The Income Tax Appellate Tribunal (ITAT) Ahmedabad bench while quashing the revision order passed by the Principal Commissioner of Income-Tax assessment order held that the same was not erroneous but found that it was the mistake of the Tax Auditor using incorrect words in the Tax Audit Report towards purchase of granules .
Assessee, Bharatbhai Dilipbhai Makwana, one of the partners in a partnership firm named M/s. Anand Synthetic. During the relevant assessment year, assessee had paid Rs.86,55,661/- to the said partnership firm for “Granule Work” done by it which was also reported in Audit Report under schedule of payment made to persons specified under section 40A(2)(b) of the Income Tax Act.
it was noticed that the assessee had not deducted TDS while making aforesaid payment made by it for Granule Work. as per the provisions of section 40(a)(ia) of the Act, thirty percent (30%) of the expenses made on account of Granules Work done by the firm for the assessee was required to be disallowed.But the AO did not examined this issue.Therefore the PCIT issued notice under Section 263 of the Income Tax Act.
Before the revision officer the assessee submitted that the Tax Audit Report had inadvertently mentioned “Granules Work” as the nature of payment made to M/s. Anand Synthetic when in reality the payment was made for ‘purchase of Granules’ and not any “work” relating to granules.
After considering the submission PCIT held said that the assessee had not furnished any purchase bills or invoices to evidence the fact that the payment of Rs.86.55 lakhs was made for ‘purchase of granules’ and not for any ‘granules work’. Thus the Assessment order was erroneous.
Aggrieved by the order, the assessee filed an appeal before the tribunal.
Tushar Hemani, counsel for the assessee submitted that the Assessing Officer had appreciated the nature of income and expenses incurred by the assessee correctly and noted that the assessee had earned income from job work charges and not paid any expenses on account of the same.
The Assessing Officer had asked the assessee to furnish the details of “job work done” along with a ledger account for the same with reference to TDS vide notice issued under Section 142(1) of the Income Tax Act.
Response to which the assessee had furnished a complete job work account which revealed clearly the fact of job work done by the assessee for Anand Synthetic.
Sudhendu Das, Counsel for the revenue, supported the contentions of PCIT.
It was observed by the tribunal that Annual Accounts of the assessee clearly reveal that the assessee has not incurred any expenses of the nature of job work charges.
All the details revealed the fact that the assessee had not incurred any expenses on account of job work; that the expenses incurred in relation to Anand Synthetic, noted by the PCIT, was in relation to purchase of granules and not for any job work and in fact the assessee had earned job work income from M/s. Anand Synthetic.
After considering the facts submitted by both parties, the two member bench of Annapurna Gupta (Accountant Member) and Madhumita Roy (Judicial Member) observed that PCIT was misguided by the incorrect words used by the Tax Auditor in the Tax Audit Report mentioning expenses incurred by the assessee with its related party Anand Synthetic in the nature of granules work instead of granules purchased.
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