The Tax Publishers2019 TaxPub(DT) 8158 (Luck-Trib) : (2019) 076 ITR (Trib) 0330

INCOME TAX ACT, 1961

Section 263

Since during relevant period, tax was required to be deducted only on the amounts payable, the AO was justified in allowing assessee's claim of deduction on account of interest paid by him. Hence, the CIT was not correct in invoking his jurisdiction under section 263 on the ground that the assessee's claim of interest was not allowable as per provisions of section 40(a)(ia).

Revision under section 263 - Erroneous and prejudicial order - Addition under section 40(a)(ia) -

CIT noticed that assessee paid interest on loan but did not deduct tax at source on the same; thus, he opined that as per the provisions of section 40(a)(ia), the deduction claimed on account of interest was not allowable. He further noticed that AO allowed the said deduction and accordingly, concluded that the order passed by the AO was erroneous and prejudicial to the interest of Revenue. Held: In view of High Court decision in the case of CIT v. Vector Shipping Services (P) Ltd. [Civil Misc. Review Application No. 248688 of 2013 in ITA 122 of 2013, dt. 27-9-2013], tax was required to be deducted only on the amounts payable and assessee was not required to deduct tax on the amounts paid during the year. Further, as the assessee was following mercantile system of accounting, the entries of interest credited by him to the payees' accounts were entries of accrual in the absence of cash transactions, which amounted to payment and therefore, the AO had rightly not made the disallowance on account of interest as per the judgment of the High Court decision in the case of CIT v. Vector Shipping Services (P) Ltd. [Civil Misc. Review Application No. 248688 of 2013 in ITA 122 of 2013, dt. 27-9-2013]. Hence, the CIT was not justified in concluding that the order passed by the AO was erroneous and prejudicial to the interest of Revenue, as the AO had rightly not made the disallowance.

Followed: CIT v. Vector Shipping Services (P) Ltd. [Civil Misc. Review Application No. 248688 of 2013 in ITA 122 of 2013, dt. 27-9-2013]

REFERRED :

FAVOUR : In assessee's favour

A.Y. :

IN THE ITAT, LUCKNOW BENCH

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