2020 (9) TMI 330 - AT - Income Tax

Tribunal quashes revisionary order, ruling disallowance unjustified. Appeal allowed, original assessment upheld.

The Tribunal allowed the appeal, quashing the revisionary order under Section 263 and ruling that the disallowance under Section 40(a)(ia) was unjustified ... Section 263 revisional jurisdiction - Section 194H TDS on commission or brokerage - Section 40(a)(ia) disallowance for failure to deduct TDS - Section 44AB audit threshold as condition for TDS applicabilitySection 194H TDS on commission or brokerage - Section 44AB audit threshold as condition for TDS applicability - Section 40(a)(ia) disallowance for failure to deduct TDS - Whether the payments described as incentive and commission to retailers attract deduction of tax at source under Section 194H and consequent disallowance under Section 40(a)(ia) in the absence of the audit condition in Section 44AB being satisfied in the preceding year. - HELD THAT: - The Tribunal examined the statutory text of Section 194H, including its provisos and Explanation, and noted that the obligation to deduct tax under Section 194H, insofar as individuals/HUFs are concerned, is made subject to the condition that their total sales, gross receipts or turnover exceed the limits specified under clause (a) or (b) of Section 44AB in the immediately preceding financial year. The assessee produced the computation showing turnover for the relevant preceding year below the audit threshold and also relied upon the absence of audit for the earlier year. The authorities below did not examine this condition. Because the assessee is an individual and the preceding year turnover was below the Section 44AB threshold, the statutory condition for applicability of Section 194H was not satisfied and, on that legal foundation, payments described as incentives/discounts to retailers did not attract mandatory TDS under Section 194H; consequently disallowance under Section 40(a)(ia) could not be sustained for that reason. [Paras 12]Payments did not attract TDS under Section 194H as the Section 44AB audit threshold in the preceding year was not met; therefore disallowance under Section 40(a)(ia) was not warranted on that ground.Section 263 revisional jurisdiction - Section 40(a)(ia) disallowance for failure to deduct TDS - Whether the Principal CIT validly exercised revisional jurisdiction under Section 263 in setting aside the assessment for non-examination of the TDS issue and directing de novo assessment. - HELD THAT: - The Principal CIT exercised powers under Section 263 on the premise that the Assessing Officer failed to consider whether TDS was deductible under Section 194H and therefore that the assessment was erroneous and prejudicial to revenue. Having found that the statutory condition for applicability of Section 194H was not fulfilled (see above), the foundational premise for the revisional exercise - that the AO's order was erroneous for not making the disallowance under Section 40(a)(ia) - collapsed. In view of the legal conclusion that Section 194H did not apply, the revisional order under Section 263 was unjustified and the exercise of jurisdiction quashed. [Paras 12, 13]The Pr.CIT's order under Section 263 was not justified and is quashed.Final Conclusion: The appeal is allowed: the Tribunal quashed the revisional order passed under Section 263 because the condition for applicability of Section 194H (audit threshold under Section 44AB in the preceding year) was not satisfied, and hence no disallowance under Section 40(a)(ia) could be sustained. Issues Involved:1. Legality and arbitrariness of the revisionary order passed under Section 263 of the Income Tax Act.2. Disallowance of Rs. 7,42,150/- paid towards incentive and commission and incentive for SIM under Section 40(a)(ia) of the Income Tax Act.3. Applicability of Section 194H regarding TDS on incentives and commissions.Issue-wise Detailed Analysis:1. Legality and Arbitrariness of the Revisionary Order Passed Under Section 263 of the Income Tax Act:The assessee challenged the revisionary order passed by the Principal Chief Commissioner of Income Tax-II, Odisha, dated 21.03.2016, under Section 263 of the Income Tax Act, claiming it to be illegal and arbitrary. The Tribunal initially dismissed the appeal, noting that the grounds of appeal did not challenge the order under Section 263 but rather the disallowance under Section 40(a)(ia). The High Court later set aside the Tribunal's order, directing a fresh hearing, emphasizing that the denial of an adjournment on the first date amounted to a denial of an opportunity to present the case effectively. Upon rehearing, the Tribunal found that the Principal Chief Commissioner of Income Tax (Pr.CIT) had not considered whether the assessee's books of accounts were audited in the preceding financial year, which would affect the applicability of Section 194H. The Tribunal concluded that the Pr.CIT’s order was not justified and quashed it, allowing the assessee’s appeal on legal grounds.2. Disallowance of Rs. 7,42,150/- Paid Towards Incentive and Commission and Incentive for SIM Under Section 40(a)(ia) of the Income Tax Act:The Pr.CIT observed that the assessee did not deduct TDS on the incentive, commission, and incentive for SIM cards totaling Rs. 7,42,150/-, as required under Section 194H. Consequently, the Pr.CIT held the assessment order erroneous and prejudicial to the interest of revenue, directing a de novo assessment. However, the Tribunal, upon rehearing, noted that the assessee's turnover in the preceding financial year was below Rs. 60 lakhs, and the books were not required to be audited under Section 44AB. Thus, the provisions of Section 194H for TDS deduction did not apply. The Tribunal concluded that the AO’s order was not erroneous or prejudicial to the interest of revenue, quashing the Pr.CIT’s order.3. Applicability of Section 194H Regarding TDS on Incentives and Commissions:The key contention was whether the incentive and commission on SIM cards fell under the purview of Section 194H, which mandates TDS on commission or brokerage payments. The assessee argued that these payments were discounts given to retailers, not commissions, and thus did not attract TDS under Section 194H. The Tribunal examined the provisions of Section 194H, noting that it applies to individuals or HUFs whose books were audited in the preceding financial year. Since the assessee's turnover was below the threshold for mandatory audit under Section 44AB in the preceding year, the provisions of Section 194H did not apply. Consequently, the Tribunal held that the assessee was not required to deduct TDS on the payments made to retailers, and the AO’s original assessment was not erroneous or prejudicial to the revenue.Conclusion:The Tribunal allowed the appeal of the assessee, quashing the revisionary order passed by the Pr.CIT under Section 263, and held that the disallowance of Rs. 7,42,150/- under Section 40(a)(ia) was not justified as the provisions of Section 194H did not apply to the assessee for the relevant assessment year. The Tribunal emphasized that the AO’s original assessment was neither erroneous nor prejudicial to the interest of the revenue.