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Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI V. DURGA RAO & SHRI G. MANJUNATHA
PER G. MANJUNATHA, ACCOUNTANT MEMBER:
This appeal filed by the assessee is directed against the order of the Ld. Principal Commissioner of Income Tax, Madurai-1, dated 24.03.2022, passed u/s. 263 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) and pertains to assessment year 2017-18.
:-2-: ITA. No:290/Chny/2022
The assessee has raised the following grounds of appeal: “1. For that the order of the Learned Principal Commissioner of Income Tax -1, Madurai u/s 263 of the Income Tax Act, 1961 is opposed to law, facts and circumstances of the case. 2. For that the Learned Principal Commissioner of Income Tax -1, Madurai is not justified in invoking the provisions of section 263 of the Act, when the impugned Assessment made under section 143(3) of the Act is not 'erroneous and prejudicial to the interest of the revenue' and thereby erred in Partly setting aside the Order passed by the Assessing Officer u/s 143(3) of the Act dated 18.12.2019. 3. For that the Learned Principal Commissioner of Income Tax -1, Madurai has erred in setting aside the impugned Assessment Order to verify the Turnover discount claimed as expenses, without appreciating the fact that where all the relevant details called for were submitted before the Assessing Officer and where the Assessing Officer had applied his mind and allowed the claim of expenses on account of Turnover Discount, the impugned Assessment Order cannot be termed to be erroneous and the revision u/s 263 of the Act is not sustainable. 4. For that the Learned Principal Commissioner of Income Tax -1, Madurai erred in invoking the provisions of section 263 in the present case as the AO has considered one of the two possible views and the Commissioner has a different view, the Assessment Order u/s 143(3) of the Act cannot be treated as erroneous order prejudicial to the interest of revenue. 5. For that the Learned Principal Commissioner of Income Tax -1, Madurai has set aside the assessment with a direction to examine the issue of applicability of TDS Provisions on the claim of incentives to dealers, thereby the PCIT is not justified in invoking his jurisdiction u/s 263 of the Act.”
The brief facts of the case are that the assessee, an individual is engaged in the business of wholesale trading business, filed his return of income for the assessment year 2017-18 on 25.12.2017, admitting total income of Rs.
:-3-: ITA. No:290/Chny/2022 30,29,350/-. The assessment has been completed u/s. 143(3) of the Act, on 18.12.2019 and determined total income of Rs. 67,69,575/- by making addition towards cash deposits u/s. 68 r.w.s. 115BBE of the Act and also disallowance of 50% of sale promotional expenses. The case has been subsequently taken up for revision proceedings by the PCIT, Madurai-1, and a show cause notice u/s. 263 of the Act dated 03.02.2022 was served on the assessee. In the said show cause notice, the PCIT had taken up the issue of cash discount and turnover discount allowed by the assessee in light of provisions of section 194C r.w.s. 40(a)(ia) of the Act. According to the PCIT, although the assessee has allowed cash discount and turnover discount which comes under the definition of commission as defined u/s. 194C of the Act, but failed to deduct TDS u/s. 194C of the Act. Consequently, expenditure needs to be disallowed u/s. 40(a)(ia) of the Act. Although, the assessee has failed to comply with TDS provisions, the AO has allowed the claim of the assessee while completing the assessment which rendered the assessment order to be erroneous and prejudicial to the interests of the revenue. Therefore, called upon the assessee to explain as to why the assessment order passed by the AO
:-4-: ITA. No:290/Chny/2022 u/s. 143(3) of the Act, dated 18.12.2019 shall not be revised u/s. 263 of the Act.
In response to show cause notice, the assessee vide letter dated 17.02.2022, submitted that the assessment order passed by the AO is neither erroneous nor prejudicial to the interests of the revenue, because the AO has verified the issues of cash discount and turnover discount and after considering explanation furnished by the assessee, has completed assessment without making any addition. Therefore, it cannot be said that the assessment order passed by the AO is erroneous. The PCIT, after considering relevant submissions of the assessee and also taken note of various facts accepted the explanation of the assessee in so far as cash discount amounting to Rs. 23,25,137/- is concerned. However, in respect of trade discount amounting to Rs. 15,59,294/-, the PCIT was of the opinion that initially the assessee claimed that he had allowed incentive to customers, whereas now changed his stand and argued that it is turnover discount allowed to the customers and thus, provisions of section 194C or 194H of the Act does not arise, but fact remains that no evidence has been
:-5-: ITA. No:290/Chny/2022 furnished to justify the arguments of the assessee. Therefore, rejected arguments and set aside the assessment order passed by the AO u/s. 143(3) of the Act, dated 18.12.2019 and directed the AO to redo the assessment after making necessary enquiries with regard to the issue of applicability of TDS provisions on the claim of incentive and decide the issue in accordance with law. Aggrieved by the PCIT order, the assessee is in appeal before us.
The Ld. Counsel for the assessee, submitted that the Ld. PCIT erred in assuming jurisdiction and set aside the assessment order passed by the AO u/s. 143(3) dated 18.12.2019, without appreciating fact that the assessment order is neither erroneous nor prejudicial to the interests of the revenue. The Ld. Counsel for the assessee, further referring to copy of ledger account on trade discount allowed to customers submitted that discount allowed to customers in each case is less than Rs. 30,000/- and aggregate amount of discount allowed to customer is less than Rs. 1 lakh and thus, the same is outside the scope of section 194C of the Act. This fact has been explained to the PCIT, however Ld. PCIT ignored
:-6-: ITA. No:290/Chny/2022 explanation furnished by the assessee and set aside the assessment order.
The Ld. DR, on the other hand supporting the order of the PCIT submitted that there is no clarity in arguments taken by the assessee on the issue of so called turnover discount. The assessee initially claimed that it is incentive paid to customers, but subsequently changed his stand and argued that it is trade discount. He further, submitted that if at all it is trade discount allowed to customers and the assessee has specified the trade discount in the invoice, then question of application of provisions of section 194C of the Act does not arise. However, if it is in the nature of incentive then the same needs to be examined in light of provisions of section 194C or 194H of the Act . Although, the issue needs to be verified in light of relevant provisions, the AO has failed to carry out required enquiries he ought to have been carried out which rendered the assessment order to be erroneous and prejudicial to the interests of the revenue. Therefore, there is no error in the reasons given by the PCIT to set aside the assessment order and their order should be upheld.
:-7-: ITA. No:290/Chny/2022 7. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. There is no dispute with regard to the fact that the AO seems to have not verified the issue of trade discount in right perspective of law while completing the assessment proceeding u/s. 143(3) of the Act. In fact, the assessee is neither able to furnish necessary evidence to prove that the AO has called for explanation on the issue nor filed relevant details to claim that its explanation or reasons for non-deducting TDS on said amount or how provisions of section 194C or 194H of the Act is not applicable. Therefore, it appears that the AO has not examined the issue at all while completing the assessment proceedings u/s. 143(3) of the Act. Further, it was the stand of the assessee that said amount is incentive paid to customers. However, the assessee has changed his stand and argued that it is trade discount allowed to customers. From the above, it is very clear that there is no clarity in the arguments of the assessee on the issue and thus, it cannot be said that the AO has verified the issue in light of details furnished by the assessee. Further, the assessee claims that trade discount allowed to customers is outside the scope of provisions of
:-8-: ITA. No:290/Chny/2022 section 194C of the Act, it aggregate of said payment does not exceed Rs. 1 lakh, then question of deduction of TDS does not arise. We find that first of all, the assessee initially argued that it is incentive. If at all it is incentive it should be examined in light of the provisions of section 194H of the Act and thus, the question of application of section 194C(V) of the Act does not arise. Secondly, the assessee changed his stand and argued it is trade discount and it is outside the scope of section 194C of the Act. If at all it is trade discount, the assessee should prove his claim with relevant material including sales invoice to prove that trade discount has been allowed to customers in the invoice itself. But, no such details has been furnished before us. Therefore, we are of the considered view that the issue needs to be examined in light of provisions of section 194C/194H of the Act. Since, the AO has failed to verify the issue in right perspective of law, the PCIT has rightly held that the assessment order passed by the AO is erroneous in so far as it is prejudicial to the interest of the revenue on this issue, and thus, we are inclined to uphold the order passed by the PCIT u/s. 263 of the Act and dismiss the appeal filed by the assessee.
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In the result, the appeal filed by the assessee is dismissed.
Order pronounced in the court on 04th January, 2023 at Chennai. Sd/- Sd/- (वी दुगा� राव) (जी. मंजुनाथ) (G. MANJUNATHA) (V. DURGA RAO) �याियकसद�य/Judicial Member लेखासद�य/Accountant Member चे�ई/Chennai, �दनांक/Dated: 04th January, 2023 JPV आदेश क� �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु� (अपील)/CIT(A) 4. आयकर आयु�/CIT 5. िवभागीय �ितिनिध/DR 6. गाड� फाईल/GF