2023 (7) TMI 373 - AT - Income Tax

Tribunal quashes revisionary order, AO's decision on commission payments upheld. Assessee's appeal allowed.

M/s. TE Connectivity India Private Limited Versus The Principal Commissioner of Income Tax -2, Bengaluru.

The Tribunal quashed the revisionary order under section 263, holding that the AO's decision not to disallow commission payments without tax deduction was ... Revision u/s 263 - disallowance of expenditure u/s 40(a)(ia) - Appellant has not deducted tax at source on commission on sales debited to profit and loss account - HELD THAT:- 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). 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 u/s 263 - See MAX INDIA LTD. [2007 (11) TMI 12 - SUPREME COURT]. It is pertinent to mention that for the above said Assessment Years, the AO had called in question the allowability of the commission payments during the course of assessment proceedings and the assessee had filed similar reply as it was filed for the impugned Assessment Year. No disallowance of the expenditure was made u/s 40(a)(ia) - For Assessment Year 2018-19, the Final AO was passed subsequent to the impugned order passed u/s 263 of the Act, for the relevant Assessment Year. We quash the impugned revisionary order since the AO has taken a plausible view and had not made disallowance of impugned expenditure u/s 40(a)(ia). Decided in favour of assessee. Issues Involved:1. Legality of the revision of the assessment order under section 263 of the Income Tax Act, 1961.2. Jurisdiction of the Principal Commissioner of Income Tax (PCIT) in initiating proceedings under section 263.3. Non-deduction of tax at source on commission payments and its classification as discount.Summary:1. Legality of the Revision of the Assessment Order:The appeal was directed against the order of the PCIT dated 30.03.2022, passed under section 263 of the Income Tax Act, 1961, for the Assessment Year 2015-16. The PCIT sought to revise the Final Assessment Order dated 25.10.2019, on the grounds that the AO had not disallowed commission payments made without deducting tax at source. The PCIT argued that this failure resulted in a short computation of income and a consequent tax effect, rendering the assessment order erroneous and prejudicial to the interests of the Revenue.2. Jurisdiction of the PCIT in Initiating Proceedings:The assessee contended that the AO had conducted due enquiries and examination of the issue, taking a legally plausible view. The PCIT's initiation of proceedings under section 263 was challenged on the grounds that the AO had already scrutinized the impugned transaction during the assessment proceedings. The Tribunal noted that the AO had issued show cause notices and received detailed replies from the assessee, indicating that the AO had taken a conscious decision not to disallow the commission payments under section 40(a)(ia) of the Act.3. Non-deduction of Tax at Source on Commission Payments:The PCIT argued that the AO should have disallowed the commission payments amounting to INR 36,34,10,000/- as the assessee had not deducted tax at source. The assessee maintained that the payments were in the nature of discounts and not commissions, and therefore, not liable for tax withholding under section 194H of the Act. The Tribunal observed that the AO had examined the nature of the payments in detail, considering the distribution agreements and debit notes provided by the assessee. The Tribunal relied on judicial precedents, including the judgment of the Hon'ble Apex Court in the case of Max India Ltd., to conclude that the AO had taken a plausible view, and thus, the assessment order could not be revised under section 263.Conclusion:The Tribunal quashed the impugned revisionary order passed under section 263, holding that the AO had taken a plausible view and had not made the disallowance of the impugned expenditure under section 40(a)(ia) of the Act. The Tribunal clarified that it had not considered the merits of whether the expenditure was commission payments or discounts. The appeal filed by the assessee was allowed.