INCOME TAX ACT, 1961

Section 263

Revision under section 263 - Erroneous and prejudicial order - AO not made any inquiry as to interest payment to NBFC on which no tax was deducted -

Original assessment was completed under section 143(3) by AO determining the total assessed income. Thereafter, on verification of assessment record, PCIT found from the profit and loss account that besides interest expenses to other parties, assessee had claimed an expenditure under the head “interest on tanker loan”. Further, ongoing through the details on the record, he noticed that assessee had borrowed capital from a NBFC engaged in activities of financing loans for acquiring assets. As per section 194A, assessee was required to deduct tax at source on payment of interest to the above NBFC and such deducted amount was required to be credited to Central Government Account, however, no tax was deducted under section 194A. Accordingly, the expenditure claimed under the head interest on tanker loan' was required to be disallowed under section 40(a)(ia). Since AO had not disallowed the same, assessment order was erroneous and prejudicial to the interest of the revenue. Held: AO had not made any enquiry on the issue of payment of interest to the said NBFC. Assessee could not controvert the fact that recipient of impugned interest i.e. NBFC was a company incorporated under the Companies Act, 1956 and thus, the provisions of section 194A(3)(iii)(b) was not applicable. It was also not in dispute that assessee had not complied with the provisions of Rule 31CAB read with first proviso to section 201(1) and had not submitted Form 26A. Therefore, order passed by PCIT was justified holding assessment order was erroneous and prejudicial to the interest of revenue and directing AO to modify the assessment order by disallowing a sum under section 40(a)(ia).

REFERRED :

FAVOUR : Against the assessee

A.Y. : 2014-15

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