Loading judgment…
Facts
The appellant's assessment was scrutinised by the Ld. AO, who disallowed some 'Wallet Burn Expenses' but made no addition for 'Listing Fees'. The PCIT initiated revisionary proceedings under Section 263, finding that the AO failed to properly inquire into discrepancies in 'Listing Fees' reported and did not examine the applicability of TDS provisions under Sections 194C, 194H, and 194-O. The PCIT deemed the assessment erroneous and prejudicial to revenue due to lack of inquiry.
Held
The ITAT upheld the PCIT's revisionary order, concluding that the AO's assessment was erroneous and prejudicial to the revenue because the AO did not conduct proper inquiries into the genuineness of the large 'Listing Fees' claimed nor the applicability of relevant TDS sections. The tribunal confirmed that the AO had not applied his mind, justifying the PCIT's direction for a fresh assessment after due verification.
Key Issues
Whether the PCIT validly invoked Section 263 to set aside an assessment order where the AO failed to conduct proper inquiries into large expense claims ('Listing Fees') and the applicability of TDS provisions under Sections 194C, 194H, and 194-O.
Sections Cited
263, 143(3), 144B, 194C, 194H, 194-O
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, Mumbai “B” Bench, Mumbai.
Before: Shri Anikesh Banerjee (JM) & Shri Omkareshwar Chidara (AM)
Per Omkareshwar Chidara (AM) :- The appellant company’s case was taken up for scrutiny by Ld. AO who called for certain details like listing fees and wallet Burn Expenses. The Ld. AO disallowed 20% of Wallet Burn Expenses and with respect to listing fees expenses, the Ld. AO has mentioned in the assessment order as follows:- 4.1 Issue No. 1: Large expenses claimed and to be disallowed The assessee in response to the Show-cause Notice dated 09.12.2022 submitted the reply on 13.12.2022. On the issue of the Listing Fees of Rs.20,13,87,271/- the assessee has submitted the details alongwith copy of listing fees agreement/invoices etc. to justify its contentions. The assessee has also submitted the details w.r.t. travelling expenses (containing vouchers, Form 16A etc.) which are checked on test check basis. The assessee on the issue of Value Added Services expense has submitted the copies of invoices and Form 16A. To substantiate all these expenses, the assessee has also submitted the Bank Statement. 2. On the issue of listing expenses, thus, no addition was made by Ld. AO, after observing as above.
2 Be Healthy Pharmacy
Subsequently, the PCIT has exercised Revisionary Jurisdiction under section 263 of the Income Tax Act and while passing this order under section 263 of the Act, it was mentioned as follows :-
1. 2.1 Financial statements of the relevant year reveals that, the appellant had debited an amount of Rs. 20,13,87,271/- on account of contract charges. However, Form 3CD reveals that contractors were paid Rs.14,24,88,594/- only and trade payable at Rs.3,14,92,407/-. Thus, assessee had paid excess amount of Rs.2,74,06,270/- on account of contract charges and needs to be disallowed and added to the income of the same year. . 2.2 The AO has not examined this issue and omission to do so has resulted in under-assessment of income.
The Ld. PCIT after assuming jurisdiction under section 263 of the Act, issued a notice called for the details of “Listing Fees”. After obtaining the details of “Listing Fees”, the Ld. PCIT made the following observations in his 263 order : “From the above it appears that the assessee has mentioned listing fees expense of Rs 20,13,87,271 /- as per audited profit and loss account but had not made any listing fees expenditure in from 3CD. Assuming that payment to contractor in Form 3CD of column 34(a) of Rs.14,24,88,594/- (subject to TDS under section 194C) was for listing fees, and Rs.3,14,92,407/- was trade payable for listing fees, then this works out to Rs.17,39,81,001/- which is still short by Rs.27,06,270/- from the debited amount of Rs.20,13,87,271/-. Thus the order of the AO is both erroneous and prejudicial to the interest of the revenue in the sense that AO's order was passed without verification in this regard. Therefore the assessee submission that initiation of revision proceeding in this case was not tenable is not acceptable”.
At para 5.4 of 263 order, the Ld. PCIT has mentioned that the appellant’s profit and loss account shows a debit of Rs. 20.13 crore under the head “Listing Fees”. But, the figure is not matching with the details furnished in Form 3CD, where “listing fees” was shown at Rs. 14,24,88,594/- and Rs. 3,14,92,407/- balance as trade payable against listing fees. At para 5.5 of Ld. PCIT order, the appellant company has deducted under section 194C on the payment of Rs. 14,24,88,594/- and 3 Be Healthy Pharmacy under section 194H on the payment of Rs. 1,71,21,154/- and there was no TDS on payment of Rs. 6,57,21,415/- towards listing fees under the correct section 194-O which the Ld. AO ought to have. Finally, the Ld. PCIT concluded that as Ld. AO did not conduct enquiries into all these, an order under section 263 of the Act was passed directing the Ld. AO to carry out due verification after considering the factual submissions of appellant company. It was mentioned that the huge expenditure claimed of Rs. 20.13 crore was not enquired into when appellant has shown a loss of more than Rs. 2 crore while filing Return of Income.
Aggrieved by the above order of Ld. PCIT, the appellant company filed an appeal with ITAT by raising the following grounds of appeal :- “GROUND NO. I; IMPUGNED ORDER PASSED BY INVOICING PROVISIONS OF SECTION 263 OF THE ACT IS BAD IN LAW; 1.1 On the facts and in the circumstances of the case and in law, Hon’ble PCIT erred in invoking the provisions of Section 263 of the Act and setting aside the order passed u/s 143(3) r.w.s. 144B of the Act as being erroneous and prejudicial to the interest of the revenue. 1.2 For various proposition in law and on facts, section 263 is not applicable and, hence, the Appellant prays that impugned order be quashed.
During the proceedings before the ITAT, the Ld. AR of the appellant company has argued that all the details relating to “Listing Fees” were filed before Ld. AO at the time of assessment and only after due verification of details, the Ld. AO was satisfied with their explanations and hence no addition was made on the issue of ‘listing fees’. The Ld. AR of the appellant company has mentioned before the Ld. PCIT that from 1.10.2020, section 194-O of the Act was introduced as per which the E-commerce operator (business of appellant) was required to deduct TDS under section 194-O of the Act on the gross sales amount due from E-commerce operator. It was also mentioned that as per the provisions of section 194-O(3), if the tax is deducted by E-commerce operator on a transaction, such transaction would
4 Be Healthy Pharmacy not be liable to tax deduction by appellant’s firm again and submitted the reconciliation of ‘listing fees’ paid/payable to Axelia Solutions Pvt. Ltd., while giving reply to Ld. PCIT. Since, the amounts were reconciled and submitted to the Ld. PCIT, it was prayed that Ld. PCIT may drop the proceedings under section 263 of the Act. The Ld. AR has submitted before the ITAT that since the reconciliation of ‘listing fees’ was submitted to Ld. PCIT, there is no need of remit the issue back to Ld. AO again and hence the proceedings under section 263 may be quashed by ITAT. The Ld. AR of the appellant company has filed a legal paper book containing cases-law of Malabar Indl. Co. Vs. CIT 247 ITR 83(SC), Nirav Modi, 390 ITR 292(Bom), PCIT Vs. Gujarat Power Co., 138 Taxman.com 60(SC) and others and relied on them for the proposition that where all enquiries were conducted by Ld. AO, then the Ld. PCIT cannot assume the jurisdiction under section 263 of the Act.
The Ld. DR has submitted that the issue of “Listing Fees” was dealt by Ld. AO at para 4.1 of the assessment order which is very cryptic and from that para, it is observed that neither the bifurcation nor reconciliation now submitted to PCIT was given to Ld. AO. The Ld. AO has not applied his mind to this major expense of Rs. 20.13 crore claimed by appellant company. The applicability of section 194C/194H and 194-O of the Act applicability to E- commerce operators etc. with effect from 1.10.2020 were neither asked nor details were submitted by the appellant company. Similarly, the Ld. PCIT has stated that the amount mentioned in profit and loss account of Rs. 20.13 crore was not matching with details furnished in Form 3CD. In view of the same, it can be safely presumed that the Ld. AO has not at all applied his mind, nor examined this huge expenses claimed of more than Rs. 20 crore which ultimately resulted in the claim of loss of return of more than Rs. 2 crore. The Ld. DR has also placed reliance on Malabar Indl. Co. (SC) case (supra) and Daniel Merchants (P) Ltd. Vs. ITO, 95 taxman.com 366(SC) and other cases.
5 Be Healthy Pharmacy
Heard both sides and perused the assessment order, order under section 263 passed by Ld. PCIT, written submissions and cases-law filed by both parties. Facts of the case are as follows :
9.1 As per the CASS directions, the Ld. AO has to examine the “Large Expenses Claimed”. In this case, the major component of “Large Expenses” is “Listing Fees” of Rs. 20.13 crore. This is being dealt in assessment order at para 4.1 as follows :-
4.1 Issue No. 1: Large expenses claimed and to be disallowed The assessee in response to the Show-cause Notice dated 09.12.2022 submitted the reply on 13.12.2022. On the issue of the Listing Fees of Rs.20,13,87,271/- the assessee has submitted the details alongwith copy of listing fees agreement/invoices etc. to justify its contentions. The assessee has also submitted the details w.r.t. travelling expenses (containing vouchers, Form 16A etc.) which are checked on test check basis.
From the assessment order, it can be seen that, except the above noting, there is absolutely no finding/decision on this issue as to what happened to the ‘test check’. Nowhere, in the assessment order, the AO has whispered about the outcome of this test check. It can be seen that the AO directly jumped to the issue of “Wallet Burn Expenses” at para 4.1, page 5 of assessment order from “Listing Fees” expenses without saying anything about the correctness/genuineness of the expenses. Neither confirmation letter from the party as to who received this amount of Rs. 20,13,87,271/- was filed by appellant nor asked by AO. Nowhere in the order, it was mentioned which items were test checked and what is the result. Similarly, the appellant has claimed that still an amount of Rs. 3,14,92,407/- was payable to the party who rendered the services. No enquiry, query by AO on this issue too.
9.2 From the record it is observed by Ld. PCIT that the total amount claimed as “Listing Fees” is Rs. 20,13,87,271/- whereas from 3CD Report filed by appellant, the amount paid to contractor is only Rs.
6 Be Healthy Pharmacy 14,24,88,594/-. Again there is a payment of Rs. 1,71,21,154/- and TDS under section 194H of the Act was deducted. The nature of these payment were also not enquired by AO. The AO did not get full details of “Listing Fees”, nor enquired. Similarly, the appellant’s claim of applicability of section 194-O of the Act also was not questioned by AO. In view of all these facts, the Ld. PCIT has only directed the AO to carry out due verification which is total absent in this case. It was also mentioned clearly by Ld. PCIT that a fresh assessment order is to be passed only after giving “reasonable opportunity” after taking explanation and supporting evidence.
As against these observations, Ld. AR of the appellant, apart from arguing the case at length and filing paper book containing several cases, again filed a Brief Synopsis with more than 15 cases-law. Some of the cases-law filed and relied on by appellant are analysed below :- a) Malabar Industrial Co. Ltd. Vs. CIT 109 Taxman 66 (SC), where it was held as follows : “10. In the instant case, the Commissioner noted that the ITO passed the order of nil assessment without application of mind. Indeed, the High Court recorded the finding that the ITO failed to apply his mind to the case in all perspective and the order passed by him was erroneous. It appears that the resolution passed by the board of the appellant-company was not placed before the Assessing Officer. Thus, there was no material to support the claim of the appellant that the said amount represented compensation for loss of agricultural income. He accepted the entry in die statement of the account filed by the appellant in the absence of any supporting material and without making any inquiry. On these facts, the conclusion that the order of the ITO was erroneous is irresistible. We are, therefore, of die opinion that die High Court has righty held that die exercise of the jurisdiction by die Commissioner under section 263(1) was justified”.
This case exactly fits into the facts and circumstances of the impugned case and in fact supports the view of Ld. PCIT that where no enquiries were done by Ld. AO, the revisionary jurisdiction of Ld. PCIT is valid.
7 Be Healthy Pharmacy b) The second case relied on by appellant is CIT Vs. Nirav Modi (SC), where it was held that if enquiries are already done by AO, then Revision under section 263 of the Act is not valid. Even though this case was held against Revenue, the ratio laid down is the same i.e., if the enquiries are not done by AO, then the Ld. PCIT can revise the assessment and otherwise “No”. Again, third case relied on by appellant is Coastal Gujarat Power Ltd. (SC) 138 taxman.com 60 deals with gains arising out fluctuation of foreign exchange is capital or receipt and this case is not applicable to our facts. Fourth case relied on by appellant is Shreeji Prints (P) Ltd. (SC) in which Hon'ble Apex Court has held in favour of the appellant as AO made enquiries in detail with regard to credits and accepted the genuineness of credits and hence Revision under section 263 of the Act is not permissible, whereas in our case, AO did not enquire into genuineness of “Listing Fees” and whether entire amount is paid for the purposes of business etc. Hence, order of AO is not correct if enquiries were not done, then the Ld. PCIT can assume Revisionary Jurisdiction under section 263 of the Act. The fifth case relied on by appellant is Clix Finance India (P) Ltd. (Del) where the Hon'ble Delhi High Court held in favour of appellant because the AO examined the issues during assessment and there is no error. In our case, the Ld. PCIT has demonstrated that no enquiry/investigation was done with the party nor there is even confirmation from concern party that the amount was paid nor the AO asked appellant to explain about the amounts payable to party. The AO did not mention which items were checked and what was the result of the same. Similar is the ratio of all cases relied on appellant in their legal paper book.
On the converse side, reliance is placed on the following cases-law to uphold the Revision Order of PCIT under section 263 of the I.T. Act :-
8 Be Healthy Pharmacy a) In the case of Daniel Merchants (P) Ltd. (supra), it was held as follows :- “In all these cases, we find that the Commissioner of Income Tax had passed an order under section 263 of the Income-tax Act, 1961 with the observations that the Assessing Officer did not make any proper inquiry while making the assessment and accepting the explanation of the assessee(s) in so far as receipt of share application money is concerned. On that basis the Commissioner of Income Tax had after setting aside the order of the Assessing Officer, simply directed the Assessing Officer to carry thorough and detailed inquiry. It is this order which is upheld by the High Court. We see no reason to interfere with the order of the High Court”. b) Duggal & Co. 220 ITR 456 (Del) : The ITO is not only an adjudicator but also an investigator. He cannot remain passive in the face of a Return of Income which is apparently in order but call for further enquiry. It is incumbent on the ITO to further investigate the facts sated in Return of Income, when circumstances would make such an enquiry prudent and the word “erroneous” in section 263, includes the failure to make such an enquiry. The order becomes erroneous because such an enquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct. c) TCE Consulting Ltd. Vs. ACIT, 7 ITR 718(Mum-Tribu) : The AO called for material relating section 10B deduction and obtained – but without examining them, assessment was completed under section 143(3) and hence revisionary jurisdiction under section 263 was held valid. d) K.A. Ramaswamy Chettiar, 220 ITR 657 (Mad) : Where the replies filed by appellant were not examined by AO, and a routine assessment was done, then Revision under section 263 is valid.
Thus, seen the facts and circumstances from this perspective especially because of the observations made by Ld. PCIT at page 5, para 5.4 that the appellant deducted TDS under section 194C on the payment of Rs. 14,24,88,594/- and under section 194H on the payment of Rs. 1,71,21,154/- and TDS was not made on payment of Rs. 6,57,21,415/-
9 Be Healthy Pharmacy towards listing fees under section 194-O of the Act in the impugned case, the Bench decides that the Ld. AO did not obtain the full details nor conducted any enquiries about the genuineness of expenditure relating to “listing fees” and hence the Ld. PCIT has correctly directed the AO to conduct enquiries and take appropriate action after giving opportunity to the appellant company, under section 263 of the Act is held valid.
The appeal of appellant is Dismissed Order pronounced in the open Court on 02/12/2025.