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Facts
Following a survey, an order under sections 201(1) and 201(1A) was passed against Novartis India Ltd. for alleged tax deduction defaults. The assessee appealed to the CIT(A), who issued an order that the Revenue contended contained significant factual errors and a lack of application of mind.
Held
The Tribunal found that the CIT(A)'s order was fundamentally flawed as it was based on the facts and figures of a different entity, Novartis Healthcare Private Limited, instead of the assessee. This demonstrated a complete non-application of mind, rendering the appellate order unsustainable.
Key Issues
Whether the CIT(A) erred by basing its decision on the facts of a different assessee, thus vitiating the order due to non-application of mind.
Sections Cited
201(1), 201(1A), 194H, 194A, 2(28A), 133(2A), 250
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Income Tax Appellate Tribunal, MUMBAI BENCH “B” MUMBAI
Before: SHRI OM PRAKASH KANT & MS. KAVITHA RAJAGOPAL
ORDER PER OM PRAKASH KANT, AM PER OM PRAKASH KANT, AM
This appeal filed by the Revenue and the cross This appeal filed by the Revenue and the cross This appeal filed by the Revenue and the cross-objection filed by the assessee arise out of the order dated 16.07.2025 passed by by the assessee arise out of the order dated 16.07.2025 passed by by the assessee arise out of the order dated 16.07.2025 passed by the the Learned Learned Additional/Joint Additional/Joint Commissioner Commissioner of of Income-tax Income (Appeals)–7, Kolkata [hereinafter referred to as “the Ld. CIT(A)”] for 7, Kolkata [hereinafter referred to as “the Ld. CIT(A)”] for 7, Kolkata [hereinafter referred to as “the Ld. CIT(A)”] for the assessment year 2016 the assessment year 2016-17, relating to liability determined under 17, relating to liability determined under sections 201(1) and 201(1A) of the Income sections 201(1) and 201(1A) of the Income-tax Act, 1961 (“the tax Act, 1961 (“the Act”).The grounds raised by The grounds raised by the Revenue are reproduced as under: the Revenue are reproduced as under:
Whether the Learned Addl./JCIT(A) has erred in facts and 1. Whether the Learned Addl./JCIT(A) has erred in facts and 1. Whether the Learned Addl./JCIT(A) has erred in facts and figures by incorrectly stating the amount of additions made figures by incorrectly stating the amount of additions made figures by incorrectly stating the amount of additions made by the Assessing Officer in the order passed under Section by the Assessing Officer in the order passed under Section by the Assessing Officer in the order passed under Section 201 of the Income 201 of the Income-tax Act, 1961, as reflected in the ected in the "Statement of Facts" on Page No. 2 of his appellate order, "Statement of Facts" on Page No. 2 of his appellate order, "Statement of Facts" on Page No. 2 of his appellate order, which are inconsistent with the figures mentioned in the which are inconsistent with the figures mentioned in the which are inconsistent with the figures mentioned in the original order? original order? 2. Whether the Learned Addl./JCIT(A) has erred in facts by 2. Whether the Learned Addl./JCIT(A) has erred in facts by 2. Whether the Learned Addl./JCIT(A) has erred in facts by incorrectly referring to the name of the assessee co incorrectly referring to the name of the assessee co incorrectly referring to the name of the assessee company as "Novartis Healthcare Private Limited" instead of the correct "Novartis Healthcare Private Limited" instead of the correct "Novartis Healthcare Private Limited" instead of the correct name "Novartis India Limited", as reflected in Page No. 2 of name "Novartis India Limited", as reflected in Page No. 2 of name "Novartis India Limited", as reflected in Page No. 2 of his appellate order? his appellate order? 3. Whether the Learned Addl./JCIT(A) has erred in facts and 3. Whether the Learned Addl./JCIT(A) has erred in facts and 3. Whether the Learned Addl./JCIT(A) has erred in facts and figures by quoting, under the heading "Obse figures by quoting, under the heading "Observations of the rvations of the Assessing Officer", the text extracted from the order passed Assessing Officer", the text extracted from the order passed Assessing Officer", the text extracted from the order passed under Section 201 in the case of Novartis Healthcare Private under Section 201 in the case of Novartis Healthcare Private under Section 201 in the case of Novartis Healthcare Private Limited for A.Y. 2016 Limited for A.Y. 2016-17, instead of referring to the relevant 17, instead of referring to the relevant observations pertaining to the present assessee's case, observations pertaining to the present assessee's case, observations pertaining to the present assessee's case, as reflected in Page Nos 10,15,17& 18 of his appellate order? reflected in Page Nos 10,15,17& 18 of his appellate order? reflected in Page Nos 10,15,17& 18 of his appellate order? 4. Whether the Learned Addl./JCIT(A) has erred in facts and 4. Whether the Learned Addl./JCIT(A) has erred in facts and 4. Whether the Learned Addl./JCIT(A) has erred in facts and figures by incorrectly stating the figures of additions made figures by incorrectly stating the figures of additions made figures by incorrectly stating the figures of additions made by the Assessing Officer and the relief granted to the by the Assessing Officer and the relief granted to the by the Assessing Officer and the relief granted to the Novartis India Ltd. CO No. 302/MUM/2025
assessee company assessee company in his order, both under the sections in his order, both under the sections "Grounds of Appeal"
(Page Nos. 19 "Grounds of Appeal" (Page Nos. 19-23) and "Decision" (Page. 23) and "Decision" (Page. Nos. 96-101) in his appellate order? 101) in his appellate order?
5. Whether the Learned Addl./JCIT(A) has erred in law and 5. Whether the Learned Addl./JCIT(A) has erred in law and 5. Whether the Learned Addl./JCIT(A) has erred in law and on facts in holding that the transaction between the assessee on facts in holding that the transaction between the assessee on facts in holding that the transaction between the assessee company and its stockists was on a principal ompany and its stockists was on a principal- -to-principal basis, and thereby concluding that the discount offered to the basis, and thereby concluding that the discount offered to the basis, and thereby concluding that the discount offered to the stockists would not fall within the ambit of section 194H of stockists would not fall within the ambit of section 194H of stockists would not fall within the ambit of section 194H of the Act.
6. Whether the Learned Addl./JCIT(A) has failed to 6. Whether the Learned Addl./JCIT(A) has failed to 6. Whether the Learned Addl./JCIT(A) has failed to appreciate that appreciate that, under the Agreement for Appointment of , under the Agreement for Appointment of Stockists entered into between the assessee and its Stockists entered into between the assessee and its Stockists entered into between the assessee and its stockists, all essential aspects of the business relationship, stockists, all essential aspects of the business relationship, stockists, all essential aspects of the business relationship, including pricing, invoicing, margins, payment terms, and including pricing, invoicing, margins, payment terms, and including pricing, invoicing, margins, payment terms, and even the mode of transport tare determined even the mode of transport tare determined and controlled by and controlled by Novartis India Ltd. Novartis India Ltd.
7. Whether the Learned Addl./JCIT(A) has failed to 7. Whether the Learned Addl./JCIT(A) has failed to 7. Whether the Learned Addl./JCIT(A) has failed to appreciate the that the assessee imposes various restrictions appreciate the that the assessee imposes various restrictions appreciate the that the assessee imposes various restrictions on stockists/distributors/wholesalers, such as restrictions on stockists/distributors/wholesalers, such as restrictions on stockists/distributors/wholesalers, such as restrictions on the sale of products, allocation of terri on the sale of products, allocation of territories, appointment tories, appointment of stockists, and monitoring and controlling of product stocks. of stockists, and monitoring and controlling of product stocks. of stockists, and monitoring and controlling of product stocks. These restrictions clearly establish that the stockists were These restrictions clearly establish that the stockists were These restrictions clearly establish that the stockists were functioning as agents of the assessee company for promoting functioning as agents of the assessee company for promoting functioning as agents of the assessee company for promoting and effecting sales on its behalf, and hence, the a and effecting sales on its behalf, and hence, the a and effecting sales on its behalf, and hence, the assessee's contention of a principal contention of a principal- to-principal relationship is not valid. principal relationship is not valid.
8. Whether the Learned Addl./JCIT(A)has erred in holding
8. Whether the Learned Addl./JCIT(A)has erred in holding
8. Whether the Learned Addl./JCIT(A)has erred in holding that tax on Employee Stock Ownership Plan (ESOP) benefits that tax on Employee Stock Ownership Plan (ESOP) benefits that tax on Employee Stock Ownership Plan (ESOP) benefits is deductible only at the time of exercise of options by the is deductible only at the time of exercise of options by the is deductible only at the time of exercise of options by the employees, without appreciating that the assessee had loyees, without appreciating that the assessee had loyees, without appreciating that the assessee had already quantified the value of ESOP benefits during AY already quantified the value of ESOP benefits during AY already quantified the value of ESOP benefits during AY 2016-17 itself, thereby leading to accrual of income in the 17 itself, thereby leading to accrual of income in the 17 itself, thereby leading to accrual of income in the hands of employees in that year." hands of employees in that year." The Ld. Addl.CIT(A)'s order was passed in the above The Ld. Addl.CIT(A)'s order was passed in the above The Ld. Addl.CIT(A)'s order was passed in the above mentioned case on 16.07.2025. Last date for filing Appeal is tioned case on 16.07.2025. Last date for filing Appeal is tioned case on 16.07.2025. Last date for filing Appeal is 14.09.2025. However, appeal should be filed immediately. 14.09.2025. However, appeal should be filed immediately. 14.09.2025. However, appeal should be filed immediately.
Novartis India Ltd. CO No. 302/MUM/2025
The Revenue has raised multiple grounds, broadly alleging The Revenue has raised multiple grounds, broadly alleging The Revenue has raised multiple grounds, broadly alleging serious factual and legal infirmities in the impugned appellate serious factual and legal infirmities in the impugned appellate serious factual and legal infirmities in the impugned appellate order, including incorrect narration of facts, misstatement of incorrect narration of facts, misstatement of incorrect narration of facts, misstatement of figures, wrong identification of the assessee, reliance on assessment figures, wrong identification of the assessee, reliance on assessment figures, wrong identification of the assessee, reliance on assessment records of a different group entity, erroneous conclusions on records of a different group entity, erroneous conclusions on records of a different group entity, erroneous conclusions on applicability of section 194H in respect of trade discounts to applicability of section 194H in respect of trade discounts to applicability of section 194H in respect of trade discounts to stockists, and incorrect appreciation of the timing of tax deduction incorrect appreciation of the timing of tax deduction incorrect appreciation of the timing of tax deduction on ESOP benefits.
2.1 The cross objection raised The cross objection raised by the assessee are reproduced as by the assessee are reproduced as under:
On the facts and in the circumstances of the case, the On the facts and in the circumstances of the case, the On the facts and in the circumstances of the case, the learned CIT(A) has erred in: learned CIT(A) has erred in: Applicability of provisions Applicability of provisions of section 194A of the Act of section 194A of the Act on interest on delayed payments to MSMEs: on interest on delayed payments to MSMEs: 1. confirming the learned assessing officer's observation that 1. confirming the learned assessing officer's observation that 1. confirming the learned assessing officer's observation that the Respondent ought to have deducted tax under section the Respondent ought to have deducted tax under section the Respondent ought to have deducted tax under section 194A of the Act on the provision created by it in respect of 194A of the Act on the provision created by it in respect of 194A of the Act on the provision created by it in respect of interest on delayed payments to MSME which has suo st on delayed payments to MSME which has suo st on delayed payments to MSME which has suo-moto been disallowed by it; been disallowed by it; 2. failed to appreciate that since the amount so accrued by 2. failed to appreciate that since the amount so accrued by 2. failed to appreciate that since the amount so accrued by the Appellant in respect of delayed payments to MSME is not the Appellant in respect of delayed payments to MSME is not the Appellant in respect of delayed payments to MSME is not arising from any debt arising from any debt-claim or moneys borrowed by the claim or moneys borrowed by the Company, the same is not governed by the provisions of the same is not governed by the provisions of the same is not governed by the provisions of section 194A read with section 2(28A) of the Act; section 194A read with section 2(28A) of the Act; 3. erred in confirming levy of interest amounting to Rs. 3. erred in confirming levy of interest amounting to Rs. 3. erred in confirming levy of interest amounting to Rs. 20,479 under section 201(1A) of the Act on the alleged 20,479 under section 201(1A) of the Act on the alleged 20,479 under section 201(1A) of the Act on the alleged amount of default; amount of default;
Novartis India Ltd. CO No. 302/MUM/2025
Brief facts of the case Brief facts of the case are that a survey under section 133(2A) a survey under section 133(2A) of the Act was conducted at the premises of the assessee on of the Act was conducted at the premises of the assessee on of the Act was conducted at the premises of the assessee on 22.10.2019. During the course of survey proceedings, certain 22.10.2019. During the course of survey proceedings, certain 22.10.2019. During the course of survey proceedings, certain defaults relating to non defaults relating to non-deduction or short deduction of tax at deduction or short deduction of tax at source on various payments were source on various payments were noticed. Consequent thereto, the noticed. Consequent thereto, the Assessing Officer passed an order under sections 201(1) and Assessing Officer passed an order under sections 201(1) and Assessing Officer passed an order under sections 201(1) and 201(1A) of the Act dated 20.01.2020, treating the assessee as an 201(1A) of the Act dated 20.01.2020, treating the assessee as an 201(1A) of the Act dated 20.01.2020, treating the assessee as an assessee in default and raising a consolidated demand of assessee in default and raising a consolidated demand of assessee in default and raising a consolidated demand of ₹2,38,30,140/-.
3.1 Aggrieved, the asses Aggrieved, the assessee preferred an appeal before the Ld. see preferred an appeal before the Ld. CIT(A), who partly allowed the appeal by the impugned order dated CIT(A), who partly allowed the appeal by the impugned order dated CIT(A), who partly allowed the appeal by the impugned order dated 16.07.2025.
Before us, the Learned Departmental Representative (Ld. DR) Before us, the Learned Departmental Representative (Ld. DR) Before us, the Learned Departmental Representative (Ld. DR) assailed the impugned order on the ground of complete non- assailed the impugned order on the ground of complete non assailed the impugned order on the ground of complete non application of mind. It was submitted that the Ld. CIT(A), while d. It was submitted that the Ld. CIT(A), while d. It was submitted that the Ld. CIT(A), while disposing of the appeal, has reproduced the statement of facts, disposing of the appeal, has reproduced the statement of facts, disposing of the appeal, has reproduced the statement of facts, observations of the Assessing Officer, and figures of additions observations of the Assessing Officer, and figures of additions observations of the Assessing Officer, and figures of additions pertaining not to the present assessee, but to another group pertaining not to the present assessee, but to another group pertaining not to the present assessee, but to another group concern, namely Nova rtis Healthcare Private Limited. It was further Novartis Healthcare Private Limited pointed out that the Ld. CIT(A) has even incorrectly mentioned the pointed out that the Ld. CIT(A) has even incorrectly mentioned the pointed out that the Ld. CIT(A) has even incorrectly mentioned the name of the assessee as name of the assessee as Novartis Healthcare Private Limited Novartis Healthcare Private Limited instead of the correct name, Novartis India Limited Novartis India Limited. According to the Ld. DR, . According to the Ld. DR, the impugned order is entirely vitiated as the conclusions have been impugned order is entirely vitiated as the conclusions have been impugned order is entirely vitiated as the conclusions have been Novartis India Ltd. CO No. 302/MUM/2025 drawn on the basis of facts and figures of a different assessee drawn on the basis of facts and figures of a different assessee drawn on the basis of facts and figures of a different assessee altogether, warranting its setting aside in toto. altogether, warranting its setting aside in toto.
4.1 The Learned Counsel for the assessee, on the other hand, The Learned Counsel for the assessee, on the other hand, The Learned Counsel for the assessee, on the other hand, fairly conceded that the statement of facts of the group concern had that the statement of facts of the group concern had that the statement of facts of the group concern had inadvertently been reproduced in support of the appeal. He also inadvertently been reproduced in support of the appeal. He also inadvertently been reproduced in support of the appeal. He also accepted that extracts from the assessment order for assessment accepted that extracts from the assessment order for assessment accepted that extracts from the assessment order for assessment year 2016-17 in the case of 17 in the case of Novartis Healthcare Private Limited Novartis Healthcare Private Limited, along with the corresponding figures of additions, had been relied h the corresponding figures of additions, had been relied h the corresponding figures of additions, had been relied upon by the Ld. CIT(A). upon by the Ld. CIT(A).
4.2 It was further submitted that immediately upon receipt of the It was further submitted that immediately upon receipt of the It was further submitted that immediately upon receipt of the impugned order, the assessee had moved an application seeking impugned order, the assessee had moved an application seeking impugned order, the assessee had moved an application seeking corrigendum under section 250 of the Act. Howe corrigendum under section 250 of the Act. However, the Ld. CIT(A) ver, the Ld. CIT(A) rejected the said request, observing that the order was passed on rejected the said request, observing that the order was passed on rejected the said request, observing that the order was passed on the basis of documents filed along with Form No. 35 and that no the basis of documents filed along with Form No. 35 and that no the basis of documents filed along with Form No. 35 and that no mistake had occurred. Thereafter, the assessee again filed an mistake had occurred. Thereafter, the assessee again filed an mistake had occurred. Thereafter, the assessee again filed an application for rectification on 05.08.2025, application for rectification on 05.08.2025, explaining that the facts explaining that the facts of the group concern were uploaded inadvertently. The said of the group concern were uploaded inadvertently. The said of the group concern were uploaded inadvertently. The said rectification application, as submitted, is stated to be pending rectification application, as submitted, is stated to be pending rectification application, as submitted, is stated to be pending before the Ld. CIT(A). before the Ld. CIT(A).
We have carefully considered the rival submissions and We have carefully considered the rival submissions and We have carefully considered the rival submissions and perused perused perused the the the material available material material available available on on on record. On record. record. On On an an an overall overall overall consideration of the facts, we find considerable force in the consideration of the facts, we find considerable force in the consideration of the facts, we find considerable force in the submissions advanced by the Revenue. The impugned order submissions advanced by the Revenue. The impugned order submissions advanced by the Revenue. The impugned order
Novartis India Ltd. CO No. 302/MUM/2025 unmistakably demonstrates c unmistakably demonstrates complete non-application of mind. The application of mind. The appeal before the Ld. CIT(A) pertained to appeal before the Ld. CIT(A) pertained to Novartis India Limited Novartis India Limited, whereas the statement of facts, extracts of the assessment order, whereas the statement of facts, extracts of the assessment order, whereas the statement of facts, extracts of the assessment order, and even the figures of additions and relief have been lifted from the and even the figures of additions and relief have been lifted from the and even the figures of additions and relief have been lifted from the case of Novartis Healthcare Private Limited Healthcare Private Limited, a distinct legal entity. , a distinct legal entity.
5.1 An appellate authority is required to adjudicate the appeal on An appellate authority is required to adjudicate the appeal on An appellate authority is required to adjudicate the appeal on the basis of the correct facts and material pertaining to the assessee the basis of the correct facts and material pertaining to the assessee the basis of the correct facts and material pertaining to the assessee before it. An order founded on facts of an entirely different assessee before it. An order founded on facts of an entirely different assessee before it. An order founded on facts of an entirely different assessee cannot be sustained in the eyes of law. Such an exercise not only cannot be sustained in the eyes of law. Such an exe cannot be sustained in the eyes of law. Such an exe undermines the adjudicatory process but also vitiates the undermines the adjudicatory process but also vitiates the undermines the adjudicatory process but also vitiates the conclusions drawn there from. An order passed mechanically, or on conclusions drawn there from. An order passed mechanically, or on conclusions drawn there from. An order passed mechanically, or on the basis of facts relating to a different assessee, is vitiated by non- the basis of facts relating to a different assessee, is vitiated by the basis of facts relating to a different assessee, is vitiated by application of mind and is a nullity in the e and is a nullity in the eyes of law. yes of law.
5.2 Once the foundational facts themselves are erroneous, the Once the foundational facts themselves are erroneous, the Once the foundational facts themselves are erroneous, the superstructure of conclusions built thereon must necessarily superstructure of conclusions built thereon must necessarily superstructure of conclusions built thereon must necessarily collapse. An appellate order so passed cannot be cured by collapse. An appellate order so passed cannot be cured by collapse. An appellate order so passed cannot be cured by assumptions, concessions, or post assumptions, concessions, or post-facto explanations, and must facto explanations, and must be set aside in limine.
5.3 In these circumstances, the impugned order having been In these circumstances, the impugned order having been In these circumstances, the impugned order having been passed passed passed on on on an an an erroneous erroneous erroneous factual factual factual foundation, foundation, foundation, is is is rendered rendered rendered unsustainable and is liable to be set aside. The unsustainable and is liable to be set aside. The the ground on merit the ground on merit raised both in appeal and cross objection deserve raised both in appeal and cross objection deserve to be restored to to be restored to the file of the Ld. CIT(A) for fresh adjudication, strictly in the file of the Ld. CIT(A) for fresh adjudication, strictly in the file of the Ld. CIT(A) for fresh adjudication, strictly in Novartis India Ltd. CO No. 302/MUM/2025 accordance with law and after considering the correct facts and accordance with law and after considering the correct facts and accordance with law and after considering the correct facts and material relating to the present assessee, subject to the status of material relating to the present assessee, subject to the status of material relating to the present assessee, subject to the status of the pending rectification application, if the pending rectification application, if any.
In the result, In the result, both the appeal of the Revenue and cross the appeal of the Revenue and cross- objection of the assessee are objection of the assessee are allowed for statistical purpose allowed for statistical purpose.