This appeal is filed by the assessee. The relevant asst. yr. is 2008-09. The appeal is directed against the revision order passed by the CIT-II at Madurai, under s. 263 of the IT Act, 1961. The revision order has been passed by the CIT on 7th Feb., 2013.
2. The assessee is engaged in the business of purchase and sale of slacked lime powder. He is also doing business in granites and mining activity. The assessment for the impugned assessment year was completed under s. 143(3). Thereafter, the CIT issued a show cause notice to the assessee under s. 263 of the Act, on 12th Nov., 2012. In the said notice, the observations made by the CIT are as follows:
"2.1 It is seen from the miscellaneous records that ,the following aspects need further scrutiny:
(i) TDS was not made on granite export expenses for ocean charges paid to shipping agencies of any amount of Rs. 1,60,87,108 under s. 195.
(ii) The amount of Rs. 8, 17,258 debited towards machinery spare parts is a capital expense.
(iii) There is a debit of Rs. 62,33,599 towards marking & inspection charges. This payment was made to experts who select the granite stone in various quarries on behalf of the assessee. In addition to this, ffil amount of Rs. 55.13,549 was also paid towards granite inspection expenses totalling to Rs. 1.17,47,148. It is not known whether TDS was made from these payments. An amount of Rs. 9,17,346 was exhibited in the balance sheet on the liabilities side as TDS payable.
(iv) Quarry development expenses of Rs. 26,24,128 debited is a capital expenditure.
(v) There are debits of Rs. 30,48,420 towards royalty paid and Rs. 18.58,239 towards royalty paid for quarry permit. These are capital in nature.
(vi) The amount of Rs. 8,09,86,594 exhibited in the balance sheet towards trade debtors which inter alia included Rs. 15,30,500 relating to Archean Granites Mines Division, the' assessee being the proprietor of Archean Granites, the amount is to be treated as income in the hands of the assessee."
3. In the light of the above observation, the CIT proposed to treat the assessment order as erroneous and prejudicial to the interests of the Revenue and as such, noticed the assessee, his intention to revise the assessment under s. 263. The assessee filed his reply to the points raised by the CIT and also attended hearings before him and submitted that the order passed by the AO is neither erroneous nor prejudicial to the interests of the Revenue. But the eIT rejected all the explanations offered by the assessee and passed the revision order. In his revision order, he has determined the total income of the assessee at Rs. 3.20.18.804 against an assessed income of Rs. 27,18,640. The additions have been made by the CIT against granite export expenses, granite marking and inspection charges, granite inspection expenses, quarry development expenses etc.
4. The assessee is aggrieved and, therefore, the present appeal before us. The grounds are :
"2. The CIT erred in invoking the revisionary powers merely for roving enquiry based on Audit Objection and not based on any material leading to his satisfaction that the order passed by the AO is erroneous and prejudicial to Revenue.
3. The CIT at the time of invoking his revisional jurisdiction could not have formed his own opinion on the twin conditions to be satisfied for invoking s. 263 and was merely guided by the audit objection and the eIT has not denied that action taken is in pursuance of audit objection.
4. The CIT also failed to note that the AO had completed the assessment only after satisfying himself of the points raised during assessment proceedings and after considering the detailed reply filed by the appellant before him and therefore the CIT has no jurisdiction to invoke the revisionary powers under s. 263 of the IT Act, 1961.
5. The CIT also failed to note that the AO has after examining the details has adopted a possible opinion on the several points raised in the show cause notice issued by him and therefore the CIT lacks jurisdiction to invoke s. 263 and he cannot seek to impose his own erroneous opinion on those facts to pass such an order.
6. The CIT also erred in passing the order under s. 263 even after perusing the detailed reply filed by the appellant and therefore the revision order is devoid of material to sustain such an action."
5. We heard Shri R. Srinivasan, the learned counsel appearing for the assessee and Shri Durgesh Sumrott, the learned CIT appearing for the Revenue.
6. The first point objected to by the CIT is that the assessee has not made TDS on granite export expenses for ocean freight charges. Regarding the shipping charges, there is a Circular issued by the CBDT. The said Circular No. 723, dt. 19th Sept., 1995 1(1995} 128 CTR (St) 61 states that where the provisions of s. 172 are to apply, the provisions of ss. 194C and 195 relating to tax deduction at source are not applicable. Acting on the above Circular, Tlibunal, Ahmedabad Bench 'C', has held in the case of Dy. CIT us. Hasmukh J. Patel (2012) 49 SOT 197 (Ahd), that where the provisions of s. 172 would apply, no deduction of tax is required under s. 194C. A similar decision has been taken by a co-ordinate Bench of the Tlibunal in the case of Asstt. CIT us. Leaap International (P) Ltd. in ITA No. 356/Mds/2009, dt. 27th May, 2011.
7. The above circular and the Tribunal decisions were pressed into service by the learned counsel appearing for the assessee, at the time of hearing. We find that the above circular and the Tribunal decisions support the case of the assessee on merit that the assessee was not under an obligation to deduct tax on freight charges paid to shipping agencies. In fact, the Tribunal, Chennai Bench 'D', in the case of Sical Logistics Ltd.. us. Asstt. Director of IT (International Taxation) (2012) 147 ITJ (Chennai) 115 : (2012) 72 DTR (Chennai) 29 : (2012) 53 SOT 313 (Chennai), has considered the impact of s. 172 on matters relating to TDS. The 1Iibunal held that s. 172 being a special scheme to levy tax on ships leaving Indian ports, which is calculated at a. presumptive rate, discharges the tax liability as a whole before leaving Indian ports. In such cases, no question of further tax liability arises and as such, TDS provisions do not apply. In view of the above, we find that th~ objection made by the CIT regarding TDS is not sustainable in law.
8. The second objection raised by the CIT is that a sum of Rs. 8,17,258 debited by the assessee towards machinery spare parts was a capital expenditure. In the show-cause notice, the observation of the CIT is that the said expenditure would be of capital nature. But in the revision order passed by him, the CIT has disallowed the said expenditure under s. 40(aHia). Because of this contradiction, this objection made by the CIT cannot survive. Moreover, the view taken by the AO on machinery spare parts as revenue expenditure is a possible view.
9. 'The third item pointed out by the CIT relates to granite marking and inspection charges. Those charges were made by the assessee outside India for the purpose of export trade. All services are rendered outside India except for quality verification of granites in India. Where such payments are made for the purpose of business carried outside India and payments made to non-residents, there is no requirement of deducting any' tax at source, as held by the Hon'ble High Court of Madras in the case of CIT us. Faizan Shoes (P) Ltd. (2008) 304 ITR 156 (Mad). Therefore, the said objection also does not survive against the assessee.
10. Regarding the question of TDS, the provision of disallowance is applicable only to those amounts payable and not to the amounts already paid. Tribunal, Chennai 'B' Bench in the case of ITO us. Theekathir Press in ITA No. 2076/Mds/2012, dt.18th Sept., 2013, has held that the disallowance under s. 40(a)(ia) applies only to those amounts "payable" and not to those amounts "paid". In the present case, therefore, the question of disallowance should apply only to those amounts remained payable. But what is shown as payable in the balance sheet has already been paid by the assessee before the due date of filing of return. Therefore, that portion of TDS amount does not remain as payable. On that ground also disallowance is not justified.
11. Another objection pointed out by the CIT is that quany development expenses would have been treated as a capital expenditure. That is also a case of divided opinion. Therefore. the CIT cannot take it as a ground to revise the assessment.
12. The CIT has mentioned various other items in his notice like trade debtors etc whereas in his revision order. such items were not added.
13. In short we find that all the points effectively considered by the CIT in his revision order are points likely to be decided in favour of the assessee and as such. it is not possible to hold that the assessment order passed by the AO is erroneous. It is necessary for an assessment order to be erroneous as well as prejudicial to the interests of the Revenue, so as to be revised under s. 263. In the present case. it is not possible to hold that the assessment order is erroneous. As such. the revision order I passed by the err under s. 263 is not sustainable in law. The revision order is set aside.
14. In result. this appeal filed by the assessee is allowed .