FUTURE PHARMA PVT.LTD,KANPUR vs. PR. CIT-1, KANPUR

It is the company’s policy to pay the agents commission through cheques, after deducting the applicable TDS. The company deposits the returns, for the amount of TDS deducted by it, after taking PAN of the agents to whom the commission has been paid.

Therefore the allegation in the show cause notice, issued u/s 263, that the Assessing Officer failed to examine the issue relating to deduction of tax on commission u/s 194H is contrary to facts on record. 6. That as regards Director's remuneration, it is submitted as follows: There are three directors in the company: (a) Mr. Lokesh Gupta (b) Mr. Krishan Gopal Gupta (c) Mr. Manoj Gupta 7. Out of the above three directors, only two Directors were paid salary as follows: Lokesh Rs.8,40,000 Gupta Krishan Rs.1,44,000 Gopal Gupta Total Rs.9,84,000 The accounting system followed by the assessee in respect of payment of salary & wages is as follows: (i) Salary of directors and other employees (excluding Medical representatives) is debited under the head “salary & wages others’ (ii) Salary of Medical representatives is debited under the head “Salary A/c (M.R.) others’. (iii) Incentives to Medical representatives is debited under the head Incentive. In the account ‘salary & wages other” apart from salary to directors Rs.9,84,000/-, salary of following employees was also debited:

During the course of assessment proceedings the Assessing Officer vide his letter dated 20/01/2021 (already enclosed as Annexure-3), required following details from the assessee: “1. Kindly provide the ledger copy of the Salary & Wages and commission paid to your staffs/agents. If anyone received an amount of Rs.50,000/- and above per month as a Salary/Awvages/commission, kindly submit his/her or its PAN, e-mail and proper address." Apart from above details and some other details, detail of TDS payable as on 31/03/2018 alongwith date of payment of TDS was also required by the Assessing officer.

The assessee accordingly vide its reply e-filed on 03/02/2021 filed the ledger account of “salary & wages (other)” which included Director's remuneration apart from other accounts relating to salary and wages at As regards salary to Directors, tax was deducted thereon u/s 192 which was accepted by the Assessing Officer. The contention In the show cause notice Issued u/s 263 that tax should have been deducted u/s 194J is not based on fact as the directors are Key Managerial Personnel of the company (kindly refer note 28 of the Audited financial Statement) engaged full time with the company where employer employee relation exists. Further still the said Directors i.e. Mr. Lokesh Gupta and Mr. Krishan Gopal Gupta are income Tax aseessee and they have filed their Income Tax Return for AY 2016-19, declaring therein income from salary. A perusal of their computation of total income will show that three persons have no other engagement except employment with Assessee Company. it will also be seen that case of Mr. Lokesh Gupta there ie a refund due of Rs.23,640/- as against Tax deducted by assessee company of Rs.37,000/-. in case of Mr. Krishan Gopal Gupta, his salary was Rs.1,44,000/- frorn assessee company therefore no tax was deducted, however in his return too there is a refund of Rs.3,810/against Tax deducted at sources of Rs.13,013/- by Bank on interest income.

Presuming without admitting in any manner, even if tax was deductible u/s 194) and assessee has wrongly deducted tax u/s 192, then too no disallowance u/s 40a(ia) could be made as it is not a case of failure to deduct & deposit tax but a case of deduction under a wrong section In its aforesaid averments assessee places reliance on following decisions: (i) CIT v. 8.K. Takriwal (2014) 361 ITR 432 (Cal) (ii) Dish tndia TV India Ltd. v. ACIT (2017) 86 Taxmann.com 177 (Mum- Trib). Further still the deductees (director) have filed their Income Tax returns and as can be seen from their return of income (refer para 14 hereinfore and Annexure-7) refund is due in their cases. Therefore also no disallowance could be made u/a 40a(ia) as assessee company is not deemed to be default under the first proviso to section 201(1) — kindly refer second proviso to section 40a(ia) as reproduced hereinfore.

That a perusal of submissions at para 13 to 15 would show that on facts too no disallowance u/s 40a(ia) could be made. In any way it is clear that no prejudice has been caused to the revenue.

That the allegation that tax Audit Report in form 3CD is not available on file appears to be inadvertently mentioned as the assessee e-filed the same on 28/10/2018 (acknowledgement enclosed as Anenxure-1) and same is available on the Income Tax Portal.

That a perusal of above facts would show that the assessment order dated 21/04/2021 made u/s 143(3) is neither erroneous nor prejudicial to the interest of revenue as enquiry has been made by the Assessing Officer on the issues raised in the impugned notice, issue u/s 263, and all such enquiries were responded to by the assessee. Even on facts no prejudice has been caused to the revenue and the order is not erroneous. The Assessing Officer has passed the assessment order after considering all the material on record and upon due application of mind. Therefore it is requested that the proceedings initiated u/s 263 may kindly be dropped. The assessee places reliance on the following propositions in law as settled in various judicial rulings: (i) Malabar Industrial Co. Ltd. v. Commissioner of Income Tax 243 ITR 83 (SC) A bare reading of section 263(1) makes it clear that the prerequisite to exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the ITO is erroneous insofar as it is prejudicial to the interests of the revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the revenue. If one of them is absent - if the order of the [TO is erroneous but is not prejudicial to the revenue or if it is not erroneous but is prejudicial to the revenue - recourse cannot be had to section 263(1). 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’ 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 ITO adopts one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO 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 [TO is unsustainable in law. That where there are two views possible and Assessing Officer has taken one of the possible view, the order of Assessing Officer cannot be said to be erroneous or prejudicial to the interest of revenue as held by Hon'ble Apex Court in the case of CIT v. Max India Ltd. [2007] 295 {TR 282; Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 (SC); CIT v. Embassy Brindavan Developers (2023) 153 taxmann.com 461 (SC). That if no enquiry was made by the Assessing Officer, the Commissioner would have jurisdiction u/s 263 but if enquiry was made by the Assessing Officer and the objection of the Commissioner is that such enquiry is not adequate the Commissioner would have no jurisdiction u/s 263, as held in the case of Hindustan Marketing and Advertising Co. Ltd. [2012] 341 ITR 180 (Delhi), CIT v. Leisure Wear Exports Ltd. [2012] 341 ITR 166 (Delhi). Where querry was raised during the course of scrutiny which was answered to the satisfaction of the Assessing Officer, but neither the query nor the answer was reflected in the assessment order, that would not, by itself, lead to the conclusion that the order of the Assessing Officer called for interference and revision as held in the case of CIT v. Vikas Polymers [2012] 341 ITR 537 [2010] 194 Taxman 57 (Delhi). Lack of any discussion in the assessment order cannot lead to the assumption that the Assessing Officer did not apply his mind as held in the case of CIT v. Vodafone Essar South Ltd. [2012] 28 taxmann.com 271/[2013] 212 Taxman 184 (Delhi). Where the issues were duly considered by the assessing Officer and he had taken a plausible view on the issues based on existing proposition of law revision was unjustified. In the aforesaid proposition assessee places reliance on the decision of the ITAT Ahemdabad in the case of Comtrade Commodities Services Ltd. v. Pr. CIT (2023) 156 Taxmann.com 369 (Ahemdabad-Trib). When the Pr. CIT has not been able to establish through his enquiry that the order passed by Assessing Officer is unsustainable in law and more over the view taken by the Assessing Officer is a plausible view which ig supported by judicial precedents; the assessment order cannot be erroneous though prejudicial to the interest of Revenue. As both ingredients do not stand fulfilled of being erroneous and prejudicial to the interest of Revenue the initiation of proceedings u/s 263 in bad in law as held by Hon'ble ITAT Delhi in the case of Delhi Airport Metro Express (P) Ltd. v. Pr. CIT (2017) 88 taxmann.com 767. Even if it was assumed that the Assessing Officer did not make any enquiry about loan or credit balance of partners, the order of the Assessing Officer may be erroneous but if the loans and credits balance of the partners were genuine for which the assessee produced evidence before CIT in course of proceedings u/s 263, the order of Assessing Officer cannot be said to be prejudicial to the interests of the revenue. Therefore the action of CIT is not valid as held in the case of CIT v. Vikas Polymers 341 ITR 537 (Del). Vodafone Digilink Ltd. v. CIT TDS 2017 87 taxmann.com 315 (Delhi-Trib). The facts of the above case are that Assessee Company is engaged in providing telecommunication services. The company paid roaming charges to other telecom operators without deducting tax at source. It was the case of the appellant company that roaming payments made to other telecom operators for allowing use of their network were in nature of provision of standard facility which did not involve any human intervention, therefore such payments could not be classified as FTS. The Hon'ble Tribunal held that where the Assessing Officer has taken one of the plausible view after enquiry and the CIT has also not appreciated the fact that other telecom operators, to whom roaming charges have been paid, would have offered income arising from roaming charges received from the appellant to tax causing no prejudice to the revenue, therefore initiation of proceedings u/s 263 was bad in law and void ab inito. Assessee also places reliance on the observations of Hon'ble ITAT, Mumbai Bench in the case of Naryan Tatu Rane (TS-290ITAT 2016 (Mum) (2016) 70 taxmann.com 227 wherein it was observed that explanation to Section 263(3) cannot be said to have overridden the law interpreted by various High Courts (which held that before holding Assessing Officers order to be “erroneous” necessary enquiry and verification should be made). It further observed that if Revenue’s action was approved, “then the Ld. Pr. CIT can find fault with each and every assessment order. He can also force the Assessing Officer to conduct the enquiries in the manner preferred by Ld. Pr. CIT, thus prejudicing the independent application of mind of the Assessing Officer." ft held that the explanation does not provide unfettered rights to Pr. CIT to revise each and every order. In view of above facts and legal propositions it is requested that proceedings initiated under impugned notice dated 08.12.2023 may kindly be dropped. We would be glad to furnish any further information that may be required by your kindself.” (B.3) In the course of appellate proceedings in Income Tax Appellate Tribunal (“ITAT” for short), the following particulars were filed from the assessee’s side: - (B.4) On perusal of the records, it is found that the assessee had obtained a copy of letter dated 01.01.2024 of the Assessing Officer, containing the Assessing Officer’s comments on the aforesaid submissions made by the assessee during the proceedings under section 263 of the Act in the office of the Ld. PCIT. The relevant portion of the aforesaid letter dated 01.01.2024 reproduced as under: - (C) At the time of hearing before us, the Ld. Counsel for the assessee drew our attention to the contents of paper books [already mentioned in foregoing paragraph no. (B.3)]. In particular, he drew our attention to the written submissions filed from the assessee’s side in the office of the Ld. PCIT, in the course of proceedings under section 263 of the Act (relevant portion of which have already been reproduced in foregoing paragraph no.B.2). He further contended that the impugned order under section 263 of the Act has been passed by the Ld. PCIT on the basis of audit objection, without applying her own mind. He also contended that the Ld. PCIT did not conduct independent inquiry herself, in the course of proceedings under section 263 of the Act. Furthermore, he contended that in view of the aforesaid submissions, the impugned order under section (C.1) We have heard both sides. We have perused the materials on record. On perusal of the impugned order under section 263 of the Act, it is found that the Ld. PCIT has acknowledged the receipt of the written submissions along with the details in supporting the documents filed by the assessee during the proceedings under section 263 of the Act. She has also confirmed that she had gone through the case records. Despite this, it is found that there is no discussion of the specific points raised in the written submissions filed by the assessee in the course of proceedings under section 263 of the Act. It is also found that the Ld. PCIT has not factored in the aforesaid letter dated 01.01.2024 of the Assessing Officer (relevant portion of which have already been reproduced in foregoing paragraph no. B.4), while passing the impugned order under section 263 of the Act. The order passed by the Ld. PCIT is scanty in details and perfunctory in nature; providing only cursory and fleeting coverage of the issues at hand. Further, the impugned order dated 31.03.2024 passed by the Ld. PCIT under section 263 of the Act was passed on 31.03.2024, which was the last date, after which bar of limitation would have applied. The order seems to have been passed by the Ld. PCIT in hasty manner, to avoid the bar of limitation, without dealing with issues at hand adequately. In view of the foregoing, and in the specific facts and circumstances of the present case; the impugned order dated 31.03.2024 passed under section 263 of the Act is set aside and the Ld. PCIT is directed to pass denovo order; if so deemed fit in accordance with law, after providing Page 16 of 16 reasonable opportunity to the assessee and after taking the Assessing Officer’s aforesaid letter dated 01.01.2024 as well as the assessee’s aforesaid written submissions into consideration, and after providing reasonable opportunity to the assessee. The Ld. PCIT will be at liberty to drop action under section 263 of the Act, if in his view, revision of assessment order under section 263 of the Act is not warranted in the facts and circumstances of the case.