An assessment order is erroneous and prejudicial to revenue if it lacks proper inquiry or fails to apply necessary legal standards, particularly concerning TDS disallowance under Section 40(a)(ia).

JUDGMENT :

V KAMESWAR RAO, A.C.J.

The present income tax appeal has been filed by the Principal Commissioner of Income Tax, Bengaluru (‘PCIT’ for short) challenging the order dated 14.06.2023 passed by the Income Tax Appellate Tribunal, “B” Bench, Bengaluru (‘Tribunal’ for short) in IT(TP)A No. 738/Bang/2022, whereby the Tribunal has allowed the appeal filed by the respondent herein challenging the order dated 30.03.2022 passed by the PCIT under Section 263 of the INCOME TAX ACT , 1961 (‘the Act’ for short).

2. Brief facts to be noted are, the respondent- assessee is a Company engaged in the manufacture and sale of transmission line hardware and accessories, surge arrestors, etc. For the assessment year 2015-16, the return of income was filed on 30.11.2015 declaring total income of Rs.7,35,02,720/-. The assessment was selected for complete scrutiny and notice under Section 143(2) of the Act was served on the assessee on 27.06.2016. A draft assessment order (‘DAO’ for short) under Section 143(3) read with Section 144C(13) of the Act was passed on 18.12.2018. Aggrieved by the DAO, the respondent-assessee filed objections to the same. The objections were disposed of, pursuant to which, the Assessing Officer passed the final assessment order dated 25.10.2019. Subsequently, the appellant-PCIT initiated proceedings under Section 263 of the Act on 19.03.2022 seeking to revise the final assessment order dated 25.10.2019. The appellant-PCIT was of the view that, the Assessing Officer has not disallowed the commission payments to the agents, since the said payments were made without deducting tax at source. Further, PCIT was of the view that Assessing Officer ought to have taken note of a similar disallowance made in assessment years 2013-14 and 2014-15. The assessee filed reply to the show-cause notice issued under Section 263 of the Act on 23.03.2022. The objections of the assessee were rejected and the order dated 30.03.2022 was passed. The Tribunal has in paragraphs No.10 to 12 of the impugned order, stated as under:

“10. From the above show cause notices issued by the AO and the replies submitted by the assessee, it is clear that the AO has examined the impugned transaction in detail during the course of assessment proceedings for the year under consideration. The assessee, during the course of assessment proceedings, had also admittedly placed on record the distribution agreement and the debit notes. From this, the only inference that can be drawn is that AO has taken a conscious decision in not making the disallowance under section 40(a)(ia) of the Act. Therefore, the PCIT's reasoning that the AO has not examined the issue in accordance with law and has not conducted necessary enquiries, is incorrect. Since the AO has taken a plausible view, the said Assessment Order cannot be subjected to revision under section 263 of the Act. In this context, we rely on the judgment of the Hon'ble Apex Court in the case of Max India Ltd., (supra).

11. Further, the latest judgment of the Hon'ble jurisdictional High Court in the case of Chemsworth Pvt. Ltd., reported in 119 taxmann.com 538 clearly held the question whether there has been application of mind before allowing the expenditure has to be examined from the records of the case. It was further held by the Hon'ble jurisdictional High Court that when the assessee has filed all the details before the AO and the AO has accepted the contention of the assessee, it is deemed that the AO has taken a plausible view in allowing the claim of the assessee. The relevant finding of the Hon'ble High Court reads as follows:

"8. In th