vs. Visakhapatnam [PAN:AUBPS5438F] ( Appellant) (Respondent) Appellant by : Shri G.V.N. Hari, AR Respondent by : Shri Aravindakshan, DR Date of hearing : 08.09.2016 Date of Pronouncement : 07.10.2016 O R D E R PER G. MANJUNATHA, Accountant Member: This appeal filed by assessee is directed against order of Principal CIT-1, Visakhapatnam dated 31.3.2016 and it pertains to assessment year 2011-12. 1 ITA No.301/Vizag/2016 Sannareddy Sudheer Kumar, Visakhapatnam 2. brief facts of case are that assessee is individual engaged in business of transport contract, filed his return of income for assessment year 2011-12 on 30.9.2011 declaring total income of ` 6,99,560/-. assessment for year has been completed u/s 143(3) of Income Tax Act, 1961 (hereinafter called as 'the Act') on 31.12.2013 and determined total income of ` 9,14,560/- by making additions of ` 95,000/-u/s 40A(3) of Act and further addition of ` 1,20,000/- towards loading and unloading charges. 3. Principal CIT, Visakhapatnam issued show cause notice dated 18.3.2016 and asked to explain why assessment order passed by A.O. u/s 143(3) of I.T. Act, dated 31.12.2013 shall not be revised under provisions of section 263 of Act. Principal CIT, proposed to revise assessment order for reason that on examination of assessment records, certain omissions and commissions were noticed which render assessment order erroneous in so far as it is prejudicial to interest of revenue, in terms of section 263 of Act. Principal CIT, in said show cause notice, observed that A.O. has not verified issue of applicability of TDS on payment made to sub contractors. Principal CIT, further observed that A.O. has completed assessment without examining issue of 2 ITA No.301/Vizag/2016 Sannareddy Sudheer Kumar, Visakhapatnam applicability of TDS provisions, by making certain adhoc disallowance of expenditure which render assessment order erroneous in so far as it is prejudicial to interest of revenue. Therefore, issued show cause notice and asked to explain why assessment order passed u/s 143(3) of Act dated 31.12.2013 shall not be revised under provisions of section 263 of Act. 4. Though adequate opportunity was granted to furnish explanations on 28.3.2016, 30.3.2016 & 31.3.2016, no explanation has been furnished for non-deduction of tax at source on sub contract payment made by assessee. Since, assessee failed to comply with show cause notices, Pr. CIT completed revision proceedings based on materials available on record. In proceedings before him, Principal CIT observed that assessee has made payment towards hire charges in case of 7 parties and amount paid to them exceeds ` 75,000/- in each case attracting provisions of section 194C of Act, however, it is noticed from tax audit report form 3CD, tax was not deducted at source from such credits/payments towards hire charges as required u/s 194C of Act. As TDS was not made on such credits towards hire charges, expenditure claimed to extent of ` 12,05,000/- within total hire charges debited to P&L account 3 ITA No.301/Vizag/2016 Sannareddy Sudheer Kumar, Visakhapatnam ought to have been disallowed u/s 40(a)(ia) of Act, but A.O. has failed to do so. It is evident from record that no query at all was raised nor any clarification was sought on this issue during assessment proceedings. record does not also indicate that A.O. had applied his mind to facts and materials on record through process of enquiry and investigation and formed view on issue. Thus, assessment order is passed without making any enquiries on issue. In such circumstances, assessment order under consideration is deemed to be erroneous and prejudicial to interest of revenue under explanation 2 to section 263 of Act. With these observations, revised assessment order passed u/s 143(3) of Act dated 31.12.2013 and directed A.O. to disallow impugned hire charges of ` 12,05,000/- claimed by assessee and added back to total income assessed in assessment order u/s 143(3) of Act dated 31.12.2013. copy of order giving effect to this order shall be forwarded to this office for record. Aggrieved by CIT order, assessee is in appeal before us. 5. Ld. A.R. for assessee, submitted that assessment order passed by A.O. u/s 143(3) of Act, dated 31.12.2013 is not erroneous in so far as it is prejudicial to interest of revenue, as 4 ITA No.301/Vizag/2016 Sannareddy Sudheer Kumar, Visakhapatnam A.O. has examined issue of applicability of TDS on payment of hire charges. A.R. further submitted that CIT was not correct in directing A.O. to disallow hire charges, as A.O. has examined issue at time of completion of assessment and after satisfied with explanations offered by assessee, chosen to complete assessment by making adhoc disallowances which is different from issue questioned by Principal CIT. A.R. further submitted that A.O. has examined issue, at time of assessment by specific questionnaire and assessee has submitted all details before A.O., therefore, CIT was not correct in coming to conclusion that assessment order passed by A.O. is erroneous in so far as it is prejudicial to interest of revenue. Ld. A.R. further submitted that issue of disallowance of hire charges is covered by special bench decision of ITAT, Visakhapatnam in case of Merilyn Shipping and Transports Vs. ACIT 136 ITD 23., as such there is no prejudice is caused to revenue. Therefore, CIT was not correct in coming to conclusion that assessment order passed by A.O. is erroneous in so far as it is prejudicial to interest of revenue. Ld. D.R. on other hand, strongly supported order of Principal CIT. 5 ITA No.301/Vizag/2016 Sannareddy Sudheer Kumar, Visakhapatnam 6. We have heard both parties, perused materials available on record and gone through orders of authorities below. Principal CIT assumed jurisdiction to revise assessment order for reason that A.O. has not conducted proper enquiry before completion of assessment, thereby assessment order passed by A.O. u/s 143(3) of Act dated 31.12.2013 is erroneous in so far as it is prejudicial to interest of revenue. CIT revised assessment order for reason that A.O. has completed assessment without examining issue of applicability of TDS provisions u/s 194C of Act, on hire charges paid by assessee. CIT, further, observed that assessee has incurred hire charges and paid amount to 7 persons exceeding ` 75,000/- in each case attracting provisions of section 194C of Act, however, it is noticed from tax audit report in form 3CD, that tax was not deducted at source from such payments. A.O. without examining issue, simply completed assessment by making certain adhoc disallowances of expenditure different from hire charges which render assessment order erroneous in so far as it is prejudicial to interest of revenue. 6 ITA No.301/Vizag/2016 Sannareddy Sudheer Kumar, Visakhapatnam 7. It is contention of assessee that A.O. has examined issue of applicability of TDS on hire charges and after satisfied with explanations furnished by assessee, chosen to complete assessment by making certain adhoc disallowances different from issue of hire charges, therefore, CIT was not correct in holding that A.O. has not examined issue of applicability of TDS. assessee further contended that A.O. has examined issue as such assessment order passed by A.O. is not erroneous. It is further submitted that issue involved in revision proceedings is covered by special bench decision of ITAT, Visakhapatnam in case of Merilyn Shipping & Transports Vs. ACIT (supra), wherein ITAT held that no disallowance u/s 40(a)(ia) of Act, can be made when expenditure incurred has been paid before end of relevant financial year. In present case on hand, assessee has paid expenditure before end of financial year, as such question of applicability of TDS and consequent disallowance of amount u/s 40(a)(ia) of Act does not arise. Principal CIT, may hold assessment order passed by A.O. may be erroneous, but it cannot be prejudicial to interest of revenue, as there is no prejudice is caused to revenue, as issue involved is squarely covered by decision of jurisdictional ITAT, therefore, Principal CIT was erred in 7 ITA No.301/Vizag/2016 Sannareddy Sudheer Kumar, Visakhapatnam holding that assessment order passed by A.O. is erroneous in so far as it is prejudicial to interest of revenue. 8. Pr. CIT assumed jurisdiction to revise assessment order on ground that A.O. has failed to examine issue of applicability of provisions of section 194C of Act, on hire charges incurred by assessee. It is true that issue involved in revision proceedings i.e. disallowance of hire charges u/s 40(a)(ia) of Act is covered by special bench decision of ITAT, Visakhapatnam in case of Merilyn Shipping & Transports Vs. ACIT (supra). Although, no prejudice is caused to revenue as pointed out by Ld. A.R., assessee failed to offer any explanation why he could not appear before Principal CIT and explained fact that question raised by Principal CIT is considered by A.O. and also provisions of section 194C of Act are not applicable, as impugned amount has been paid before end of relevant financial year. It is also admitted fact that A.O. has not examined issue at time of completion of assessment, however, there is no revenue loss is caused to exchequer because issue is covered by decision of ITAT, special bench (SB), wherein ITAT held that no disallowance can be made u/s 40(a)(ia) of Act, on amounts paid within end of 8 ITA No.301/Vizag/2016 Sannareddy Sudheer Kumar, Visakhapatnam financial year. Since, assessee failed to appear before CIT, we are of opinion that CIT cannot presume things which is in minds of assessee, as such opined that CIT has rightly assumed his jurisdiction to revise assessment order based on information available on record and his order is upheld. However, we deem it appropriate to modify directions given by CIT to disallow impugned expenditure and set aside assessment order passed by A.O. u/s 143(3) and direct A.O. to re-do assessment afresh in light of above discussion in accordance with law, after affording opportunity of hearing to assessee. 9. In result, appeal filed by assessee is partly allowed. above order was pronounced in open court on 7th Oct 16. Sd/- Sd/- (V. DURGA RAO) (G. MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER Visakhapatnam: Dated : 07.10.2016 VG/SPS ITA No.301/Vizag/2016 Sannareddy Sudheer Kumar, Visakhapatnam Copy of order forwarded to:- 1. Appellant Sannareddy Sudheer Kumar, D.No.49-17-12, Second Floor, Lalitha Nagar, Visakhapatnam. 2. Respondent ITO, Ward-1(3), Visakhapatnam 3. Principal CIT-1, Visakhapatnam 4. CIT (A), Visakhapatnam 5. DR, ITAT, Visakhapatnam 6. Guard file BY ORDER // True Copy // 1 2 . (Sr.Private Secretary) ITAT, VISAKHAPATNAM 10 Sannareddy Sudheer Kumar v. ITO, Ward-1(3), Visakhapatnam
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