ITAT upholds Revision on AO's Lapses in Verifying TDS on Rent and Unsecured Loans [Read Order]

The Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench, has upheld the Principal Commissioner of Income Tax’s (PCIT) revisionary action under Section 263 of the Income Tax Act, 1961, against the assessee, citing critical lapses by the Assessing Officer (AO) in verifying TDS compliance and unsecured loan transactions during assessment.

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The case pertains to Assessment Year 2018–19, where Shree Hari Enterprise, engaged in real estate activity, was assessed by the National e-Assessment Centre under Section 143(3). Subsequently, the PCIT invoked revisionary powers under Section 263, asserting that the AO had not carried out proper inquiries on five key issues: TDS on rent (Section 194-I), TDS on professional services (Section 194J), valuation of closing stock, and the genuineness of two unsecured loan entries.

The ITAT bench of Suchitra Kamble, Judicial Member and Annapurna Gupta, Accountant Member, after examining the facts, upheld the PCIT’s revision on two key issues. Firstly, on the matter of rent payments totaling ₹31.9 lakh, the Tribunal found that the AO had verified only a portion of the TDS compliance.

Despite claims from the assessee that TDS was deducted where applicable, the ITAT held that there was no clarity or adequate evidence to support that TDS under Section 194-I had been properly applied across all payments. This, the Tribunal said, warranted deeper inquiry which the AO had failed to conduct, rendering the assessment order erroneous and prejudicial to Revenue.

Secondly, the ITAT confirmed the PCIT’s revision regarding a substantial unsecured loan of ₹1.67 crore received from a party named Anmol & Sons. The Tribunal observed that the AO did not examine the identity, creditworthiness, or genuineness of the transaction, despite red flags such as the lender not declaring interest income in its tax return. While the assessee claimed to have deducted TDS on interest, the Tribunal found that such compliance did not obviate the AO’s responsibility to verify the loan’s credibility.

Your ultimate guide for mastering TDS provisions - Click here

Further, a second unsecured loan of ₹37.76 lakh received from four individuals—originally listed under a dummy PAN in the tax audit report—was also flagged. Though the assessee later provided documentary support, the ITAT held that the AO’s failure to investigate such entries was a serious lapse, justifying the PCIT’s intervention.

However, in a partial relief to the assessee, the Tribunal set aside the PCIT’s findings regarding TDS on professional services and valuation of closing stock, citing lack of conclusive error in the assessment.

The appeal was thus partly allowed, with key elements of the PCIT’s revisionary order sustainedThe Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench, has upheld the Principal Commissioner of Income Tax’s (PCIT) revisionary action under Section 263 of the Income Tax Act, 1961, against the assessee, citing critical lapses by the Assessing Officer (AO) in verifying TDS compliance and unsecured loan transactions during assessment.

The case pertains to Assessment Year 2018–19, where Shree Hari Enterprise, engaged in real estate activity, was assessed by the National e-Assessment Centre under Section 143(3). Subsequently, the PCIT invoked revisionary powers under Section 263, asserting that the AO had not carried out proper inquiries on five key issues: TDS on rent (Section 194-I), TDS on professional services (Section 194J), valuation of closing stock, and the genuineness of two unsecured loan entries.

The ITAT bench of Suchitra Kamble, Judicial Member and Annapurna Gupta, Accountant Member, after examining the facts, upheld the PCIT’s revision on two key issues. Firstly, on the matter of rent payments totaling ₹31.9 lakh, the Tribunal found that the AO had verified only a portion of the TDS compliance.

Despite claims from the assessee that TDS was deducted where applicable, the ITAT held that there was no clarity or adequate evidence to support that TDS under Section 194-I had been properly applied across all payments. This, the Tribunal said, warranted deeper inquiry which the AO had failed to conduct, rendering the assessment order erroneous and prejudicial to Revenue.

Secondly, the ITAT confirmed the PCIT’s revision regarding a substantial unsecured loan of ₹1.67 crore received from a party named Anmol & Sons. The Tribunal observed that the AO did not examine the identity, creditworthiness, or genuineness of the transaction, despite red flags such as the lender not declaring interest income in its tax return. While the assessee claimed to have deducted TDS on interest, the Tribunal found that such compliance did not obviate the AO’s responsibility to verify the loan’s credibility.

Further, a second unsecured loan of ₹37.76 lakh received from four individuals—originally listed under a dummy PAN in the tax audit report—was also flagged. Though the assessee later provided documentary support, the ITAT held that the AO’s failure to investigate such entries was a serious lapse, justifying the PCIT’s intervention.

However, in a partial relief to the assessee, the Tribunal set aside the PCIT’s findings regarding TDS on professional services and valuation of closing stock, citing lack of conclusive error in the assessment.

The appeal was thus partly allowed, with key elements of the PCIT’s revisionary order sustained

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