Tribunal held that the jurisdictional court had held that tax was required to be deducted only on the amounts payable and the assessee was not required to deduct tax on the amounts paid during the year. Since the assessee had followed the mercantile system of accounting, the entries of interest credited by him to the payees’ accounts were entries of accrual in the absence of cash transactions, which amounted to payment and, therefore, the AO had rightly not made the disallowance according to the judgment of the jurisdictional court and in terms of the Board’s Circular, which was binding on him. Hence, the order passed by the AO was neither erroneous nor prejudicial to the interests of the Revenue, as the AO had rightly not made the disallowance and the order passed by the Commissioner under section 263 was to be quashed. (AY.2012-13)
Ravindra Khemka v. PCIT (2019) 76 ITR 330 (Lucknow)(Trib.)
S. 263 : Revision of orders prejudicial to revenue–Payments liable to deduction of tax at source-Assessee crediting interest to unsecured loan accounts of parties before close of year-Decision of high court that tax not required to be deducted in case where assessee paid interest during year-AO rightly not making disallowance-Order neither erroneous nor prejudicial to interests of revenue-Revision order passed by Commissioner invalid. [S. 40(a)(ia)]