AI Drafter 
TaxTMI 
TaxTMI 
2025 (6) TMI 657
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....see 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 a....
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.... of the case. The question of lack of enquiry/inadequate enquiry is also required to be kept in mind and mere inadequacy of the enquiry would not confer jurisdiction on the Commissioner of Income-tax under section 263 of the Act. In the instant case, the Commissioner of Income-tax has held that the enquiry conducted by the Assessing Officer is inadequate and has assumed the revisional jurisdiction. The assessee has filed all the details before the Assessing Officer and Assessing Officer has accepted the contention of the assessee that no expenditure is attributable to the exempt income during the relevant Assessment Year. Thus, while recording the aforesaid finding, the Assessing Officer has taken one of the plausible views in allowing the claim of the assessee and therefore, the Commissioner of Income-tax could not have set aside the order of assessment merely on the ground of inadequacy of enquiry, the order passed by the Commissioner of Income-tax is not sustainable in law and the same has rightly been set aside by the Tribunal." 12. Moreover, from the report the AO submitted to the learned DR, it is clear that for the subsequent Assessment Years 2016-17, 2017-18 and 20....
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.... i. Judgment of the Delhi High Court in the case of Commissioner of Income-tax -Vs.- Ashok Logani [(2011) 11 taxmann.com 208 (Delhi)]; ii. Judgment of Punjab and Haryana High Court in the case of Principal Commissioner of Income-tax, Ludhiana -Vs. Venus Woollen Mills, Ludhiana [(2019) 105 taxmann.com 287 (Punjab & Haryana)]. 4. On the other hand, Sri. K. Suryanarayana, learned Senior Counsel for the respondent-assessee would submit that, the respondent is a company engaged in the manufacture and sale of transmission line hardware and accessories. For the assessment year 2015-16, the return of income was filed declaring a total income of Rs. 7,35,02,720/-. The assessment was selected for complete scrutiny, and a notice under Section 143 (2) of the Act was served on the respondent. Initially, a draft assessment order under Section 143 (3) read with Section 144C (13) of the Act was passed on 18.12.2018. The respondent filed objections to the draft assessment order before the Dispute Resolution Panel ('DRP' for short) and pursuant to the directions of the DRP dated 27.09.2021, the Assessing Officer passed the final assessment order under Section 143 (3) read with S....
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....essing Officer is not acceptable to the PCIT. In support of his submissions, he has relied upon the following judgments: i. Malabar Industrial. Co. Ltd. -Vs.- CIT [(2000) 109 Taxman 66 (SC)]; ii. CIT -Vs.- Gabriel India Ltd. [(1993) 71 Taxman 585 (Bombay)]; iii. CIT -Vs.- Sunbeam Auto Ltd. [(2010) 189 Taxman 436 (Delhi)]; iv. Globus Infocom Ltd. -Vs.- CIT [(2014) 50 taxmann.com 100 (Delhi)]; v. CIT -Vs.- Cyber Park Development and Construction Ltd. [(2020) 122 taxmann.com 82 (Karnataka)]; 6. According to him in the present case, the Assessing Officer had specifically called for details as to the commission expenditure of Rs. 36,34,10,000/- and as to why no tax had been deducted at source. It was explained by the assessee that the payments were not in the nature of commission but were in fact discounts which would not be covered under Section 194H of the Act, which applies to commission payments. He also stated that, another notice dated 12.12.2018 was issued. The respondent again vide letter dated 17.12.2018, explained Section 194H was not applicable. Thus according to him, the Assessing Officer had made elaborate enquiries on the iss....
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....r passed by the PCIT under Section 263 does not dispute the fact that the amount of Rs. 36,34,10,000/- represents discounts. In that view of the matter, the only plausible view is that Section 194H does not stand attracted and therefore the conclusion that there ought to be a disallowance under Section 40(a) and 40(ai) is incorrect and without any basis. He heavily relied upon the fact that the Assessing Officer in the respondent's own case for the assessment year 2012-13, accepted the position. For the assessment year 2012-13, upon the Tribunal affirming the directions of the DRP remanding the matter to the Assessing Officer for reconsideration of the issue, the Assessing Officer passed an order dated 10.05.2024 giving effect to the Tribunal's order, wherein he recorded a finding that the sales undertaken by the respondent are on a principal to principal basis and therefore the discount given to the distributors does not warrant withholding of tax under the provisions of Section 194H of the Act. He also stated, in the previous and subsequent years i.e., assessment years 2016-17, 2017-18 and 2018-19, no disallowance was made under Section 40 (a) (ia) for identical expenses. In fact....
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....ated above are not in dispute. Additionally we may say that, on 22.11.2018, the Assessing Officer had issued a notice to the respondent-assessee wherein he has questioned the transaction of the expenditure amounting to Rs. 36,34,10,000/-. In response thereto, the respondent-assessee had filed reply on 11.12.2018, wherein according to the respondent it has furnished sample agreements and contested the notice by stating that it was not liable to deduct tax at source under Section 194H of the Act. It was the case of the respondent-assessee that, as the issue was put to respondent-assessee and the Assessing Officer has taken a conscious decision in not making the disallowance under Section 40 (a) (ia) of the Act, so the finding of the PCIT that the Assessing Officer has not examined the issue in accordance with law and has not conducted necessary enquiries is incorrect. It was also the case of the respondent that as the Assessing Officer has taken a plausible view, the assessment order cannot be subjected to revision under Section 263 of the Act. 13. Suffice to state, the stand taken by the respondent is not appealing. This we say so because, the DAO does not reflect the aforesaid i....
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.... was not disallowed u/s 40 (a) (ia) in the assessment order. Failure to do so has resulted in short computation of income of Rs. 10,90,23,000/- (@30% of Rs. 36,34,10,000/-) with a consequent tax effect of Rs. 5,74,38,221/-, 3. In view of these facts, the assessment order was considered to be erroneous and prejudicial to the interests of revenue in terms of Sec. 263. It was therefore proposed to pass an order u/s. 263 in this case. A show cause notice was issued on 19.03.2022 giving the assessee an opportunity of filing its submissions. In response, the assessee has filed reply dated 22.3.2022. 4. The submissions filed by the assessee have been carefully considered. The assessee's claim that this issue was considered by the AO during asstt. proceedings, is not acceptable considering the facts discussed above, particularly as the assessee has not filed necessary evidence along with its above reply, to substantiate these claims. Considering the facts, it is clear that TDS was required to be done on Rs. 36,34,10,000/- debited by the assessee to the P & L account towards commission on sales. As the assessee did not do TDS on this amount, the AO should have disallow....
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....n an incorrect assumption of facts or an incorrect application of law or non-application of mind to something which was obvious and required application of mind or based on no or insufficient materials so as to affect the merits of the case and thereby cause prejudice to the interest of the revenue. 7.2 Section 263 of the Income-tax Act seeks to remove the prejudice caused to the revenue by the erroneous order passed by the Assessing Officer. It empowers the Commissioner to initiate suo moto proceedings either where the Assessing Officer takes a wrong decision without considering the materials available on record or he takes a decision without making an enquiry into the matters, where such inquiry was prima facie warranted. The Commissioner will be well within his powers to regard an order as erroneous on the ground that in the circumstances of the case, the Assessing Officer should have made further inquiries before accepting the claim made by the assessee in his return. The reason is obvious. Unlike the Civil Court which is neutral in giving a decision on the basis of evidence produced before it, the role of an Assessing Officer under the Income-tax Act is not only that ....
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....rroneous not only when it contains some apparent error of reasoning or of law or of fact on the face of it but also when it is a stereo-typed order which simply accepts what the assessee has stated in his return and fails to make enquiries or examine the genuineness of the claim which are called for in the circumstances of the case. In taking the aforesaid view, we are supported by the decisions of the Hon'ble Supreme Court in Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84, Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC), and Malabar Industrial Co. Ltd.'s case (supra)." 8. As discussed above, TDS was required to be done on Rs. 36,34,10,000/- debited by the assessee to the P & L account towards commission on sales. As the assessee did not do TDS on this amount, the AO should have disallowed this amount u/s 40 (a) (ia). The AO has not made this disallowance even though a similar disallowance has been made in AY 13-14 and AY 14-15. The AO has erroneously not made the disallowance in the asstt. order. Not making this disallowance is untenable in law and failure to do so has resulted in short computation of income of Rs. 10,90,23,000/- (@30% of Rs. 36,34,10,000/-) ....
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....e Delhi High Court has, in paragraphs No. 9 to 12, held as under: "9. Admittedly, there is no discussion about the same in the orders of the Assessing Officer which in fact is even taken note of by the Tribunal as well. However, according to the Tribunal, as per the order- sheet in respect of hearings held by the Assessing Officer, on August 24, 2005, the Assessing Officer had asked the assessee to explain the cash found during the course of search. Notings also reveal that the statement of the assessee was recorded on oath on May 27, 2005, on which date, he had explained that there was cash in hand in the books of M/s. In- Style Export of Rs.18,17,202 and in the books of In- Style Export Pvt. Ltd. of Rs. 18,78,518. The total of these two comes to Rs. 36,95,720. Out of the total cash found in the course of search of Rs. 62,30,300, if cash of these two concerns are excluded, the remaining cash is only Rs. 25,34,580 out of which, the assessee had included Rs. 21 lakhs on this account in the return of income filed by him for the assessment year 2004-05 and, hence, the remaining amount is only Rs. 4,34,580 was explained by the assessee as cash as per his own books. On this bas....
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....0,000 (iv) Smt. Mala Logani (Pers. Account) 2,30,000 41,30,000 The balance cash of Rs. 21 lakhs was declared as income for the year ending March 31, 2004, relevant to the assessment year 2004-05. The assessee had also furnished the copies of the balance-sheet, cash book, bank statements, wealth- tax return, etc., to substantiate the cash balance of these entities. Regarding the statement recorded at the time of search it was submitted that the books of account of the proprietorship concern and the company were not readily available with the assessee and, therefore, the precise source of cash found during search could not be explained." This may give an impression that it may be an afterthought on the part of the assessee to explain the cash. 11. Under these circumstances, the Assessing Officer was required to go into this issue in a proper perspective and could not be perfunctory in his approach. The Assessing Officer in the assessment order did not discuss the statement recorded at the time of search. No doubt, as per the assessee, this statement was retracted. In a case like this, it was necessary for the Assessing Office....
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....judicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue - recourse cannot be had to Section 263 (1) of the Act. 7. There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer; it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase "prejudicial to the interests of the Revenue" is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The High Court of Calcutta in Dawjee Dadabhoy & Co. v. S.P. Jain [(1957) 31 ITR 872 (Cal)], the High Court of Karnataka in CIT v. T. Narayana Pai [(1975) 98 ITR 422 (Kant)], the High Court of Bombay in CIT v. Gabriel India Ltd. [(1993) 203 ITR 108 (Bom)] and the High Court of Gujarat in CIT v. Minalben S. Parikh [(1995) 215 ITR 81 (Guj)] treated loss of tax a....