The Indore ITAT recently ruled against the validity of a revision-order passed by PCIT, emphasizing that income tax authorities cannot penalize the assessee solely based on the payee’s failure to file an income tax return.
The Bench of Vijay Pal Rao (Judicial Member) and B.M Biyani (Accountant Member) stated that the AO’s acceptance of the assessee’s submissions cannot be deemed as lacking bona fides, especially considering that the assessment was conducted by the National e-assessment Centre, Delhi (Para 10).
In this case, the assessee filed a return declaring Nil income, which was selected for scrutiny assessment to verify the genuineness of expenses. The AO subsequently completed the assessment under section 143(3), accepting the returned income. However, the PCIT reviewed the assessment proceeding and concluded that the AO’s order was erroneous and prejudicial to the revenue’s interest, warranting revision under section 263. Consequently, the PCIT issued a show-cause notice and passed a revision-order.
The Bench observed that the AO unequivocally stated in the assessment order that the scrutiny issue of “Verification of Genuineness of Expenses” had been examined, no additions were made, and the returned income was accepted. The Bench emphasized that this finding was well-supported by various documents, demonstrating that the AO issued multiple questionnaires under section 142(1) and conducted repeated inquiries to examine the expenses claimed by the assessee, particularly payments made to M/s AD Enterprises.
Furthermore, the Bench noted that the assessee provided comprehensive responses to the questionnaires, which were neither disputed nor rebutted by the revenue. It is evident that the AO considered these replies/submissions before arriving at a plausible conclusion.
Additionally, the Bench highlighted that the assessee deducted a substantial amount of TDS from payments to M/s AD Enterprises, remitted the TDS proceeds to the income tax department, and filed statutory TDS returns detailing each payment, TDS, etc. pertaining to the payee, M/s AD Enterprises.
The Bench pointed out that the TDS returns included the PAN of Smt. Nilima, the proprietor of M/s AD Enterprises, which was verified and accepted as valid and correct by the TDS Wing of the Income Tax Department. As a result, no additional TDS demand was levied under section 206AA of the Act.