Wrongful deduction u/s 194-IB instead of 194 C: Madras HC quashes Income Tax Addition [Read Order]

The Madras High Court quashed the income tax addition due to wrongful deduction under Section 194-IB instead of Section 194C of the Income Tax Act, 1961. The respondents proposed three additions to the declared income, but the additions were dismissed without adequate reasoning.

The assessment proceedings in question began following the petitioner’s filing of income tax returns for the Assessment Year 2017-18 on August 11, 2017. In response to a notice issued under Section 148 of the Income-tax Act, 1961, the respondents proposed three additions to the declared income. The first addition pertained to the difference between the purchase price and the guideline value of an immovable property acquired by the petitioner.

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The second related to rent received from M/s Sriprop Structures P Limited, while the third involved a contractual receipt. The petitioner, in a reply submitted on November 25, 2023, provided explanations for each of these proposed additions.

Regarding the first addition, the petitioner pointed out that the matter had been referred to the valuation officer of the Income-tax Department on February 24, 2023, and argued that no additions should be made until the valuation report was received. Similarly, explanations were provided for the second and third additions, contending that they were unwarranted.

Counsel for the petitioner A.S.Sriraman argued that the assessment order was unsustainable, emphasizing that the respondents had four months remaining to complete the assessment, yet proceeded without awaiting the valuation officer's report. Additionally, the petitioner’s explanations for the second and third additions were disregarded in the final assessment order.

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On behalf of the respondents, Mrs. Premalatha, the standing counsel, countered that the petitioner had an available appellate remedy and approached the court without exhausting it. She further stated that the petitioner’s reply had been considered but found unsatisfactory.

In the matter of rent receipts, the petitioner clarified that the rent was from a residential property and had been duly disclosed. The petitioner also noted that tax had been mistakenly deducted under Section 194IB instead of Section 194C, and this error should not prejudice the assessment. Regarding the third addition, the petitioner stated that a contractual receipt amounting to Rs. 12, 94,735/- had been disclosed as business income. These explanations, however, were dismissed without adequate reasoning.

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The court, finding the assessment order flawed, quashed it and remanded the case to the Assessing Officer for reconsideration, directing the officer to await the valuation report before proceeding. The writ petition was disposed of without any order as to costs, and the connected miscellaneous petitions were also closed.

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