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Facts
The assessee, engaged in the business of medical equipment sales and services, filed their return of income. Their case was selected for scrutiny assessment due to large payments made under section 194H to persons who had not filed returns. The AO conducted an assessment under section 143(3) after detailed examination of commission payments.
Held
The Tribunal held that the PCIT's order invoking section 263 was not justified as the AO's assessment order was not erroneous. The Tribunal found that the difference identified by the PCIT pertained to GST component and had been explained by the assessee with supporting documents. The Tribunal set aside the PCIT's order.
Key Issues
Whether the PCIT was justified in invoking revisionary powers under Section 263 on the grounds that the assessment order was erroneous and prejudicial to the revenue, when the issue concerned the GST component of commission payments which was duly explained by the assessee.
Sections Cited
143(3), 194H, 263, 133(6), 142(1), 69C
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘B’ BENCH : BANGALORE
Before: SHRI LAXMI PRASAD SAHU & SHRI SOUNDARARAJAN K.
ORDER PER SOUNDARARAJAN K., JUDICIAL MEMBER
This is an appeal filed by the assessee challenging the order of the Ld.PCIT, Bengaluru – 1, Bangalore dated 11/03/2025 in respect of the A.Y. 2021-22 in which the Ld.PCIT had set aside the order of the AO dated 15/12/2022 and directed to pass fresh order after carrying out the necessary verification and examination and enquiry into the claim of commission expenditure. The assessee raised the following grounds:
Grounds Raised Tax Effect in INR
1. The impugned order passed by the Ld PCIT is opposed to law, NA facts and circumstances of the case, and is liable to be quashed.
2. The impugned order of the Ld PCIT is without jurisdiction, untenable and bad in law inasmuch as a) He failed to appreciate that the assessment order dated 15.12.2022, passed under section 143(3), was neither erroneous in law or fact nor prejudicial to the interests of the Revenue - both conditions being sine qua non for the valid exercise of power under section 263; in the absence of NA either, the invocation of section 263 is impermissible. b) He proceeds to cancel the assessment and direct a fresh inquiry without recording any finding on the merits, contrary to the binding precedent of the Hon'ble Apex Court which holds that a mere difference of opinion does not confer jurisdiction under section 263 where the Assessing Officer has made due inquiry.
3. Without prejudice to above grounds, the Ld AO erred in invoking provisions of section 263 and in doing so a) He failed to appreciate that the Assessing Officer had, during the course of assessment proceedings, called for and examined in detail the nature, quantum, and genuineness of commission payments through notices under sections 142(1) and 133(6), and had accepted the Rs. 3,20,307/- explanation after verifying third- party confirmations and supporting documentation.
b) He erred in concluding that the assessment was completed without proper verification, ignoring that the very issue of commission payments formed the core of the scrutiny and was examined in detail by the Assessing Officer, who, after due c) He failed appreciate that the alleged discrepancy of Rs.4,10,650/- pertained solely to the GST component on commission, which was not debited to the Profit and Loss Account but claimed as Input Tax Credit under the GST Act, and hence did not represent any excess or unexplained expenditure under section 69C of the Act. d) He failed to consider that the Appellant had duly reconciled the total commission paid, distinguishing between TDS and non-TDS cases, and had submitted a detailed party-wise statement, invoices, ledgers, and payment proofs substantiating the commission expenses claimed.
The Appellant prays for leave to add, delete, modify or introduce fresh grounds of appeal at any time before the appeal is disposed off. For these and such other grounds that may be adduced or removed in time to time, it is requested that the Hon'ble ITAT may be pleased to examine the case in the light of justice and grant the relief sought for.”
2. The brief facts of the case are that the assessee is an individual and he is in the business of sales and service of medical equipment and consumables to various hospitals, clinics, nursing homes, medical colleges, etc. The assessee filed his return of income on 17/01/2022. Thereafter the case of the assessee was selected for scrutiny assessment for the reason that large payments were made u/s. 194H to persons who have not filed return of income in comparison to total payments on TAN corresponding to PAN in form 26Q. Thereafter several notices were issued and the commissions paid by the assessee were examined in detail. The assessee also submitted the details of the commissions paid to various parties and the agreement copies and the TDS details to justify the correctness and genuineness of the claim. The assessee also furnished the party wise details of the commission paid along with the copies of invoices and tax deduction details and the party wise ledger accounts and number of payment in the bank statement and their relevant details / documents / evidences. The AO considered the said details and also the documents filed by the assessee and also verified the genuineness of the said expenses by issuing notices u/s. 133(6) of the Act to the various parties who have confirmed the receipt of the commission from the assessee. Thereafter the AO made the assessment u/s. 143(3) of the Act since no adversity has been found in the commission payment details.
The Ld.PCIT under the powers vested with him u/s. 263 of the Act had alleged that the total commission paid were declared at Rs. 69,82,300/- whereas the assessee had added only a sum of Rs. 65,71,650/- in the P&L account and therefore he concluded that there was a difference of Rs. 4,10,650/- which was not explained by the assessee and the AO also not verified the same and therefore it could be treated as an unexplained expenditure u/s. 69C of the Act. The assessee filed their reply on 29/01/2025 in which the assessee had explained that the AO had verified all the details about the commission paid to the various persons and the difference of Rs. 4,10,650/ is attributable to the GST amount which was not debited in the P&L account since the said GST amount would be treated as an input tax as per the provisions of the GST Act. The assessee also submitted that a detailed workings and submitted that the GST amount could not be treated as unexplained expenditure u/s. 69C of the Act. The Ld.PCIT had not accepted the submissions made by the assessee on the ground that the assessee had not corroborated its claim that the difference of Rs. 4,10,650/- is on account of GST component. The Ld.PCIT had also observed that the assessee had not filed their annual return / GSTR 9 to corroborate its claim of input tax credit. The Ld.PCIT also observed that the assessment has been selected for scrutiny only to verify the large payments made u/s. 194H but the AO had not conducted proper enquiry and verification, resulting in wrongly allowing the unexplained expenditure of Rs. 4,10,650/-. The Ld.PCIT is of the view that the non-verification of the GSTR2A and GSTR9 amounts to an erroneous assessment order and therefore it is prejudicial to the interest of the revenue. On that basis, the Ld.PCIT had set aside the assessment order dated 15/12/2022 and directed the AO to pass fresh order after carrying out the necessary verification and examination and enquiry into the claim of the commission expenditure.
As against the said order, the present appeal has been filed by the assessee before this Tribunal.
At the time of hearing, the Ld.AR filed a paper book comprising the written submissions and the various notices issued by the AO as well as the response and details submitted by the assessee on several dates to show that the AO had conducted enquiry and verified the details and thereafter accepted the commission expenditure. The Ld.AR also filed several case laws in support of the contention that the revision order passed u/s. 263, in the facts and circumstances of the present case, is not correct.
The Ld.DR relied on the orders of the Ld.PCIT and submitted that the same requires no interference.
We have heard the arguments of both sides and perused the materials available on record.
From the documents furnished by the assessee, we understand that the AO had issued notices u/s. 142(1) on 13/10/2022 and 23/11/2022 seeking the various details including the payments of commission and brokerage. The assessee also filed their response on 28/10/2022 and also enclosed the commission details paid to the various persons by way of a statement. Again the assessee filed their submissions on 28/11/2022. The assessee also along with the objections filed the statement of commissions
We have also perused the objections filed to the revision notice issued u/s. 263 of the Act on 27/01/2025 and the statements showing the persons to whom the commission was paid. In the said objections, the assessee had furnished the following statements as well as the summary of statements in which the assessee had given the break-up figures and the GST amount of Rs. 4,10,650/-.
We have also perused the invoices as well as the cash vouchers relied on by the assessee in which the GST amount at 9% was also mentioned in some of the bills. By producing all the details, the assessee explained before the Ld.PCIT that there is no difference of Rs. 4,10,650/- as alleged by the Ld.PCIT and established the fact that it is the GST amount and therefore it was not deducted in the P&L account to claim the same as an expenditure GST amount could be treated as an input tax credit in the hands of the assessee. The Ld.PCIT without considering the details furnished by the assessee before him, and also without considering the various replies and documents furnished before the AO in respect of the payment of commission, had wrongly arrived a conclusion that the assessment order dated 15/12/2022 is erroneous and therefore prejudicial to the interest of revenue.
In order to invoke the revisional powers u/s. 263 of the Act, the Ld.PCIT should have established that the assessment order is an erroneous one and therefore the same is prejudicial to the interests of the revenue. In the present case, we do not find the order of the AO is erroneous one and therefore the same could not be treated as prejudicial to the interest of the revenue. When the assessee had filed their objections with the relevant details, the Ld.PCIT without considering the said documents, cannot come to the conclusion that the order is an erroneous one. The assessee also filed a statement reconciling the difference and explained that the said amount of Rs. 4,10,650/- represents the GST component and also submitted the copies of the various invoices to show that the said amount could not be treated as an unexplained expenditure u/s. 69C of the Act. When the fact remains that the assessee had not debited this GST amount in his P&L account, there is no question of the expenditure as not been explained.
Further, in the show cause notice, the Ld.PCIT had alleged that the amount of Rs. 4,10,650/- was not properly verified while making the assessment but on the said reason, the Ld.PCIT had set aside the entire assessment as erroneous and gave a direction to pass the order afresh. We do not think that the order of the Ld.PCIT by extending the scope of remand to the entire assessment is also bad in law.
Considering the entire facts and the materials available on record, we are satisfied that the assessment order dated 15/12/2022 is not an erroneous order warrants interference in the hands of the Ld.PCIT u/s. 263
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 10th November, 2025.