Revision under Section 263 Upheld for Non-Deduction

Revision under Section 263 Upheld for Non-Deduction of Tax at Source on Remuneration and Hire Charges

Issue

Whether the Commissioner of Income Tax correctly assumed revisionary jurisdiction under Section 263 to set aside an assessment order as erroneous and prejudicial to the interests of the Revenue, where the Assessing Officer failed to examine TDS applicability and non-payment under Section 40(a)(ia) on artists’ remuneration, technicians’ fees, and hire charges.

Facts

Assessee Business & Assessment: The assessee, an individual producing motion pictures, filed a return of income for AY 2010-11, which was selected for scrutiny and completed under Section 143(3) with certain additions.
Revisionary Notice: The CIT initiated proceedings under Section 263 upon noting that payments made for artists’/technicians’ remuneration and hire charges lacked TDS, and outstanding TDS liabilities shown in the balance sheet were not deposited during the relevant previous year.
AO Failure: The Assessing Officer failed to conduct proper inquiries, verifications, or examination of books of account regarding the applicability of Section 40(a)(ia) disallowances.
Assessee’s Defense: The assessee claimed before the CIT and Tribunal that approximately 50% of the disputed payments were mere reimbursements of expenses.
Lack of Substantiation: The assessee offered no supporting evidence to substantiate the claim that the payments were non-taxable expense reimbursements.

Decision

Lack of Inquiry Renders Order Erroneous: Held in favour of the revenue. An assessment order passed without necessary verification, scrutiny, or examination of accounts on critical issues like TDS compliance under Section 40(a)(ia) is inherently erroneous and prejudicial to the interests of the Revenue [Paras 24, 30].
Jurisdiction Under Section 263 Valid: Held in favour of the revenue. The CIT properly exercised revisionary jurisdiction under Section 263, and the Tribunal correctly upheld setting aside the assessment order for fresh adjudication [Para 31].

Key Takeaways

Inadequate Inquiry Triggers Section 263: The failure of an Assessing Officer to carry out mandatory inquiries or verify underlying documents regarding statutory compliance (such as TDS deductions) makes the assessment order vulnerable to revisionary action under Section 263.
Unsubstantiated Claims of Expense Reimbursements: Bare assertions that payments constitute “expense reimbursements” carry no legal weight without documentary proof to escape disallowance under Section 40(a)(ia).
TDS Non-Compliance in Media Industry: Production expenses, including payments to technicians, artists, and equipment hire services, require strict compliance with TDS provisions; failure to deduct or deposit such taxes jeopardizes the deductibility of the underlying business expenses.

HIGH COURT OF CALCUTTA

Deepak Bajaj

Income-tax Officer

Rajarshi Bharadwaj and Sudip Deb, JJ.

IT Appeal No. 3 of 2024^†

SEPTEMBER 9, 2026

Dilip Chatterji and Ms. Debapriya Chatterjee for the Appellant. Prithu Dudhoria and Amit Sharma for the Respondent.

ORDER

Sudip Deb, J.- This appeal is directed against the order dated 9^th February, 2023 passed by the Income Tax Appellate Tribunal. The assessee being aggrieved by the said order has preferred this instant appeal.

2. By an order dated 3^rd January, 2024 the Division Bench of this Court admitted the instant appeal on the following substantial questions of law:-

“(a)

Whether the Commissioner of Income Tax correctly assumed Jurisdiction under section 263 of the Act in revising assessment order dated March 19, 2013 passed under section 143(3) of the Act for the Assessment Year 2010-11?

(b)

Whether the impugned order dated March 19, 2013, passed under Section 143(3) of the Act by the Ld. Income Tax Officer, Ward 37(1), Kolkata is erroneous and prejudicial to the interest of the Revenue?

(c)

Whether the order dated February 09, 2013 passed by the Ld. Tribunal is perverse or not?

(d)

Whether the observations and/or findings contained in the order of the Tribunal for the assessment year disallowance of 2010-11 expenses in relation to the to tune the of Rs.1,80,53,232/- are arbitrary, unreasonable and perverse?”

3. We have heard both the appellant and the respondents.

4. Before we address on the issues which have been formulated in the appeal it is important to mention the facts relating to the instant case which are narrated hereinbelow.

5. On 19^th March, 2013 assessment order under Section 134(3) of the Income Tax Act, 1961, which is hereinafter referred to as “the said Act” had been passed by the Assessing Officer. It appears from the said assessment order that the assessee declared its taxable income at Rs.9,43,459/- in the return for the Assessment Year 2010-2011. The assessee is engaged in the business of producing “Motion Pictures”. The case had been selected for scrutiny through the “CASS” by CBDT. After scrutiny of ledgers the Assessing Officer concluded by assessing the total income of the assessee at Rs.13,88,460/-.

6. Thereafter, on ^2nd January, 2015 a notice under Section 263 of the said Act against the said assessment order dated 19^th March, 2013 was issued by the Commissioner of the Income Tax to the assessee, namely, Shri Deepak Bajaj who is the appellant before us.

7. It was, inter alia, stated in the said notice that the assessment order under Section 143(3) on 19^th March, 2013 was erroneous and prejudicial to the interest of revenue for the following reasons:-

Expenses amounting to Rs.1,80,53,232/- was paid to different parties as Artists’ remuneration, Technician’s Remuneration, Studio Hire Charges, Furniture Hire Charges, Equipment Hire Charges, Car Hire Charges and Location Hire Charges without deduction of tax at source. Moreover, as per Balance Sheet TDS liability of Rs.18,42,097/- as on 31.03.2010 was not paid during the previous year relevant to the A.Y. 2010-11. Hence, such expense of Rs.1,80,53,232/- was liable to be disallowed as per provision of section 40(a)(ia) of the I.T. Act. But A.O. failed to do so. As such the assessment made was erroneous and prejudicial to interest of revenue.

ii.

As per details of TDS (Form 16) for the financial year 2009-10 an amount of Rs.2,80,56,536/- was received on account of programme sales while in the Profit & Loss account such receipt had been disclosed to Rs.2,55,42,234/- resulting in undisclosed receipt to the tune of Rs.25,14,302/-which was liable to be added back to the returned income. But A.O. failed to do so. As such the assessment made was erroneous and prejudicial to the interest of revenue.

iii.

As per Balance Sheet as at 31.03.2010 service tax liability of Rs.35,00,000/- as at 31.03.2010 was not paid till audit of accounts. Hence, as per provision of section 43B of the I. T. Act such sum of Rs.35,00,000/- was not allowable and required to be added back. But A.O. failed to do so. As such assessment made was erroneous and prejudicial to the interest of revenue.

8. By virtue of the said notice the appellant was given an opportunity to represent his case before the Commissioner of Income Tax.

9. Pursuant thereto, on 17^th March, 2015 reply was given on behalf of the appellant herein, inter alia, indicating the money expended on account of Artists’ Remuneration, Technician Remuneration, Studio Hire Charges, Location Hire Charges, Equipment Hire Charges and Car Hire Charges totaling to Rs.1,81,79,447/-. It was stated that out of the said Artists’ Remuneration, Technician Remuneration and in respect of Car Hire Charges almost 50% of the amount were reimbursed expenses and as such the entire amount may not be added back.

10. It was also stated that the amount of credit given by M/s Zee News Limited was Rs.2,81,49,856/- as appearing in 26 AS of the appellant (data updated till 18.07.2013) was inclusive of Service Tax. The accounting treatment adopted by the assessee was to credit the Sale excluding of Service Tax and hence the difference. According to the appellant, the entire sale was disclosed and as such there was no undisclosed amount of sale. So prayer was made to drop the point for addition of income.

11. So far as the point of Service Tax liability is concerned, it was stated that the assessee who is the appellant before us, did not consider the Service Tax (as an expense). The amount of Service Tax was not deducted from income in arriving at taxable income. And as such the same may not be added back under Section 43(B) of the said Act.

12. Thereafter, the Commissioner of Income Tax, had heard the matter and finally by an order dated 30^th March, 2015, inter alia, held that the assessment order under Section 143(3) of the said Act dated 19^th March, 2013 passed by the erstwhile I.T.O., Ward-37(1), Kolkata amounts to inadequate scrutiny of detailed facts and making such assessment in haste, without proper enquiries and verification and without examination of books of accounts and other records rendering it erroneous and prejudicial to the interest of revenue. By the said order, Commissioner of Income Tax further held that in view of the aforesaid errors, inadequacies and omission on the part the Assessing Officer, the order passed under Section 143(3) of the said Act dated 19^th March, 2013 was considered erroneous so far as it was prejudicial to the interest of revenue and accordingly, the said order dated 19^th March, 2013 was set aside with a direction to pass a fresh assessment order after examining the evidence and documents and after giving opportunity to the assessee in accordance with law.

13. Challenging the said order, the appellant approached the Income Tax Appellate Tribunal by filing an appeal against such revisional order passed under Section 263 of the said Act. The said appeal was filed much beyond the period of limitation prescribed in the statute.

14. The Appellate Tribunal condoned the delay, but held that order of the Learned Commissioner passed under Section 263 was justifiable and did not interfere with the findings relating to issue no. 1. The finding of the Appellate Tribunal relating to other issues being issue Nos. 2 and 3 were held unjustifiable as contemplated under Section 263 of the said Act. The appellant is only aggrieved by the finding of the Appellate Tribunal relating to issue No.1 being “i) Expenses amounting of Rs.1,80,53,232/- was paid to different parties as Artist’s remuneration, Technicians remuneration, Studio hire charges, furniture hire charges, equipment hire charges, car hire charges and location hire charges without deduction of tax at source. However, as per balance sheet TDS liability of Rs.18,42,097/- as on 31.03.2010 was not paid during the previous year relevant to the A.Y. 2010-11. Hence, such expenses of Rs.1,80,53,232/- is liable to disallowed as per provision of Section 40(a)(ia) of the I.T. Act. But A.O. failed to do so”. All the issues have been set out hereinafter.

15. Hence, the present appeal.

16. The Learned Advocate for the appellant has drawn our attention to the impugned order dated 9^th February, 2023 passed by the Income Tax Appellate Tribunal and argued that the Commissioner of Income Tax wrongly assumed jurisdiction under Section 263 of the said Act in revising the assessment order dated 19^th March, 2013 passed under Section 143(3) of the said Act for the assessment year 2010-2011.

17. He further contended that the said assessment order dated 19^th March, 2013 is not erroneous and also not prejudicial to the interest of the revenue. He further contended that the impugned order dated 9^th February, 2023 is perverse.

18. Per contra, the Learned Counsel for the respondents submitted that the impugned order dated 9^th February, 2023 does not suffer from any irregularity or illegality.

19. He argued that the Learned Tribunal has correctly held that the order of the Learned Commissioner dated 30^th March, 2015 while exercising its jurisdiction under Section 263 of the said Act was justifiable and there was no perversity in doing that relating to issue No.1.

20. At the outset, we feel it is important to ascertain the scope and power of revision as contemplated under Section 263 of the said Act. The said provision contemplates that revision of orders are permissible and the Principal Commissioner or Commissioner may call for and examine the record of any proceeding under the said Act and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the revenue, the Principle Commissioner or Commissioner after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, can pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.

21. What we found from the impugned order which has been assailed before us is that the Appellate Tribunal in detail recorded the reasons for affirming the order passed by the Commissioner under Section 263 as justifiable relating to issue No.1. The Appellate Tribunal has partly allowed the appeal to the extent holding that issue No. 2 and 3 are beyond the scope of interference in revision as contemplated under Section 263 of the said Act after condoning the delay of 1914 days. So far as the issue No. 1, power of exercising revision under Section 263 has not been interfered with relating to finding of the Commissioner.

22. We also found that the Appellate Tribunal has categorically recorded that assessee filed its returns of income on 1^st April, 2011 showing at Rs.9,43,459/- and the case of the assessee was selected for scrutiny through CASS which was completed under Section 143(3) of the said Act after making certain disallowance/addition with the assessed income at Rs.13,88,460/-. Subsequently, Learned Pr. CIT on examination of the material on record, found that the assessment order passed under Section 143(3) of the said Act dated 19.03.2013 was erroneous and prejudicial to the interest of revenue.

23. The Appellate Tribunal quoted the issues framed by the Commissioner which were held to be erroneous and prejudicial to the interest of revenue. These are stated hereunder:-

“i)

Expenses amounting of Rs.1,80,53,232/- was paid to different parties as Artist’s remuneration, Technicians remuneration, Studio hire charges, furniture hire charges, equipment hire charges, car hire charges and location hire charges without deduction of tax at source. However, as per balance sheet TDS liability of Rs.18,42,097/- as on 31.03.2010 was not paid during the previous year relevant to the A.Y. 2010-11. Hence, such expenses of Rs.1,80,53,232/- is liable to disallowed as per provision of Section 40(a)(ia) of the I.T. Act. But A.O. failed to do so.

(ii)

As per details of TDS (Form Form for the F.Y. 2009-10, an amount of Rs. 2,80,56,536/- was received on account of program sales while in the P/L a/c. such receipt has been disclosed to Rs.2,55,42,234/-resulting in undisclosed receipt to the tune of Rs.25,14,302/- which is liable to be added back to the returned income. But A.O. failed to do so. (iii) As per balance sheet as at 31.03.2010 Service Tax liabilities of Rs. 35,00,000/- as at 31.03.2010 was not paid till audit of accounts. Hence as per provision of Section 43B of the Act. Such sum of Rs.35,00,000/-is not allowable and required to be added back. But A.O. failed to do so.”

24. The Appellate Tribunal while deciding the first issue held though the assessee had reported TDS liability of Rs.18,32,608/- in its balance sheet as at 31^st March, 2008 and then at Rs.18,42,097/- in the balance sheet as at 31^st March, 2010, but there is nothing on record to appreciate the said fact about the deposits of the said TDS liability and also the extent to which TDS had been done on these expenses claimed by the assessee. The mere assertion by the assessee that “almost 50% of this amount is reimbursed expenses” does not justify his claim made before the Learned Commissioner as well as before the Appellate Authority.

25. The Appellate Tribunal has also held that the issue No.1 is purely on facts and that requires to be verified from the records of the assessee. Relating to the second and third issue, the Appellate Tribunal held that these were not revisable as contemplated under Section 263 of the said Act.

26. This part of the order of the Commissioner had been set aside and the appeal was partly allowed after condoning the delay of 1914 days to the extent that issue Nos. 2 and 3 were rightly held unjustifiable as contemplated under Section 263 of the said Act.

27. According to us, the finding of the Appellate Tribunal relating to the issue No. 1 (which is the subject matter of challenge in appeal) to the extent that the same was erroneous and also prejudicial to the interest of the revenue is justifiable. In the facts and circumstances of the present case, we find that such view of the Appellate Tribunal is in accordance with law and should not be interfered with.

28. The Appellate Tribunal has categorically said as to why the matter needs to be heard afresh after examining the evidence and the records and after giving opportunity to the assessee in accordance with law while upholding the order the Commissioner relating to the issue No. 1. We also found that the Appellate Tribunal has categorically held that what the assessee had reported the TDS liability in the balance sheet for the year ending 31^st March, 2008 and in the balance sheet for the year ending 31^st March, 2010 cannot be substantiated merely on the basis of the assertion of the assessee to the extent “almost 50% of this amount was reimbursed expenses”.

29. We are of the considered view that this issue can only be decided upon production of documents and examining the evidence. Otherwise, it would not be possible to come to any finding relating to this aspect of the matter (issue No. 1). We make it clear that we have not gone into the merits of the case relating to issue No.2 and 3 as the findings on these issues have not been challenged before us.

30. In view of such, we are of the considered view, that the Commissioner of Income Tax had correctly assumed jurisdiction under Section 263 of the said Act in revising assessment order dated 19^th March, 2013 passed under Section 143(3) of the said Act for the assessment year 2011.

31. We also hold that the impugned order dated 19^th March, 2013 was erroneous and prejudicial to the interest of the revenue for the reasons discussed hereinabove and the order dated 9^th February, 2023 is in conformity with the law and not perverse.

32. In view of the discussions made hereinabove, we are also of the considered view that the observations and findings contained in the order of the Tribunal dated 9^th February, 2023 for the assessment year 2010-2011 in relation to disallowance of the expenses to the tune of Rs.1,80,53,230/- are not arbitrary, unreasonable and perverse and made in conformity with the law as contemplated under Section 263 of the said Act.

33. In view of such, the instant appeal fails.

34. There will be no order as to costs.

35. Urgent photostat certified copy of this order, if applied for, be given to the parties upon compliance with the all necessary formalities.