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Income Tax Appellate Tribunal, JODHPUR BENCH, JODHPUR
Before: SHRI B. R. BASKARAN & Dr. S. SEETHALAKSHMI
O R D E R PER: B. R. BASKARAN, AM The assessee has filed this appeal challenging the revision order dated 29- 03-2022 passed by Ld PCIT, Jodhpur-1, Jodhpur u/s 263 of the Act for assessment year 2017-18. The assessee is challenging the validity of revision order passed by Ld PCIT.
The facts relating to the case are that the assessee is an authorized dealer of Mahindra & Mahindra Ltd. The assessment u/s 143(3) of the Act was completed in the hands of the assessee on 10.12.2019 accepting the total income of Rs.6.00 crores declared by the assessee. The Ld PCIT, upon examination of assessment record, took the view that the assessment order is erroneous and prejudicial to the interests of revenue on the following three issues:-
(a) Payment of employees contribution of PF & ESI not disallowed u/s 36(1)(v) of the Act. (b) Non-disallowance of incentive payments made to employees u/s 40(a)(ia) of the Act, as the assessee has not deducted tax at source u/s 194H of the Act. (c) Non-disallowance of expenses u/s 14A of the Act. Accordingly, the Ld PCIT initiated revision proceedings u/s 263 of the Act. After hearing objections raised by the assessee, the Ld PCIT set aside the assessment order in respect of above said three issues and directed the AO to examine the above said three issues in the light of discussions made by him and also in accordance with law.
The scope of revision proceedings initiated under section 263 of the Act was examined by Hon'ble Bombay High Court, in the case of Grasim Industries Ltd. V CIT (321 ITR 92) by taking into account the law laid down by the Hon'ble Supreme Court. The relevant observations are extracted below:
“Section 263 of the Income-tax Act, 1961 empowers the Commissioner to call for and examine the record of any proceedings under the Act and, if he considers that any order passed therein, by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, to pass an order upon hearing the assessee and after an enquiry as is necessary, enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment. The key words that are used by section 263 are that the order must be considered by the Commissioner to be “erroneous in so far as it is prejudicial to the interests of the Revenue”. This provision has been interpreted by the Supreme Court in several judgments to which it is now necessary to turn. In Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83, the Supreme Court held that the provision “cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer” and “it is only when an order is erroneous that the section will be attracted”. The Supreme Court held that an incorrect assumption of fact or an incorrect application of law, will satisfy the requirement of the order being erroneous. An order passed in violation of the principles of natural justice or without application of mind, would be an order falling in that category. The expression “prejudicial to the interests of the Revenue”, the Supreme Court held, it is of wide import and is not confined to a loss of tax. What is prejudicial to the interest of the Revenue is explained in the judgment of the Supreme Court (headnote) : “The phrase ‘prejudicial to the interests of the Revenue’ has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer, cannot be treated as prejudicial to the interests of the Revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law.” The principle which has been laid down in Malabar Industrial Co. Ltd. [2000] 243 ITR 83 (SC) has been followed and explained in a subsequent judgment of the Supreme Court in CIT v. Max India Ltd. [2007] 295 ITR 282.”
The principles laid down by the courts are that the Learned CIT cannot invoke his powers of revision under section 263 if the Assessing Officer has conducted enquiries and applied his mind and has taken a possible view of the matter. If there was any enquiry and a possible view is taken, it would not give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has a different opinion in the matter. Possible view shall mean a issue, which is debatable and there could be more than one possible views. The consideration of the Commissioner as to whether an order is erroneous in so far it is prejudicial to the interests of Revenue must be based on materials on record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. If the view taken by Ld CIT is also not in accordance with law and settled principles or debatable, then also revision proceedings could not be initiated. The Commissioner cannot initiate proceedings with a view to start fishing and roving enquiries in matters or orders which are already concluded.
We shall examine the issues cited by Ld PCIT on the basis of above said principles. The first issue relates to the disallowance to be made u/s 36(1)(v) of the Act in respect of payment of employees contribution to PF/ESI. The said provision states that the employees’ contribution of PF, ESI etc. shall be treated as income of the assessee and it will be allowed as deduction if it has been paid by the employer within the due date prescribed under the respective statutes. The Ld A.R submitted that the assessee has made the payments before the due date prescribed for filing return of income u/s 139(1) of the Act, even though it has been paid beyond the due date prescribed in the respective statutes. He submitted that the Hon’ble Rajasthan High Court had held that the disallowance u/s 36(1)(v) should not be made when the employees contribution has been paid before the due date prescribed for filing return of income u/s 139(1) of the Act. He submitted that the AO has allowed the deduction following the decision of jurisdictional High Court and hence the assessment order passed on this issue cannot be considered to be erroneous.
The Ld D.R, on the contrary, submitted that the Hon’ble Supreme Court, in the case of Checkmate Services P Ltd (Civil Appeal No.2833 of 2016 dated October 12, 2022), has categorically held that the employees contribution to PF/ESI has to be disallowed u/s 36(1)(v) of the Act if it has not been paid before the due date prescribed under the respective Acts, even it has been paid within the due date prescribed for filing return of income u/s 139(1) of the Act. The Ld D.R submitted that the decision rendered by Hon’ble Supreme Court shall be applicable from date of inception of the relevant provision, as the Apex Court only interprets the provision. The ld D.R further submitted that the AO did not make any enquiry on this issue and hence it cannot be said that the assessing officer has formed a possible view.
We heard the parties on this issue. Admittedly, the AO has not made any enquiry on the issue of payment of employees’ contribution, during the course of assessment proceedings. In the absence of any enquiry, it will not be possible to find out the mind of the assessing officer, meaning thereby, it cannot be said that the AO has taken a possible view. Hence, we are of the view that the Ld PCIT was justified in setting aside the order of AO on this issue.
The next issue considered by Ld PCIT relates to the non-deduction of TDS on the incentive payments made to employees. The assessee has paid incentives to its employees and deducted tax at source u/s 192 of the Act by including the said payments with the salary of the assessee. The ld PCIT took the view that the assessee should have deducted TDS u/s 194H of the Act. Since the AO has not examined this issue, the Ld PCIT revised the order of AO on this issue. 8. We heard the parties on this issue. There is no dispute with regard to the fact that the incentive payments have been paid to the employees of the assessee during the course of employment. It is well settled proposition that the payments made to an employee during the subsistence of employer-employee relationship and in connection with the employment, would acquire the character of Salary income only. The provisions of sec.194H shall be applicable to the cases of payment of commission to agents, who are independent persons and not employees of the assessee holding master-servant relationship. Hence the incentive payment given to the employees cannot be considered as “commission payment” liable for deduction u/s 194H of the Act. In our considered view, the Ld PCIT has misdirected himself in taking the view that the incentive payments given to employees shall be liable for TDS u/s 194H of the Act. In our view, the assessee was right in law in deducting TDS on the incentive payments u/s 192 of the Act. Accordingly, we set aside the order passed by Ld PCIT on this issue.
The next issue considered by Ld PCIT relates to the disallowance to be made u/s 14A of the Act. The Ld PCIT noticed that the assessee has made investment of Rs.47.00 lakhs, but did not make any disallowance u/s 14A of the Act. Since the AO did not make any disallowance u/s 14A of the Act, he revised the assessment order directing the AO to examine this issue.
We heard the parties on this issue. The undisputed fact is that the assessee did not earn any exempt income during the year under consideration. When there is no exempt income, the question of making any disallowance u/s 14A shall not arise, as held by Hon’ble Delhi High Court in the case of Era Infrastructure (India) Ltd (2022)(141 taxmann.com 289)(Delhi). Hence, the question as to whether any disallowance u/s 14A could be made when there is no exempt income, becomes a debatable issue. It is well settled proposition of law that the revision proceedings u/s 263 could not be initiated on debatable issues. Accordingly, we set aside the order passed by Ld PCIT on this issue.
In the result, the appeal filed by the assessee is partly allowed.
Order pronounced in the open Court on 16 /01/2023