BAJAJ AUTO LIMITED,MUMBAI vs. THE PRINCIPAL COMMISSIONER OF INCOME-TAX - 3, MUMBAI, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “B” MUMBAI

BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND SHRI NARENDER KUMAR CHOUDHRY (JUDICIAL MEMBER)

ITA No. 2666/MUM/2025 Assessment Year: 2019-2020

Bajaj Auto Ltd., The Principal Commissioner of 2nd floor, Bajaj Bhawan, 226, Income-tax-3 Vs. Jamnalal Bajaj Marg, Nariman Room No. 612, 6th floor, Aayakar Point, Bhavan, Maharshi Karve Road, Mumbai-400021. Mumbai-400020. PAN NO. AADCB 2923 M Appellant Respondent

Assessee by : Mr. P.J. Pardiwala a/w Ms. Vasanti Patel : Mr. Satyaprakash R. Singh, CIT-DR Revenue by Mr. Aditya Rai, Sr. DR

Date of Hearing : 28/11/2025 Date of pronouncement : 23/01/2026

ORDER PER OM PRAKASH KANT, AM

This appeal by the assessee is directed against revisionary order passed u/s 263 of the Income-tax Act, 1961 (in short ‘the Act’) by the learned Principal Commissioner of Income-tax-3, Mumbai [in short ‘the Ld. PCIT’] for assessment year 2019-2020, raising following grounds:

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On the facts and in the circumstances of the case and in law, the On the facts and in the circumstances of the case and in law, the On the facts and in the circumstances of the case and in law, the direction given by the Learned PCIT to revise the assessment order direction given by the Learned PCIT to revise the assessment order direction given by the Learned PCIT to revise the assessment order dated 27 May 2022 passed under section 143(3) read with section dated 27 May 2022 passed under section 143(3) read with section dated 27 May 2022 passed under section 143(3) read with section 144C(3) of the Act (hereinafter referred to as 'assessment 144C(3) of the Act (hereinafter referred to as 'assessment 144C(3) of the Act (hereinafter referred to as 'assessment order') is erroneous, illegal and bad in law on the following grounds: erroneous, illegal and bad in law on the following grounds: erroneous, illegal and bad in law on the following grounds: 1. The Learned PCIT erred in holding the assessment order for the 1. The Learned PCIT erred in holding the assessment order for the 1. The Learned PCIT erred in holding the assessment order for the captioned AY as erroneous and prejudicial to the interest of the captioned AY as erroneous and prejudicial to the interest of the captioned AY as erroneous and prejudicial to the interest of the revenue, treating the same as passed without any enqu passed without any enquiry. revenue, treating the same as 2. The Learned PCIT erred in not appreciating the fact that, on 2. The Learned PCIT erred in not appreciating the fact that, on 2. The Learned PCIT erred in not appreciating the fact that, on some of the issues, due enquiry was made by the Learned some of the issues, due enquiry was made by the Learned some of the issues, due enquiry was made by the Learned Assessing Officer ('Learned AO') and there was due application due application Assessing Officer ('Learned AO') and there was of mind by the learned AO, of mind by the learned AO, and hence, the action of the Learned and hence, the action of the Learned PCIT to assume jurisdiction under section 263 of the Act is bad in to assume jurisdiction under section 263 of the Act is bad in to assume jurisdiction under section 263 of the Act is bad in law. 3. The Learned PCIT erred in not appreciating the fact that when 3. The Learned PCIT erred in not appreciating the fact that when 3. The Learned PCIT erred in not appreciating the fact that when two views are possible on a given issue and the Learned AO two views are possible on a given issue and the Learned AO two views are possible on a given issue and the Learned AO has adopted one possible view has adopted one possible view, the order passed by the AO , the order passed by the AO cannot be said to be erroneous and prejudicial to the interest of be said to be erroneous and prejudicial to the interest of be said to be erroneous and prejudicial to the interest of revenue within meaning of section 263 of the Act and any attempt revenue within meaning of section 263 of the Act and any attempt revenue within meaning of section 263 of the Act and any attempt made by the Learned PCIT to revise the assessment order would made by the Learned PCIT to revise the assessment order would made by the Learned PCIT to revise the assessment order would be without jurisdiction. be without jurisdiction. 4. The Learned PCIT erred in not appreciatin 4. The Learned PCIT erred in not appreciating the fact that g the fact that Explanation 2 to section 263 of the Act can be applied only when Explanation 2 to section 263 of the Act can be applied only when Explanation 2 to section 263 of the Act can be applied only when there was lack of enquiry, or no enquiry made by the AO, and there was lack of enquiry, or no enquiry made by the AO, and there was lack of enquiry, or no enquiry made by the AO, and cannot be applied for inadequate enquiry cannot be applied for inadequate enquiry by the AO, and that by the AO, and that para 2 of the impugned order itself states that the "following para 2 of the impugned order itself states that the "following para 2 of the impugned order itself states that the "following issues were not examined thoroughly by the assessing officer". issues were not examined thoroughly by the assessing officer". issues were not examined thoroughly by the assessing officer". Without prejudice to the above, the appellant wishes to raise the Without prejudice to the above, the appellant wishes to raise the Without prejudice to the above, the appellant wishes to raise the following grounds on merits: following grounds on merits: Ground no. 5 to 12: Disallowance in respect of provision under provision under Ground no. 5 t section 37(1): Rs. 121,88,44,175: section 37(1): Rs. 121,88,44,175: 5. On the facts and in the circumstances of the case and in law, 5. On the facts and in the circumstances of the case and in law, 5. On the facts and in the circumstances of the case and in law, the learned PCIT has incorrectly assumed jurisdiction under the learned PCIT has incorrectly assumed jurisdiction under the learned PCIT has incorrectly assumed jurisdiction under section 263 of the Act on the said issue without requiring the requiring the section 263 of the Act on the said issue appellant to show cause in the notice issued appellant to show cause in the notice issued as to why the as to why the assessment order passed in respect of the said issue is erroneous assessment order passed in respect of the said issue is erroneous assessment order passed in respect of the said issue is erroneous and prejudicial to the interest of the revenue. and prejudicial to the interest of the revenue. 6. On the facts and in the circumstances of the case and in law, 6. On the facts and in the circumstances of the case and in law, 6. On the facts and in the circumstances of the case and in law, the learned PCIT has erred in directing the Learned AO to make a learned PCIT has erred in directing the Learned AO to make a learned PCIT has erred in directing the Learned AO to make a

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disallowance of Rs. 121,88,44,175 under section 37(1), being 70% disallowance of Rs. 121,88,44,175 under section 37(1), being 70% disallowance of Rs. 121,88,44,175 under section 37(1), being 70% of the deduction claimed by the appellant in respect of provision of the deduction claimed by the appellant in respect of provision of the deduction claimed by the appellant in respect of provision for expenses after reducing a sum Rs. 52,23,61,790 already for expenses after reducing a sum Rs. 52,23,61,790 already for expenses after reducing a sum Rs. 52,23,61,790 already disallowed by the appellant under section 40(a)(ia) llowed by the appellant under section 40(a)(ia) of the Act. In doing so, the learned PCIT erred in the following respects: In doing so, the learned PCIT erred in the following respects: In doing so, the learned PCIT erred in the following respects: 7. In not appreciating the fact that as per the provisions of Indian 7. In not appreciating the fact that as per the provisions of Indian 7. In not appreciating the fact that as per the provisions of Indian Accounting Standard Accounting Standard - 37 (Ind AS) issued by the Institute of 37 (Ind AS) issued by the Institute of Chartered Accountants of India and as per the accounting policy rtered Accountants of India and as per the accounting policy rtered Accountants of India and as per the accounting policy regularly followed by the appellant, the provisions made denote provisions made denote regularly followed by the appellant, the a reasonable estimate of a present obligation a reasonable estimate of a present obligation as a result of as a result of past events and hence ought to be allowed as a deduction; past events and hence ought to be allowed as a deduction; past events and hence ought to be allowed as a deduction; 8. In not appreciating the fact that the provisions have been made preciating the fact that the provisions have been made preciating the fact that the provisions have been made in connection with work already done up to 31 March 2019 in in connection with work already done up to 31 March 2019 in in connection with work already done up to 31 March 2019 in respect of which invoices were not received up to the said date respect of which invoices were not received up to the said date respect of which invoices were not received up to the said date and hence the same constitute expenditure incurred during the and hence the same constitute expenditure incurred during the and hence the same constitute expenditure incurred during the year under cons year under consideration; 9. In not appreciating the fact that the provisions have been provisions have been 9. In not appreciating the fact that the made on the basis of reasonable estimates for work made on the basis of reasonable estimates for work made on the basis of reasonable estimates for work done up to 31 March 2019 and hence the same are in connection with the to 31 March 2019 and hence the same are in connection with the to 31 March 2019 and hence the same are in connection with the expenditure incurred during the year under consideration; expenditure incurred during the year under consideration; expenditure incurred during the year under consideration; 10. In not appreciating the fact that the Income Computation and In not appreciating the fact that the Income Computation and In not appreciating the fact that the Income Computation and Disclosure Standard X relating to 'Provisions, Contingent Liabilities Disclosure Standard X relating to 'Provisions, Contingent Liabilities Disclosure Standard X relating to 'Provisions, Contingent Liabilities and Contingent Assets' notified under section 145(2) of the Act, and Contingent Assets' notified under section 145(2) of the Act, and Contingent Assets' notified under section 145(2) of the Act, provisions should be made for all known liabilities, and he provisions should be made for all known liabilities, and he provisions should be made for all known liabilities, and hence there is no question of making disallowance in respect of the there is no question of making disallowance in respect of the there is no question of making disallowance in respect of the aforesaid provisions; aforesaid provisions; 11. In not appreciating the fact that the aforesaid provisions of Rs. 11. In not appreciating the fact that the aforesaid provisions of Rs. 11. In not appreciating the fact that the aforesaid provisions of Rs. 174, 12,05,965 constitute less than 1% of the total expenditure of 174, 12,05,965 constitute less than 1% of the total expenditure of 174, 12,05,965 constitute less than 1% of the total expenditure of Rs. 25,538.11 crores debited to Rs. 25,538.11 crores debited to the Profit and Loss account, and the Profit and Loss account, and hence the provisions ought to be allowed being reasonable. hence the provisions ought to be allowed being reasonable. hence the provisions ought to be allowed being reasonable. 12. In holding that the entire amount of provision should have 12. In holding that the entire amount of provision should have 12. In holding that the entire amount of provision should have been disallowed under section 37(1) been disallowed under section 37(1) without even examining without even examining the facts or basis of the provision, the facts or basis of the provision, which according to the h according to the learned PCIT himself ought to have been thoroughly examined by learned PCIT himself ought to have been thoroughly examined by learned PCIT himself ought to have been thoroughly examined by the learned AO. the learned AO. Ground No. 13 to 25: Disallowance under section 40(a)(ia) in Ground No. 13 to 25: Disallowance under section 40(a)(ia) in Ground No. 13 to 25: Disallowance under section 40(a)(ia) in respect of target discount, consistency discount and cash discount respect of target discount, consistency discount and cash discount respect of target discount, consistency discount and cash discount provided to spare parts dealer provided to spare parts dealers: Rs. 46,32,27,674:

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Ground No. 31 to 35: Disallowance of expenditure incurred on jigs Ground No. 31 to 35: Disallowance of expenditure incurred on jigs Ground No. 31 to 35: Disallowance of expenditure incurred on jigs and fixtures: Rs. 37,59,92,362: res: Rs. 37,59,92,362: 31. On the facts and in the circumstances of the case and in law, 31. On the facts and in the circumstances of the case and in law, 31. On the facts and in the circumstances of the case and in law, the learned PCIT has erred in directing the Learned AO to make a the learned PCIT has erred in directing the Learned AO to make a the learned PCIT has erred in directing the Learned AO to make a disallowance of Rs. 37,59,92,362 in respect of expenditure disallowance of Rs. 37,59,92,362 in respect of expenditure disallowance of Rs. 37,59,92,362 in respect of expenditure incurred on jigs and fixtures treating the incurred on jigs and fixtures treating the said expenditure as said expenditure as capital expenditure. capital expenditure. In doing so, the learned PCIT erred in the following respects: In doing so, the learned PCIT erred in the following respects: In doing so, the learned PCIT erred in the following respects: 32. In merely relying on the assessment order for the earlier year 32. In merely relying on the assessment order for the earlier year 32. In merely relying on the assessment order for the earlier year wherein similar disallowance was made on the ground that jigs wherein similar disallowance was made on the ground that jigs wherein similar disallowance was made on the ground that jigs and fixtures are in the and fixtures are in the nature of capital expenditure; 33. In not appreciating the fact that the said expenditure on jigs 33. In not appreciating the fact that the said expenditure on jigs 33. In not appreciating the fact that the said expenditure on jigs and fixtures was in the nature of replacement and thereby and fixtures was in the nature of replacement and thereby and fixtures was in the nature of replacement and thereby qualified for deduction; qualified for deduction; 34. In not appreciating the fact that the Hon'ble Tribunal and the 34. In not appreciating the fact that the Hon'ble Tribunal and the 34. In not appreciating the fact that the Hon'ble Tribunal and the Hon'ble Commissioner of Income Commissioner of Income-tax (Appeals) have, in the tax (Appeals) have, in the appellant's own case for earlier years, consistently decided the appellant's own case for earlier years, consistently decided the appellant's own case for earlier years, consistently decided the aforesaid issue in favour of aforesaid issue in favour of the appellant. 35. Without prejudice to the above grounds of appeal, the learned 35. Without prejudice to the above grounds of appeal, the learned 35. Without prejudice to the above grounds of appeal, the learned PCIT, while directing the lear PCIT, while directing the learned AO to treat the expenditure on ned AO to treat the expenditure on jigs and fixtures as capital expenditure, erred in not directing the jigs and fixtures as capital expenditure, erred in not directing the jigs and fixtures as capital expenditure, erred in not directing the learned AO to allow depreciation thereon. learned AO to allow depreciation thereon. The above grounds of objections are distinct and separate and The above grounds of objections are distinct and separate and The above grounds of objections are distinct and separate and without prejudice without prejudice to each other. 2. Briefly stated, the assessee is an Indian company engaged in Briefly stated, the assessee is an Indian company engaged in Briefly stated, the assessee is an Indian company engaged in the business of development, manufacture and distribution of the business of development, manufacture and distribution of the business of development, manufacture and distribution of automobiles, primarily two automobiles, primarily two-wheelers and three-wheelers, along with wheelers, along with their parts and accessories. For the assessment year under their parts and accessories. For the assessment year under their parts and accessories. For the assessment year under consideration, the assessee filed its return of income on 29.11.2019 ation, the assessee filed its return of income on 29.11.2019 ation, the assessee filed its return of income on 29.11.2019 declaring a total income of declaring a total income of ₹5312,50,59,250/-, under regular provisions of the Act, provisions of the Act, which was subsequently revised on which was subsequently revised on 30.07.2023 to ₹5239, 5239,91,61,650/-. The book profit declared of Rs. The book profit declared of Rs.

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6859,55,54,577/- u/s 115JB of the Act remained same in original u/s 115JB of the Act remained same in original u/s 115JB of the Act remained same in original as well as revised return of income. as well as revised return of income. The return was selected for The return was selected for scrutiny and statutory notices issued under the Income-tax Act, scrutiny and statutory notices issued under the Income scrutiny and statutory notices issued under the Income 1961 (“the Act”) were duly complied with. 1961 (“the Act”) were duly complied with.

2.1 In view of the international transactions entered into by the international transactions entered into by the international transactions entered into by the assessee with its Associated Enterprises during the relevant assessee with its Associated Enterprises during the relevant assessee with its Associated Enterprises during the relevant previous year, the Assessing Officer made a reference to the previous year, the Assessing Officer made a reference to the previous year, the Assessing Officer made a reference to the Transfer Pricing Officer for determination of the Arm’s Length Price. Transfer Pricing Officer for determination of the Arm’s Length Price. Transfer Pricing Officer for determination of the Arm’s Length Price. The learned Transfer Pricing Officer fer Pricing Officer(TPO) passed an order under passed an order under section 92CA(3) of the Act dated 19.01.2022 proposing an section 92CA(3) of the Act dated 19.01.2022 proposing an section 92CA(3) of the Act dated 19.01.2022 proposing an adjustment of ₹4,63,86,606/ 4,63,86,606/-. Thereafter, the Assessing Officer . Thereafter, the Assessing Officer issued a draft assess issued a draft assessment order incorporating, ment order incorporating, inter-alia, the transfer pricing adjustme transfer pricing adjustment and certain other corporate corporate additions and disallowances.

2.2 Since the assessee did not opt for adjudication by the Dispute Since the assessee did not opt for adjudication by the Dispute Since the assessee did not opt for adjudication by the Dispute Resolution Panel and intended to pursue the appellate remedy Resolution Panel and intended to pursue the appellate remedy Resolution Panel and intended to pursue the appellate remedy before the Commissioner (Appeals) before the Commissioner (Appeals)/ National Faceless Appeal National Faceless Appeal Centre, the Assessing Officer passed the final assessment order on the Assessing Officer passed the final assessment order on the Assessing Officer passed the final assessment order on 27.05.2022 under section 143(3) read with section 144C(3) of the 27.05.2022 under section 143(3) read with section 144C(3) of the 27.05.2022 under section 143(3) read with section 144C(3) of the Act. Aggrieved thereby, the assessee preferred an appeal before the Act. Aggrieved thereby, the assessee preferred an appeal before the Act. Aggrieved thereby, the assessee preferred an appeal before the National Faceless Appeal Centre, National Faceless Appeal Centre, Delhi which remained pending. which remained pending.

2.3 Meanwhile, the learned Principal Commissioner of Income Meanwhile, the learned Principal Commissioner of Income Meanwhile, the learned Principal Commissioner of Income-tax (“PCIT”) called for and examined the assessment records. Upon (“PCIT”) called for and examined the assessment records. Upon (“PCIT”) called for and examined the assessment records. Upon

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such examination, he formed a examination, he formed a prima-facie view that the assessment order dated 27.05.2022 was erroneous insofar as it was assessment order dated 27.05.2022 was erroneous insofar as it was assessment order dated 27.05.2022 was erroneous insofar as it was prejudicial to the interests of the Revenue, on the ground that the al to the interests of the Revenue, on the ground that the al to the interests of the Revenue, on the ground that the Assessing Officer had failed to carry out certain enquiries which, Assessing Officer had failed to carry out certain enquiries which, Assessing Officer had failed to carry out certain enquiries which, according to the PCIT, ought to have been conducted in the facts according to the PCIT, ought to have been conducted in the facts according to the PCIT, ought to have been conducted in the facts and circumstances of the case. Invoking Explanation 2 to section and circumstances of the case. Invoking Explanation 2 to section and circumstances of the case. Invoking Explanation 2 to section 263 of the Act, the 263 of the Act, the ld. PCIT issued a show-cause notice dated cause notice dated 23.01.2025 calling upon the assessee to explain as why the 23.01.2025 calling upon the assessee to explain 23.01.2025 calling upon the assessee to explain assessment order should not be revised in respect of the following assessment order should not be revised in respect of the following assessment order should not be revised in respect of the following four issues:

(i) failure failure failure to to to examine examine examine provisions provisions provisions created created created towards towards towards commission payable to directors and towards advertisement, ission payable to directors and towards advertisement, ission payable to directors and towards advertisement, freight and other expenses, which, according to the freight and other expenses, which, according to the ld PCIT, freight and other expenses, which, according to the were in the nature of unascertained liabilities and liable for were in the nature of unascertained liabilities and liable for were in the nature of unascertained liabilities and liable for disallowance;

(ii) failure to examine the allowability of deduction claimed failure to examine the allowability of deduction claimed failure to examine the allowability of deduction claimed towards education cess amounting to ₹67,94,69,345/ towards education cess amounting to 67,94,69,345/-;

(iii) failure to examine applicability of tax deduction at source failure to examine applicability of tax deduction at source failure to examine applicability of tax deduction at source under section 194H in respect of expenditure of ₹151.41 crores under section 194H in respect of expenditure of under section 194H in respect of expenditure of incurred towards cash discounts and target incentives, which incurred towards cash discounts and target incentives, which had been disallowed in earlier years; and. had been disallowed in earlier years; and

(iv) failure failure failure to to to examine examine examine the the the nature nature nature of of of expenditure expenditure expenditure of of of ₹37,49,92,829/- incurred on dies and moulds and jigs and incurred on dies and moulds and jigs and

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fixtures, which was claimed as revenue expenditure, fixtures, which was claimed as revenue expenditure, but being fixtures, which was claimed as revenue expenditure, consistently treated as capital expenditure by the consistently treated as expenditure by the ld AO in earlier years

2.4 In In In response, response, response, the the the assessee assessee assessee filed filed filed detailed detailed detailed submissions submissions submissions contending that all the aforesaid issues had been duly examined by contending that all the aforesaid issues had been duly examined by contending that all the aforesaid issues had been duly examined by the Assessing Officer during the course of assessment proceedings the Assessing Officer during the course of assessme the Assessing Officer during the course of assessme and were allowed on merits, following binding judicial precedents of and were allowed on merits, following binding judicial precedents of and were allowed on merits, following binding judicial precedents of the Hon’ble High Courts and Coordinate B igh Courts and Coordinate Benches of the enches of the Income-tax Appellate Tribunal (ITAT), including decisions rendered in the , including decisions rendered in the assessee’s own case. It was submitted that assessee’s own case. It was submitted that the assessment order the assessment order was neither erroneous nor prejudicial to the interests of the was neither erroneous nor prejudicial to the interests of the was neither erroneous nor prejudicial to the interests of the Revenue and, therefore, did not warrant interference under section Revenue and, therefore, did not warrant interference under section Revenue and, therefore, did not warrant interference under section 263 of the Act.

2.5 The learned Authorised Representative The learned Authorised Representative(AR) placed reliance on placed reliance on the judgment of the Hon’b the judgment of the Hon’ble Supreme Court in Malabar Industrial Malabar Industrial Co. Ltd. v. CIT (243 ITR 83), (243 ITR 83), and submitted that unless the twin that unless the twin conditions, namely, the order being erroneous and prejudicial namely, the order being erroneous and prejudicial to the namely, the order being erroneous and prejudicial interests of the Revenue, interests of the Revenue, are cumulatively satisfied, jurisdiction are cumulatively satisfied, jurisdiction under section 263 cannot be assumed. 3 cannot be assumed. Reliance was also placed on Reliance was also placed on the decision of the Hon’ble Bombay High Court in the decision of the Hon’ble Bombay High Court in Gabriel India Ltd. Gabriel India Ltd. (203 ITR 108) to contend that (203 ITR 108) to contend that ‘inadequacy of enquiry inadequacy of enquiry’ cannot be equated with ‘lack of enquiry lack of enquiry’ so as to render an assessment order so as to render an assessment order erroneous.

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2.6 The Ld. Authorized Representative also referred to the decision The Ld. Authorized Representative also referred to the decision The Ld. Authorized Representative also referred to the decision of the Hon’ble Kerala High Court in the case of Kerala High Court in the case of Bismillah Trading Bismillah Trading Co. Vs. Intelligence Office . Intelligence Office [2001] 248 ITR 292 (Ker) to explain [2001] 248 ITR 292 (Ker) to explain meaning of the term ‘prejudicial to R term ‘prejudicial to Revenue’. The Ld. Authorized . The Ld. Authorized representative also referred to the other decisions on the issue in referred to the other decisions on the issue in referred to the other decisions on the issue in dispute. 2.7 With regard to the issue of With regard to the issue of ‘discounts and incentives discounts and incentives’, the up of the amount of ₹154.40 assessee furnished a detailed break assessee furnished a detailed break-up of the amount of crores comprising target disc comprising target discounts (Rs.: 64,98,79,896) ; 64,98,79,896) ; consistency discounts (Rs.:70,16,14,802) 70,16,14,802)and cash discounts (Rs.: (Rs.: 19,25,97,550) granted to spare parts dealers. It was explained that these granted to spare parts dealers. It was explained that these granted to spare parts dealers. It was explained that these discounts were granted in terms of commercial schemes linked to discounts were granted in terms of commercial schemes linked to discounts were granted in terms of commercial schemes linked to achievement of sales targets and were computed as a percentage of achievement of sales targets and were computed as a percentage of achievement of sales targets and were computed as a percentage of turnover. It was submitted that turnover. It was submitted that primarily the transaction of supp primarily the transaction of supply of spare parts to the authorized dealer of spare parts to the authorized dealers was in the nature of buy was in the nature of buy and sale agreement, , wherein the ownership in the property was wherein the ownership in the property was duly transferred to the dealer and hence, duly transferred to the dealer and hence, the transactions with the transactions with dealers were on a principal dealers were on a principal-to-principal basis and, not in th not in the nature of principal-to-agent and therefore, the trade discounts allowed to agent and therefore, the trade discounts allowed to agent and therefore, the trade discounts allowed to the dealers on achieving certain amount of the sales performance the dealers on achieving certain amount of the sales performance the dealers on achieving certain amount of the sales performance was in the nature of the discounts only and therefore, was not liable was in the nature of the discounts only and therefore, was not liable was in the nature of the discounts only and therefore, was not liable for deduction of tax at source u/s 194H deduction of tax at source u/s 194H of the Act he Act characterizing the payment as ‘commission’ the payment as ‘commission’ .

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2.8 In support, the assessee placed reliance on the dealership In support, the assessee placed reliance on the dealership In support, the assessee placed reliance on the dealership agreement and judicial precedents including the judgment of the agreement and judicial precedents including the judgment of the agreement and judicial precedents including the judgment of the Hon’ble Supreme Court in Hon’ble Supreme Court in Bharti Cellular Ltd. v. Asst. CIT [2024] Bharti Cellular Ltd. v. Asst. CIT [2024] 160 taxmann.com 12 (SC) .com 12 (SC) and the decision of the Coordinate bench oordinate bench in Mahindra & Mahindra Ltd. (ITA No.7999/Mum/2011) Mahindra & Mahindra Ltd. (ITA No.7999/Mum/2011) Mahindra & Mahindra Ltd. (ITA No.7999/Mum/2011) to contend that trade discounts cannot be equated with commission. that trade discounts cannot be equated with commission. that trade discounts cannot be equated with commission.

2.9 The Ld. Authorized Representative The Ld. Authorized Representative in the chart in the chart submitted pointed out similarity similarity of the agreement entered into of the agreement entered into between Bharti Cellular ltd (supra) and its and its franchise and assessee and its dealers. franchise and assessee and its dealers. The Authorized Representative The Authorized Representative submitted that in the identical line submitted that in the identical line of the business, the Tribunal of the business, the Tribunal in Mahindra and Mahindra ltd (supra) in Mahindra and Mahindra ltd (supra) held that relationship between the manufacturer and the that relationship between the manufacturer and the that relationship between the manufacturer and the distributers/ sales dealers was in the nature of the principle to sales dealers was in the nature of the principle to sales dealers was in the nature of the principle to principle. Regarding the characterizing of the expenses incurred on principle. Regarding the characterizing of the expenses incurred principle. Regarding the characterizing of the expenses incurred Dies and Moulds as revenue expenditure Dies and Moulds as revenue expenditure, the Ld. Authorized he Ld. Authorized Representative of the assessee referred to the decision of the ve of the assessee referred to the decision of the ve of the assessee referred to the decision of the Hon’ble Madras High Court in the case of TVS Motors Ltd. [2014] Hon’ble Madras High Court in the case of TVS Motors Ltd. [2014] Hon’ble Madras High Court in the case of TVS Motors Ltd. [2014] 364 ITR 1 (Mad.) and decision of the Co 364 ITR 1 (Mad.) and decision of the Co-ordinate Bench in the case ordinate Bench in the case of the assessee itself wherein the the assessee itself wherein these expenses have been held to be expenses have been held to be revenue expenditure in nature. expenditure in nature.

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interest of the Revenue interest of the Revenue and that such failure rendered the and that such failure rendered the assessment order erroneous insofar as assessment order erroneous insofar as prejudicial to the interest prejudicial to the interest of the Revenue. Accordingly, by the impugned order passed under the Revenue. Accordingly, by the impugned order passed under the Revenue. Accordingly, by the impugned order passed under section 263 of the Act, the section 263 of the Act, the ld PCIT set aside the assessment order ssessment order dated 27.05.2022 and directed the Assessing Officer to frame a dated 27.05.2022 and directed the Assessing Officer to frame a dated 27.05.2022 and directed the Assessing Officer to frame a fresh assessment in accordance with the directions contained fresh assessment in accordance with the directions contained fresh assessment in accordance with the directions contained therein.

3.1 First, with regard to year First, with regard to year-end provisions amounting to end provisions amounting to ₹174.12 crore, the Ld. PCIT noted that the crore, the Ld. PCIT noted that the assessee had created ad assessee had created ad-hoc provisions provisions provisions towards towards towards commission commission commission payable payable payable to to to directors directors directors and and and advertisement, freight and other expenses, on which tax had not advertisement, freight and other expenses, on which tax had not advertisement, freight and other expenses, on which tax had not been deducted. The Assessing Officer had disallowed only 30% been deducted. The Assessing Officer had disallowed only 30% been deducted. The Assessing Officer had disallowed only 30% under section 40(a)(ia). The Ld. PCIT held that under section 40(a)(ia). The Ld. PCIT held that these were not actual these were not actual expenditures but unascertained liabilities, not allowable under expenditures but unascertained liabilities, not allowable under expenditures but unascertained liabilities, not allowable under section 37(1). He also observed that in an earlier assessment year section 37(1). He also observed that in an earlier assessment year section 37(1). He also observed that in an earlier assessment year the assessee itself had disallowed similar provisions in full. the assessee itself had disallowed similar provisions in full. the assessee itself had disallowed similar provisions in full. Accordingly, he directed disallowance of Accordingly, he directed disallowance of the balance 70%, holding the balance 70%, holding that the entire provision ought to have been disallowed under that the entire provision ought to have been disallowed under that the entire provision ought to have been disallowed under section 37(1).

3.2 Secondly, in respect of the claim of deduction of education Secondly, in respect of the claim of deduction of education Secondly, in respect of the claim of deduction of education cess amounting to ₹ ₹67.94 crore, the Ld. PCIT recorded that the 67.94 crore, the Ld. PCIT recorded that the assessee had filed Form 69 assessee had filed Form 69 withdrawing the claim. The Assessing withdrawing the claim. The Assessing Officer was therefore directed to verify the withdrawal and take Officer was therefore directed to verify the withdrawal and take Officer was therefore directed to verify the withdrawal and take action in accordance with law. action in accordance with law.

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3.3 Thirdly, regarding discounts of Thirdly, regarding discounts of ₹154.40 crore given to dealers, 154.40 crore given to dealers, the Ld. PCIT rejected the assessee’s contention that these were the Ld. PCIT rejected the assessee’s contention that t the Ld. PCIT rejected the assessee’s contention that t trade discounts not attracting section 194H. He held that discounts trade discounts not attracting section 194H. He held that discounts trade discounts not attracting section 194H. He held that discounts linked to achievement of sales targets and granted through post- linked to achievement of sales targets and granted through post linked to achievement of sales targets and granted through post sale credit notes constituted commission in substance. Relying on sale credit notes constituted commission in substance. Relying on sale credit notes constituted commission in substance. Relying on judicial judicial judicial precedents, precedents, precedents, he he he concluded concluded concluded that that that the the the assessee asses asses had camouflaged commission as discounts and, since tax was not camouflaged commission as discounts and, since tax was not camouflaged commission as discounts and, since tax was not deducted under section 194H, directed disallowance of 30% under deducted under section 194H, directed disallowance of 30% under deducted under section 194H, directed disallowance of 30% under section 40(a)(ia).

3.4 Lastly, the Ld. PCIT held that expenditure on dies and moulds Lastly, the Ld. PCIT held that expenditure on dies and moulds Lastly, the Ld. PCIT held that expenditure on dies and moulds (₹57.01 crore) and jigs and fixtures ( 57.01 crore) and jigs and fixtures (₹37.59 crore) was capital in 7.59 crore) was capital in nature. He observed that these items formed an integral part of nature. He observed that these items formed an integral part of nature. He observed that these items formed an integral part of plant and machinery, provided enduring benefit, and their plant and machinery, provided enduring benefit, and their plant and machinery, provided enduring benefit, and their replacement could not be treated as revenue expenditure. replacement could not be treated as revenue expenditure. replacement could not be treated as revenue expenditure. Accordingly, the Assessing Officer was directed to disallow the Accordingly, the Assessing Officer was directed to Accordingly, the Assessing Officer was directed to entire claim.

3.5 In view of above conclusion, the Ld. PCIT set aside the order of ew of above conclusion, the Ld. PCIT set aside the order of ew of above conclusion, the Ld. PCIT set aside the order of the Assessing Officer and directed to pass the Assessing Officer and directed to pass a fresh assessment assessment order keeping in view the direction keeping in view the directions given above. Aggrieved, the assessee given above. Aggrieved, the assessee is in appeal before the is in appeal before the ITAT by way of raising grounds as by way of raising grounds as reproduced above.

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4.1 In view of argument In view of arguments of both the parties, we take up the of both the parties, we take up the challenge of the assessee to the proceeding u/s 263 of the Act issue challenge of the assessee to the proceeding u/s 263 of the Act issue challenge of the assessee to the proceeding u/s 263 of the Act issue wise i.e. four issues. wise i.e. four issues.

Issue No. 1 : Disallowance of Year Issue No. 1 : Disallowance of Year-end Provisions end Provisions – Validity of Revision under Section 263 Revision under Section 263

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end provisions created for future payments. The aforesaid end provisions created for future payments. The aforesaid end provisions created for future payments. The aforesaid expenditure being an unascertained liability, was not allowable expenditure being an , was not allowable to the assessee. Hence the same may qualify for disallowance u/s to the assessee. Hence the same may qualify for disallowance u/s to the assessee. Hence the same may qualify for disallowance u/s 37(1). Also, from the computation of income provided by the same 37(1). Also, from the computation of income provided by the same 37(1). Also, from the computation of income provided by the same assessee for AY 2021 assessee for AY 2021-22 to the ITD, it is seen that 22 to the ITD, it is seen that the assessee itself has suo itself has suo-motu cancelled the claim of deduction u/s 40(a)(ia) in cancelled the claim of deduction u/s 40(a)(ia) in respect of the adhoc year respect of the adhoc year-end provisions and offered th end provisions and offered the entire amount to tax by disallowing u/s 37(1). Hence, the entire amount of amount to tax by disallowing u/s 37(1). Hence, the entire amount of amount to tax by disallowing u/s 37(1). Hence, the entire amount of Rs. 174,12,05,965/ Rs. 174,12,05,965/- should have been disallowed u/s 37(1) should have been disallowed u/s 37(1) instead of 30% of amount disallowed u/s 40(a) (ia) of the Act. instead of 30% of amount disallowed u/s 40(a) (ia) of the Act. instead of 30% of amount disallowed u/s 40(a) (ia) of the Act. Therefore, this office is revising the order u/s 143(3) r. Therefore, this office is revising the order u/s 143(3) r. Therefore, this office is revising the order u/s 143(3) r.w.s 144C(3) of the Act on 27.05.2022 passed by the AO. The AO is directed to of the Act on 27.05.2022 passed by the AO. The AO is directed to of the Act on 27.05.2022 passed by the AO. The AO is directed to disallow the amount of Rs. 121,88,44,175/ disallow the amount of Rs. 121,88,44,175/-(remaining 70%). (remaining 70%). 5.1 Before us, the learned counsel for the Before us, the learned counsel for the assessee assailed the assessee assailed the revisionary order on two counts. First order on two counts. Firstly, it was conten , it was contended that no effective show-cause notice was issued to the assessee on the issue cause notice was issued to the assessee on the issue cause notice was issued to the assessee on the issue of year-end provisions and, therefore, the impugned order stood end provisions and, therefore, the impugned order stood end provisions and, therefore, the impugned order stood vitiated for violation of principles of natural justice. Secondly, it was vitiated for violation of principles of natural justice. Secondly, it was vitiated for violation of principles of natural justice. Secondly, it was submitted that, on merits, the provisi submitted that, on merits, the provisions were ascertained liabilities ons were ascertained liabilities and were allowable under the mercantile system of accounting. and were allowable under the mercantile system of accounting. and were allowable under the mercantile system of accounting.

5.2 On the issue of lack of opportunity, it was submitted that the On the issue of lack of opportunity, it was submitted that the On the issue of lack of opportunity, it was submitted that the ld PCIT referred to year PCIT referred to year-end provisions in paragraph 2 of the show end provisions in paragraph 2 of the show- cause notice dated 23.01.20 cause notice dated 23.01.2025, but in paragraph 6 of the said paragraph 6 of the said notice, he called upon the assessee to explain only in respect of the called upon the assessee to explain only in respect of the called upon the assessee to explain only in respect of the issues enumerated in paragraphs 3 to 5 thereof. According to the issues enumerated in paragraphs 3 to 5 thereof. According to the issues enumerated in paragraphs 3 to 5 thereof. According to the assessee, these paragraphs pertained to education cess, cash assessee, these paragraphs pertained to education cess, cash assessee, these paragraphs pertained to education cess, cash discounts and target incentives, and dies and moulds/jigs and discounts and target incentives, and dies and moulds/jigs and discounts and target incentives, and dies and moulds/jigs and fixtures, and not to year , and not to year-end provisions. It was contended that, end provisions. It was contended that, acting on this understanding, the assessee confined its written acting on this understanding, the assessee confined its written acting on this understanding, the assessee confined its written submissions dated 04.02.2025 to the issues specified in paragraph submissions dated 04.02.2025 to the issues specified in paragraph submissions dated 04.02.2025 to the issues specified in paragraph

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6 of the notice and, even during the course of personal hearing, no 6 of the notice and, even during the course of personal hearing, no 6 of the notice and, even during the course of personal hearing, no query was raised by the uery was raised by the ld PCIT on the issue of year- -end provisions. It was, therefore, urged that the assessee was deprived of an It was, therefore, urged that the assessee was deprived of an It was, therefore, urged that the assessee was deprived of an effective opportunity of being heard on this issue. effective opportunity of being heard on this issue.

5.3 In this connection, the Ld. counsel for the assessee further In this connection, the Ld. counsel for the assessee further In this connection, the Ld. counsel for the assessee further placed reliance on the decision of the Hon’ble Supreme Court in the liance on the decision of the Hon’ble Supreme Court in the liance on the decision of the Hon’ble Supreme Court in the case of CIT v. Amitabh Bachchan (2016) 384 ITR 200 (SC) to case of CIT v. Amitabh Bachchan (2016) 384 ITR 200 (SC) case of CIT v. Amitabh Bachchan (2016) 384 ITR 200 (SC) contend that the Commissioner can exercise revisional jurisdiction contend that the Commissioner can exercise revisional jurisdiction contend that the Commissioner can exercise revisional jurisdiction only after affording the assessee an opportunity to contest the only after affording the assessee an opportunity to contest the only after affording the assessee an opportunity to contest the specific grounds on which such jurisdiction is sought to be c grounds on which such jurisdiction is sought to be c grounds on which such jurisdiction is sought to be exercised. Reliance was also placed on the decision of the Mumbai exercised. Reliance was also placed on the decision of the Mumbai exercised. Reliance was also placed on the decision of the Mumbai Bench of the Tribunal in Bench of the Tribunal in Colorcraft Kashimira Ceramic Compound Colorcraft Kashimira Ceramic Compound (105 ITD 599) for the proposition that an order under section 263 (105 ITD 599) for the proposition that an order under section 263 (105 ITD 599) for the proposition that an order under section 263 cannot be sustained when it travels beyond the reasons stated in e sustained when it travels beyond the reasons stated in e sustained when it travels beyond the reasons stated in the show-cause notice. cause notice.

5.4 The Ld. counsel for the assessee accordingly submitted that The Ld. counsel for the assessee accordingly submitted that The Ld. counsel for the assessee accordingly submitted that the Ld. PCIT had not issued any show cause notice to the assessee the Ld. PCIT had not issued any show cause notice to the assessee the Ld. PCIT had not issued any show cause notice to the assessee to present its submission on the issue related to present its submission on the issue related to disallowance of to disallowance of entire year end provisions made in the accounts and therefore, entire year end provisions made in the accounts and therefore, entire year end provisions made in the accounts and therefore, direction of the Ld. PCIT to the Assessing Officer for disallowing the direction of the Ld. PCIT to the Assessing Officer for disallowing direction of the Ld. PCIT to the Assessing Officer for disallowing entire provision by treating entire provision by treating the same as ascertained liability ought the same as ascertained liability ought to be set aside.

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5.5 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 the material on record. In our considered opinion, the perused the material on record. In our considered opinion, the perused the material on record. In our considered opinion, the objection raised by the assessee on the ground of absence of show- objection raised by the assessee on the ground of absence of show objection raised by the assessee on the ground of absence of show cause notice is misconceived. cause notice is misconceived. The Ld. PCIT in paragraph 2 of the The Ld. PCIT in paragraph 2 of the notice u/s 263 of the Act has clearly brought out the issue of year u/s 263 of the Act has clearly brought out the issue of year u/s 263 of the Act has clearly brought out the issue of year end provisions. A copy of notice end provisions. A copy of notice dated 23.01.2025 dated 23.01.2025 is placed on paper book page 105. In paragraph 2 of the said notice, the Ld. paper book page 105. In paragraph 2 of the said notice, the Ld. paper book page 105. In paragraph 2 of the said notice, the Ld. PCIT raised this issue as under: PCIT raised this issue as under:

“2. On perusal of the Tax audit rep “2. On perusal of the Tax audit report point 21(b)(ii), it is seen ort point 21(b)(ii), it is seen that the assessee had made an year end provision of Rs. that the assessee had made an year end provision of Rs. that the assessee had made an year end provision of Rs. 174,12,05,965/ 174,12,05,965/- on 31.03.2023 for Commission Payable to on 31.03.2023 for Commission Payable to Directors of Rs.2,11,50,000/ Directors of Rs.2,11,50,000/- and Advertisement Freight and and Advertisement Freight and Other Provisions of Rs.172,00,55,965/ Other Provisions of Rs.172,00,55,965/-. As per the T . As per the Tax Audit Report the said payments were classified to the payment on Report the said payments were classified to the payment on Report the said payments were classified to the payment on which tax had not been paid. The assessee had claimed which tax had not been paid. The assessee had claimed which tax had not been paid. The assessee had claimed disallowance of 30% of expenditure u/s. 40(a)(ia) for this disallowance of 30% of expenditure u/s. 40(a)(ia) for this disallowance of 30% of expenditure u/s. 40(a)(ia) for this provision. 2.1 It is further seen that these are not the actual payments i. 2.1 It is further seen that these are not the actual payments i. 2.1 It is further seen that these are not the actual payments i.e. not actually expended by the assessee in the previous year but not actually expended by the assessee in the previous year but not actually expended by the assessee in the previous year but the ad-hoc year end provisions created for future payments. The hoc year end provisions created for future payments. The hoc year end provisions created for future payments. The aforesaid expenditure being an unascertained liability, are not aforesaid expenditure being an unascertained liability, are not aforesaid expenditure being an unascertained liability, are not allowable to the assessee. Hence, the same may qualify for allowable to the assessee. Hence, the same may qualify for allowable to the assessee. Hence, the same may qualify for disallowance u/s. 37(1). Also, from the computation of income allowance u/s. 37(1). Also, from the computation of income allowance u/s. 37(1). Also, from the computation of income provided by the assessee, in its own case for AY 2021 provided by the assessee, in its own case for AY 2021 provided by the assessee, in its own case for AY 2021-22 to the Income Tax Department, it is seen that the assessee itself has Income Tax Department, it is seen that the assessee itself has Income Tax Department, it is seen that the assessee itself has suo-moto cancelled the claim of deduetion u/s. 40(a)(ia) in respect moto cancelled the claim of deduetion u/s. 40(a)(ia) in respect moto cancelled the claim of deduetion u/s. 40(a)(ia) in respect of the adhoc year the adhoc year-end provisions and offered the entire amount to end provisions and offered the entire amount to tax by disallowing u/s. 37(1). Hence, the entire amount of tax by disallowing u/s. 37(1). Hence, the entire amount of tax by disallowing u/s. 37(1). Hence, the entire amount of Rs.174,12,05,965/ Rs.174,12,05,965/- should have been disallowed u/s. 37(1) should have been disallowed u/s. 37(1) instead of 30% of amount disallowed instead of 30% of amount disallowed u/s. 40(a)(ia).” 5.6 A plain reading of A plain reading of the show-cause notice dated 23.01.2025 cause notice dated 23.01.2025 demonstrates that the issue of year demonstrates that the issue of year-end provisions was specifically end provisions was specifically and unequivocally raised in paragraph 2 thereof. The ld PCIT clearly and unequivocally raised in paragraph 2 thereof. The and unequivocally raised in paragraph 2 thereof. The recorded his prima- -facie view that although the assessee had although the assessee had

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disallowed 30 per cent of such provisions under section 40(a)(ia), the cent of such provisions under section 40(a)(ia), the cent of such provisions under section 40(a)(ia), the entire expenditure was liable for disallowance under section 37(1) as entire expenditure was liable for disallowance under section 37(1) as entire expenditure was liable for disallowance under section 37(1) as being unascertained in nature, and that the Assessing Officer had being unascertained in nature, and that the Assessing Officer had being unascertained in nature, and that the Assessing Officer had failed to examine the issue from this perspective failed to examine the issue from this perspective. Merely because, . Merely because, in paragraph 6 of the notice, reference was made to paragraphs 3 to 5 paragraph 6 of the notice, reference was made to paragraphs 3 to 5 paragraph 6 of the notice, reference was made to paragraphs 3 to 5 while calling for a response, the substantive notice contained in while calling for a response, the substantive notice contained in while calling for a response, the substantive notice contained in paragraph 2 does not stand effaced. At best, the omission of paragraph 2 does not stand effaced. At best, the omission of paragraph 2 does not stand effaced. At best, the omission of paragraph 2 in paragraph 6 can be regarded as an inadvertent paragraph 2 in paragraph 6 can be regarded as an inadverten paragraph 2 in paragraph 6 can be regarded as an inadverten error, which does not dilute the clarity of the show error, which does not dilute the clarity of the show- -cause notice on this issue.

5.7 The record further reveals that the assessee, despite being put The record further reveals that the assessee, despite being put The record further reveals that the assessee, despite being put to notice, chose not to file any reply on the issue of year-end to notice, chose not to file any reply on the issue of year to notice, chose not to file any reply on the issue of year provisions, proceeding on an erroneous as provisions, proceeding on an erroneous assumption that no sumption that no response was required. The principles of natural justice require that response was required. The principles of natural justice require that response was required. The principles of natural justice require that an opportunity be afforded; they do not mandate that the authority an opportunity be afforded; they do not mandate that the authority an opportunity be afforded; they do not mandate that the authority must compel a response. Once the issue was clearly set out in the must compel a response. Once the issue was clearly set out in the must compel a response. Once the issue was clearly set out in the show-cause notice, it was incumbent cause notice, it was incumbent upon the assessee to place its upon the assessee to place its explanation on record. explanation on record.

5.8 The reliance placed on The reliance placed on Amitabh Bachchan (supra) is Amitabh Bachchan misplaced. In that case, the Hon’ble Supreme Court found that the misplaced. In that case, the Hon’ble Supreme Court found that the misplaced. In that case, the Hon’ble Supreme Court found that the particular issue forming the basis of revision was not at all particular issue forming the basis of revision was not at all particular issue forming the basis of revision was not at all mentioned in the show ow-cause notice. In the present case, the issue cause notice. In the present case, the issue was expressly articulated in paragraph 2 of the notice. Similarly, was expressly articulated in paragraph 2 of the notice. Similarly, was expressly articulated in paragraph 2 of the notice. Similarly, the decision in Colorcraft Kashimira Ceramic Compound Colorcraft Kashimira Ceramic Compound (supra) is Colorcraft Kashimira Ceramic Compound

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distinguishable on facts, as the revisional order therein was distinguishable on facts, as the revisional order therein was distinguishable on facts, as the revisional order therein was founded on reasons entirely different from those mentioned in the sons entirely different from those mentioned in the sons entirely different from those mentioned in the notice, which is not the position here. Accordingly, we reject the notice, which is not the position here. Accordingly, we reject the notice, which is not the position here. Accordingly, we reject the contention of the assessee that the revisional order is vitiated for contention of the assessee that the revisional order is vitiated for contention of the assessee that the revisional order is vitiated for want of a show-cause notice on this issue. cause notice on this issue.

6.1 The Ld. counsel submitted that the Ld. PCI The Ld. counsel submitted that the Ld. PCI The Ld. counsel submitted that the Ld. PCIT has given aforesaid direction only on the basis of the Tax Audit R ction only on the basis of the Tax Audit R ction only on the basis of the Tax Audit Report (TAR), wherein, against clause 21(b)(ii) requiring details of payment on against clause 21(b)(ii) requiring details of payment on against clause 21(b)(ii) requiring details of payment on which which tax tax was was not not deducted, deducted yearend provisions of Rs.2,11,50,000/- for for for commission commission commission payable payable payable to to to directors directors directors and and and Rs.1,72,00,965/- for advertisement, freight and other provisions for advertisement, freight and other provisions for advertisement, freight and other provisions was mentioned. The Ld. counsel submitted that no further details was mentioned. The Ld. counsel submitted that no further details was mentioned. The Ld. counsel submitted that no further details were available with the Ld. PCIT or called out from the assessee. It were available with the Ld. PCIT or called out from th were available with the Ld. PCIT or called out from th was submitted that in Tax Audit R was submitted that in Tax Audit Report against clause 21(g) eport against clause 21(g) requiring details of any liability of contingent nature debited to the requiring details of any liability of contingent nature debited to the requiring details of any liability of contingent nature debited to the profit and loss account, the amount is mentioned as NIL only. profit and loss account, the amount is mentioned as NIL only. profit and loss account, the amount is mentioned as NIL only.

6.2 The Ld. counsel submitted that in the return of income filed The Ld. counsel submitted that in the return of income filed The Ld. counsel submitted that in the return of income filed for the year under consideration, for the year under consideration, a sum of Rs.52,23,61,790/ sum of Rs.52,23,61,790/- (being 30% of the amount menti 30% of the amount mentioned in point 21(b)(ii) of the Tax Audit oned in point 21(b)(ii) of the Tax Audit

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Report in respect of year end provisions of Rs.174,12,05,965/ eport in respect of year end provisions of Rs.174,12,05,965/ eport in respect of year end provisions of Rs.174,12,05,965/-) was disallowed u/s 40(a)(ia) of the Act for non disallowed u/s 40(a)(ia) of the Act for non-deduction of tax at deduction of tax at source.

6.3 It was submitted that the assessee follows the mercantile It was submitted that the assessee follows the mercantile It was submitted that the assessee follows the mercantile system of accounting and that the provisions were made in respect system of accounting and that the provisions were made in respect system of accounting and that the provisions were made in respect of expenses incurred up to 31st March for which invoices had not of expenses incurred up to 31st March for which inv of expenses incurred up to 31st March for which inv been received by the year been received by the year-end. Detailed reliance was placed on end. Detailed reliance was placed on Accounting Standard Accounting Standard-29 and ICDS-X relating to provisions X relating to provisions

6.4 Further, in the earlier years i.e. AY 2015 Further, in the earlier years i.e. AY 2015-16 and AY 2016 16 and AY 2016-17, similar disallowance under section 40( r disallowance under section 40(a)(ia) was made. A a)(ia) was made. Accordingly, the Assessing Officer was very well aware during the course of the Assessing Officer was very well aware during the course of the Assessing Officer was very well aware during the course of assessment proceedings that such disallowance was made in the assessment proceedings that such disallowance was made in the assessment proceedings that such disallowance was made in the earlier years. The Ld. counsel for the assessee placed relied on the The Ld. counsel for the assessee placed relied on the The Ld. counsel for the assessee placed relied on the decision of the Mumbai Bench of the Tribunal in th decision of the Mumbai Bench of the Tribunal in the case of Bank of e case of Bank of America National Association (ITA No. 3343/Mum/2019) wherein it America National Association (ITA No. 3343/Mum/2019) wherein it America National Association (ITA No. 3343/Mum/2019) wherein it is held as under:

21 In this regard, we wish to place reliance on the decision of the Mumbai 21 In this regard, we wish to place reliance on the decision of the Mumbai 21 In this regard, we wish to place reliance on the decision of the Mumbai Bench of the Tribunal in the case of Bank of America National Association Bench of the Tribunal in the case of Bank of America National Association Bench of the Tribunal in the case of Bank of America National Association (ITA No. 3343/MUM/2019) wherein it was held as under: No. 3343/MUM/2019) wherein it was held as under: '8.10 Regarding the claim of the Ld. CIT that no enquiry has been made by '8.10 Regarding the claim of the Ld. CIT that no enquiry has been made by '8.10 Regarding the claim of the Ld. CIT that no enquiry has been made by the Assessing Officer on the issue in dispute, we find that Assessing Officer the Assessing Officer on the issue in dispute, we find that Assessing Officer the Assessing Officer on the issue in dispute, we find that Assessing Officer has followed finding of his predecessors wherein no inc has followed finding of his predecessors wherein no income has been added ome has been added in the hands of assessee for interest payment by the domestic branches to in the hands of assessee for interest payment by the domestic branches to in the hands of assessee for interest payment by the domestic branches to the head office/overseas branches. The said assessment records of the the head office/overseas branches. The said assessment records of the the head office/overseas branches. The said assessment records of the earlier years were available with the Assessing Officer and further assessee earlier years were available with the Assessing Officer and further assessee earlier years were available with the Assessing Officer and further assessee also made submission making its claim that said interest received was not sion making its claim that said interest received was not sion making its claim that said interest received was not taxable in the hands of the PE in India in view of the judicial precedents. In taxable in the hands of the PE in India in view of the judicial precedents. In taxable in the hands of the PE in India in view of the judicial precedents. In background of such facts and circumstances, in our opinion, the Assessing background of such facts and circumstances, in our opinion, the Assessing background of such facts and circumstances, in our opinion, the Assessing Officer was not ought to have carry out furth Officer was not ought to have carry out further enquiry on the issue in er enquiry on the issue in

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dispute, therefore the finding of the Ld. CIT that no enquiry has been carried dispute, therefore the finding of the Ld. CIT that no enquiry has been carried dispute, therefore the finding of the Ld. CIT that no enquiry has been carried out by the Assessing Officer on the issue in dispute is without any basis out by the Assessing Officer on the issue in dispute is without any basis out by the Assessing Officer on the issue in dispute is without any basis and fallacious. The explanation below section 263 of the Act is also not and fallacious. The explanation below section 263 of the Act is also not and fallacious. The explanation below section 263 of the Act is also not applicable over the facts of the case. The said explanation, prescribe that licable over the facts of the case. The said explanation, prescribe that licable over the facts of the case. The said explanation, prescribe that the assessment order is deemed to be erroneous insofar as prejudicial to the the assessment order is deemed to be erroneous insofar as prejudicial to the the assessment order is deemed to be erroneous insofar as prejudicial to the interest of the revenue if the Assessing Officer has not carried out the interest of the revenue if the Assessing Officer has not carried out the interest of the revenue if the Assessing Officer has not carried out the inquiries which ought to have bee inquiries which ought to have been carried out in the facts of the case. In the n carried out in the facts of the case. In the case, in background of the earlier years and submission of the assessee, case, in background of the earlier years and submission of the assessee, case, in background of the earlier years and submission of the assessee, there was no requirement of carrying out further inquiries on the issue-in- there was no requirement of carrying out further inquiries on the issue there was no requirement of carrying out further inquiries on the issue dispute. 22. In view of the above, it is submitted that the i 22. In view of the above, it is submitted that the impugned order of the PCIT mpugned order of the PCIT passed under section 263 of the Act be set-aside. passed under section 263 of the Act 6.5 We have heard rival submissions of the parties and perused We have heard rival submissions of the parties and perused We have heard rival submissions of the parties and perused the relevant materials on record the relevant materials on record. Before us, the Ld. Departmental . Before us, the Ld. Departmental Representative (DR) submitted that whether on the merit said Representative (DR) submitted that whether on the m Representative (DR) submitted that whether on the m liability was ascertained or unascertained could be discharged only liability was ascertained or unascertained could be discharged only liability was ascertained or unascertained could be discharged only after making inquiry on the issue in dispute by the Assessing after making inquiry on the issue in dispute by the Assessing after making inquiry on the issue in dispute by the Assessing Officer.

6.6 While above submissions of the While above submissions of the assessee may assessee may be relevant in the course of assessment proceedings, the l the course of assessment proceedings, the limited question before imited question before us, in the context of section 263, is whether the Assessing Officer us, in the context of section 263, is whether the Assessing Officer us, in the context of section 263, is whether the Assessing Officer examined the issue at all. On this aspect, it is an admitted position examined the issue at all. On this aspect, it is an admitted position examined the issue at all. On this aspect, it is an admitted position that the Assessing Officer did not conduct any enquiry to determine that the Assessing Officer did not conduct any enquiry to determine that the Assessing Officer did not conduct any enquiry to determine whether the year-end provis end provisions represented ascertained liabilities ions represented ascertained liabilities or were in the nature of contingent or unascertained liabilities. or were in the nature of contingent or unascertained liabilities. or were in the nature of contingent or unascertained liabilities. Before us, in the paper book also no evidence to support that any Before us, in the paper book also no evidence to support that any Before us, in the paper book also no evidence to support that any inquiry was conducted by the Assessing Officer during the inquiry was conducted by the Assessing Officer during the inquiry was conducted by the Assessing Officer during the assessment proceedings fo assessment proceedings for examining the year end provisions from r examining the year end provisions from the angle of unascertained liability was carried out. No material has the angle of unascertained liability was carried out. the angle of unascertained liability was carried out.

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been placed before us to demonstrate that the issue was examined been placed before us to demonstrate that the issue was examined been placed before us to demonstrate that the issue was examined during the assessment proceedings. The assessee’s learned counsel, during the assessment proceedings. The assessee’s learned counsel, during the assessment proceedings. The assessee’s learned counsel, fairly and candidly, also conceded that no such enquiry was carried ndidly, also conceded that no such enquiry was carried ndidly, also conceded that no such enquiry was carried out.

6.7 It is now well settled that the Assessing Officer is not merely It is now well settled that the Assessing Officer is not merely It is now well settled that the Assessing Officer is not merely an adjudicator but also an investigator. an adjudicator but also an investigator. Where the facts of the case the facts of the case warrant an enquiry, failure to conduct such enquiry renders the warrant an enquiry, failure to conduct such enquiry render warrant an enquiry, failure to conduct such enquiry render assessment order erroneous insofar as it is prejudicial to the assessment order erroneous insofar as it is prejudicial to the assessment order erroneous insofar as it is prejudicial to the interests of the Revenue. Explanation 2 to section 263 specifically interests of the Revenue. Explanation 2 to section 263 specifically interests of the Revenue. Explanation 2 to section 263 specifically deems an assessment order to be erroneous and prejudicial where deems an assessment order to be erroneous and prejudicial where deems an assessment order to be erroneous and prejudicial where the Assessing Officer has not made enquiries which ought to have the Assessing Officer has not made enquiries which ough the Assessing Officer has not made enquiries which ough been made in the facts and circumstances of the case. been made in the facts and circumstances of the case. been made in the facts and circumstances of the case.

6.8 In the present case, the In the present case, the ld PCIT has also noticed that, in PCIT has also noticed that, in assessment year 2021 2021-22, the assessee itself has 22, the assessee itself has disallowed the entire amount of similar year entire amount of similar year-end provisions under section 37(1) end provisions under section 37(1) of the Act instead of restricting the disallowance to 30 per cent under of restricting the disallowance to 30 per cent under of restricting the disallowance to 30 per cent under section 40(a)(ia) of the Act of the Act. The return of income for AY 2021-22 was due on 30/11/ /2021 whereas the impugned assessment has 21 whereas the impugned assessment has been completed on27/05/2022, and therefore, the facts of AY 2021- been completed on27/05/2022, and therefore, the facts of AY been completed on27/05/2022, and therefore, the facts of AY 22 were available before the ld AO while making scrutiny of the 22 were available before the ld AO while making scrutiny of the 22 were available before the ld AO while making scrutiny of the present assessment year. present assessment year. This circumstance, by itself, warranted a This circumstance, by itself, warranted a deeper examination by the Assessing Officer in the year under deeper examination by the Assessing Officer in the year under deeper examination by the Assessing Officer in the year under consideration, which was admittedly not undertaken. consideration, which was admittedly not undertaken. consideration, which was admittedly not undertaken.

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6.9 The reliance placed by the assessee on the decision of the The reliance placed by the assessee on the decision of the The reliance placed by the assessee on the decision of the Tribunal in Bank of America National Association (supra) is of no Bank of America National Association(supra) assistance, as in that case the Assessing Officer had consciously assistance, as in that case the Assessing Officer had consciously assistance, as in that case the Assessing Officer had consciously followed the settled position in earlier years and the assessment followed the settled position in earlier years and the assessment followed the settled position in earlier years and the assessment records reflected application of mind. In the present case, no such records reflected application of mind. In the present case, no such records reflected application of mind. In the present case, no such conscious examination or adoption of a view is discernible from the conscious examination or adoption of a view is discernible from the conscious examination or adoption of a view is discernible from the record.

6.10 In view of the above discussion, we hold that the Assessing In view of the above discussion, we hold that the Assessing In view of the above discussion, we hold that the Assessing Officer failed to conduct the enquiry which he ought to have Officer failed to conduct the enquiry which he Officer failed to conduct the enquiry which he conducted in respect of the allowability of year conducted in respect of the allowability of year- -end provisions. Consequently, the assessment order suffers from the vice of lack of Consequently, the assessment order suffers from the vice of lack of Consequently, the assessment order suffers from the vice of lack of enquiry and squarely falls within the mischief of Explanation 2 to enquiry and squarely falls within the mischief of Explanation 2 to enquiry and squarely falls within the mischief of Explanation 2 to section 263 of the Act. The learned PCIT w section 263 of the Act. The learned PCIT was, therefore, justified in as, therefore, justified in holding the assessment order to be erroneous insofar as it was holding the assessment order to be erroneous insofar as it was holding the assessment order to be erroneous insofar as it was prejudicial to the interests of the Revenue on this issue. prejudicial to the interests of the Revenue on this issue. prejudicial to the interests of the Revenue on this issue.

6.11 Accordingly, the challenge raised by the assessee to the Accordingly, the challenge raised by the assessee to the Accordingly, the challenge raised by the assessee to the impugned order under section 263 on the issue of year-end impugned order under section 263 on the issu impugned order under section 263 on the issu provisions is rejected. provisions is rejected.

Issue No. 2 : Deduction of Education Cess Issue No. 2 : Deduction of Education Cess – Scope of Revisional Scope of Revisional Direction 7. The next issue concerns the claim of deduction of education The next issue concerns the claim of deduction of education The next issue concerns the claim of deduction of education cess amounting to ₹67,94,69,345/-, which was made by the cess amounting to , which was made by the

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assessee in the revised assessee in the revised return of income by placing reliance on the return of income by placing reliance on the decision of the Hon’ble Jurisdictional High Court. decision of the Hon’ble Jurisdictional High Court.

7.1 Subsequently, the Finance Act, 2022 amended section 40(a)(ii) Subsequently, the Finance Act, 2022 amended section 40(a)(ii) Subsequently, the Finance Act, 2022 amended section 40(a)(ii) of the Act retrospectively, clarifying that the expression “tax” of the Act retrospectively, clarifying that the expression “tax” of the Act retrospectively, clarifying that the expression “tax” includes surcharge and cess, includes surcharge and cess, thereby rendering education cess not thereby rendering education cess not allowable as a deduction. Further, by the same Finance Act, sub- allowable as a deduction. Further, by the same Finance Act, sub allowable as a deduction. Further, by the same Finance Act, sub section (18) was inserted in section 155 of the Act, providing a section (18) was inserted in section 155 of the Act, providing a section (18) was inserted in section 155 of the Act, providing a mechanism for re-computation of income where deduction of computation of income where deduction of computation of income where deduction of surcharge or cess had been claim surcharge or cess had been claimed and allowed in earlier years, ed and allowed in earlier years, subject to the assessee filing an application in the prescribed form subject to the assessee filing an application in the prescribed form subject to the assessee filing an application in the prescribed form and within the prescribed time for withdrawal of such claim. The and within the prescribed time for withdrawal of such claim. and within the prescribed time for withdrawal of such claim. relevant extract is reproduced as under: relevant extract is reproduced as under:

“(18) Where any deduction in respect of any (18) Where any deduction in respect of any surcharge or cess, surcharge or cess, which is not allowable as deduction under section 40, has been which is not allowable as deduction under section 40, has been which is not allowable as deduction under section 40, has been claimed and allowed in the case of an assessee in any previous claimed and allowed in the case of an assessee in any previous claimed and allowed in the case of an assessee in any previous year, such claim shall be deemed to be under year, such claim shall be deemed to be under-reported income of the reported income of the assessee for such previous year for the pur assessee for such previous year for the purposes of sub poses of sub-section (3) of section 270A, notwithstanding anything contained in sub of section 270A, notwithstanding anything contained in sub of section 270A, notwithstanding anything contained in sub-section (6) of section 270A, and the Assessing Officer shall recompute the (6) of section 270A, and the Assessing Officer shall recompute the (6) of section 270A, and the Assessing Officer shall recompute the total income of the assessee for such previous year and make total income of the assessee for such previous year and make total income of the assessee for such previous year and make necessary amendment; and the provisi necessary amendment; and the provisions of section 154 shall, so ons of section 154 shall, so far as may be, apply thereto, the period of four years specified in far as may be, apply thereto, the period of four years specified in far as may be, apply thereto, the period of four years specified in sub-section (7) of section 154 being reckoned from the end of the section (7) of section 154 being reckoned from the end of the section (7) of section 154 being reckoned from the end of the previous year commencing on the 1st day of April, 2021 previous year commencing on the 1st day of April, 2021 previous year commencing on the 1st day of April, 2021 Provided that in a case where the asse Provided that in a case where the assessee makes an application to ssee makes an application to the Assessing Officer in the prescribed form and within the the Assessing Officer in the prescribed form and within the the Assessing Officer in the prescribed form and within the prescribed time, requesting for recomputation of the total income of prescribed time, requesting for recomputation of the total income of prescribed time, requesting for recomputation of the total income of the previous year without allowing the claim for deduction of the previous year without allowing the claim for deduction of the previous year without allowing the claim for deduction of surcharge or cess and pays the amoun surcharge or cess and pays the amount due thereon within the t due thereon within the specified time, such claim shall not be deemed to be under specified time, such claim shall not be deemed to be under specified time, such claim shall not be deemed to be under- reported income for the purposes of sub income for the purposes of sub-section (3) of section 270A." 270A."

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7.2 Pursuant to the amendment made in section 155(18), Pursuant to the amendment made in section 155(18), Pursuant to the amendment made in section 155(18), the Central Board of Direct Taxes, vide Central Board of Direct Taxes, vide Notification No. 111 of 2022 Notification No. 111 of 2022 dated 28.09.2022, inserted Rule 132 in the Income dated 28.09.2022, inserted Rule 132 in the Income-tax Rules, 1962, tax Rules, 1962, prescribing Form No. 69 for withdrawal of the claim of deduction in prescribing Form No. 69 for withdrawal of the claim of deduction in prescribing Form No. 69 for withdrawal of the claim of deduction in respect of surcharge or cess. The said Rule came into effect from respect of surcharge or cess. The said Rule came into effect from respect of surcharge or cess. The said Rule came into effect from 01.10.2022.

7.3 In the present case, it is not in dispute that the assessment sent case, it is not in dispute that the assessment sent case, it is not in dispute that the assessment was completed prior to the introduction of Rule 132. It is also the was completed prior to the introduction of Rule 132. It is also the was completed prior to the introduction of Rule 132. It is also the assessee’s case that the Assessing Officer, at the time of framing the assessee’s case that the Assessing Officer, at the time of framing the assessee’s case that the Assessing Officer, at the time of framing the assessment, allowed the claim following the then prevailing judicial assessment, allowed the claim following the then prevailing judic assessment, allowed the claim following the then prevailing judic position. Thereafter, in compliance with the amended statutory position. Thereafter, in compliance with the amended statutory position. Thereafter, in compliance with the amended statutory provisions, the assessee filed Form No. 69 on 13.03.2023, provisions, the assessee filed Form No. 69 on 13.03.2023, provisions, the assessee filed Form No. 69 on 13.03.2023, withdrawing its claim for deduction of education cess, which was to withdrawing its claim for deduction of education cess, which was to withdrawing its claim for deduction of education cess, which was to be dealt with by way of rectification under section 155(18) of the be dealt with by way of rectification under section 155(18) of be dealt with by way of rectification under section 155(18) of Act.

7.4 The assessee contended that once the statutory mechanism The assessee contended that once the statutory mechanism The assessee contended that once the statutory mechanism under section 155(18) stood triggered and the claim itself was under section 155(18) stood triggered and the claim itself was under section 155(18) stood triggered and the claim itself was withdrawn, no prejudice to the interests of the Revenue survived withdrawn, no prejudice to the interests of the Revenue survived withdrawn, no prejudice to the interests of the Revenue survived and, consequently, invocation of section 263 on this issue was and, consequently, invocation of section 263 on this issue and, consequently, invocation of section 263 on this issue unwarranted.

7.5 After considering the submission of the assessee, the Ld. PCIT After considering the submission of the assessee, the Ld. PCIT After considering the submission of the assessee, the Ld. PCIT in para 15.2 has accordingly directed the Assessing Officer to verify in para 15.2 has accordingly directed the Assessing Officer to verify in para 15.2 has accordingly directed the Assessing Officer to verify

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the contention of the assessee. The relevant finding of the Ld. PCIT the contention of the assessee. The relevant finding of the Ld. PCIT the contention of the assessee. The relevant finding of the Ld. PCIT is reproduced as under: is reproduced as under:

15.2 Claim of deduction of 'education cess amounting Rs. im of deduction of 'education cess amounting Rs. im of deduction of 'education cess amounting Rs. Rs.67,94,69,345: Rs.67,94,69,345: The assessee has submitted that the assessee The assessee has submitted that the assessee company has filed form 69 to withdraw its claim for deduction of company has filed form 69 to withdraw its claim for deduction of company has filed form 69 to withdraw its claim for deduction of education cess. Accordingly, the AO is directed to verify and take education cess. Accordingly, the AO is directed to verify and take education cess. Accordingly, the AO is directed to verify and take necessary act necessary action as per the Income Tax Act, 1961. 7.6 We note that, after considering the submissions of the We note that, after considering the submissions of the We note that, after considering the submissions of the assessee, the learned PCIT, in paragraph 15.2 of the impugned assessee, the learned PCIT, in paragraph 15.2 of the impugned assessee, the learned PCIT, in paragraph 15.2 of the impugned order, did not set aside the assessment on this issue nor did he order, did not set aside the assessment on this issue nor did he order, did not set aside the assessment on this issue nor did he record any finding that the asses record any finding that the assessment order was erroneous and sment order was erroneous and prejudicial to the interests of the Revenue. The ld PCIT merely prejudicial to the interests of the Revenue. The prejudicial to the interests of the Revenue. The directed the Assessing Officer to verify the assessee’s contention directed the Assessing Officer to verify the assessee’s contention directed the Assessing Officer to verify the assessee’s contention regarding filing of Form No. 69 and to take action in accordance regarding filing of Form No. 69 and to take action in accordance regarding filing of Form No. 69 and to take action in accordance with law.

7.7 Thus, the PCIT Thus, the PCIT has not exercised revisional jurisdiction to has not exercised revisional jurisdiction to revise or set aside the assessment on the issue of education cess. revise or set aside the assessment on the issue of education cess. revise or set aside the assessment on the issue of education cess. The direction issued is in the nature of a consequential verification, The direction issued is in the nature of a consequential verification, The direction issued is in the nature of a consequential verification, leaving the assessment order intact on this aspect. leaving the assessment order intact on this aspect.

7.8 In these circumst In these circumstances, no live grievance survives for ances, no live grievance survives for adjudication before us on this issue. Accordingly, the challenge adjudication before us on this issue. Accordingly, the challenge adjudication before us on this issue. Accordingly, the challenge raised by the assessee on the issue of deduction of education cess raised by the assessee on the issue of deduction of education cess raised by the assessee on the issue of deduction of education cess has become infructuous and is dismissed as such. has become infructuous and is dismissed as such.

Issue No. 3 Disallowance under sectio Disallowance under section 40(a)(ia) in respect of n 40(a)(ia) in respect of target discount, consistency discount and cash discount – target discount, consistency discount and cash discount target discount, consistency discount and cash discount

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relationship between OEM and dealers relationship between OEM and dealers – nature of payment as nature of payment as “commission” u/s 194H “commission” u/s 194H 8. On the third issue of deduction of cash discounts and targets On the third issue of deduction of cash discounts and targets On the third issue of deduction of cash discounts and targets discount to dealers liabl discount to dealers liable for deduction of tax at source being e for deduction of tax at source being commission, the the learned PCIT held that the Assessing Officer the learned PCIT held that the Assessing Officer the learned PCIT held that the Assessing Officer failed to examine whether the so failed to examine whether the so-called target / consistency / cash called target / consistency / cash discounts allowed by the assessee to its spare parts dealers attract discounts allowed by the assessee to its spare parts dealers attract discounts allowed by the assessee to its spare parts dealers attract deduction of tax at source under section 194H and, consequently, x at source under section 194H and, consequently, x at source under section 194H and, consequently, disallowance under section 40(a)(ia) disallowance under section 40(a)(ia) of the Act of the Act. The relevant observation of Ld. PCIT Ld. PCIT is reproduced as under:

15.3 Deduction of cash discounts and targets: Deduction of cash discounts and targets: The assessee has submitted that the Assessee incurred expenditure of Rs. has submitted that the Assessee incurred expenditure of Rs. has submitted that the Assessee incurred expenditure of Rs. 154,40,92,249 in respect of discount provided to 154,40,92,249 in respect of discount provided to the provided to the provided to the dealers which was debited to the Profit and Loss account dealers which was debited to the Profit and Loss account dealers which was debited to the Profit and Loss account . The aforesaid discounts aforesaid discounts are provided to spare part dealers lers as per the scheme of the Assessee. The relationship with its dealers is a scheme of the Assessee. The relationship with its dealers is a scheme of the Assessee. The relationship with its dealers is a straightforward sale transaction and not one based on commission, straightforward sale transaction and not one based on commission, straightforward sale transaction and not one based on commission, as the dealers are independent entities that bear the risks and as the dealers are independent entities that bear the risks and as the dealers are independent entities that bear the risks and rewards of their business. The discounts offere rewards of their business. The discounts offered are incentives for d are incentives for meeting sales targets, not commissions for. Hence the transaction meeting sales targets, not commissions for. Hence the transaction meeting sales targets, not commissions for. Hence the transaction between the Assessee and the dealers is purely in the nature of a between the Assessee and the dealers is purely in the nature of a between the Assessee and the dealers is purely in the nature of a sale transaction and hence the provisions of section 194H are not sale transaction and hence the provisions of section 194H are not sale transaction and hence the provisions of section 194H are not applicable. 15.3.1 The submission of 15.3.1 The submission of the assessee is considered but not found the assessee is considered but not found to be acceptable. The Assessee stated that Section 194H does not to be acceptable. The Assessee stated that Section 194H does not to be acceptable. The Assessee stated that Section 194H does not apply because the discounts are trade discounts and not apply because the discounts are trade discounts and not apply because the discounts are trade discounts and not commission. However, it is clear that such payments made based commission. However, it is clear that such payments made based commission. However, it is clear that such payments made based on sales performance fall squar on sales performance fall squarely within the ambit of commission ely within the ambit of commission under Section 194H. under Section 194H. 15.3.2 The assessee has relied upon decision of the Hon'ble 15.3.2 The assessee has relied upon decision of the Hon'ble 15.3.2 The assessee has relied upon decision of the Hon'ble Jurisdictional High Court in the case of CIT vs. Intervet India (P.) Ltd Jurisdictional High Court in the case of CIT vs. Intervet India (P.) Ltd Jurisdictional High Court in the case of CIT vs. Intervet India (P.) Ltd [2014] 49 taxmann.com. So it can be seen that the Honble' court [2014] 49 taxmann.com. So it can be seen that the Honble' court [2014] 49 taxmann.com. So it can be seen that the Honble' court held that, "The application of the provision is required to be that, "The application of the provision is required to be that, "The application of the provision is required to be considered to the relevant facts of every case". In this case the considered to the relevant facts of every case". In this case the considered to the relevant facts of every case". In this case the

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assessee is giving commission on achievement of sales target on assessee is giving commission on achievement of sales target on assessee is giving commission on achievement of sales target on percentage basis by credit notes not by way of goods. percentage basis by credit notes not by way of goods. 15.3.3 Out of 15.3.3 Out of various discount schemes run by the Assessee various discount schemes run by the Assessee company, it is stated that the Discount schemes are directly passed company, it is stated that the Discount schemes are directly passed company, it is stated that the Discount schemes are directly passed through credit notes. The assessee is offering above discounts on through credit notes. The assessee is offering above discounts on through credit notes. The assessee is offering above discounts on completion of periodic targets and is computed as a percentage of completion of periodic targets and is computed as a percentage of completion of periodic targets and is computed as a percentage of sales turnover. Hence, it is established that the assessee has paid over. Hence, it is established that the assessee has paid over. Hence, it is established that the assessee has paid commission to its dealers under the garb of sale price discount in commission to its dealers under the garb of sale price discount in commission to its dealers under the garb of sale price discount in the form of credit notes. the form of credit notes. 15.3.4 The assessee has adopted the modus 15.3.4 The assessee has adopted the modus-operandi in dolling out operandi in dolling out commission under the nomenclature of 'v commission under the nomenclature of 'various discounts schemes', arious discounts schemes', which is other than the discounts mentioned in the invoice. The which is other than the discounts mentioned in the invoice. The which is other than the discounts mentioned in the invoice. The discount in question has been given by issuing credit notes to the discount in question has been given by issuing credit notes to the discount in question has been given by issuing credit notes to the beneficiaries, who are the assessee's dealers; therefore, the ailed beneficiaries, who are the assessee's dealers; therefore, the ailed beneficiaries, who are the assessee's dealers; therefore, the ailed discount given to its dealers discount given to its dealers in the form of credit notes is nothing but in the form of credit notes is nothing but commission on sale. There is no explanation by the assessee as to commission on sale. There is no explanation by the assessee as to commission on sale. There is no explanation by the assessee as to why the credit note was issued for the alleged discounts and why it why the credit note was issued for the alleged discounts and why it why the credit note was issued for the alleged discounts and why it has not shown in the invoice. has not shown in the invoice. 15.3.5 The assessee does some kind of performance 15.3.5 The assessee does some kind of performance 15.3.5 The assessee does some kind of performance evaluation of the distributors and accordingly decides to reward them with credit the distributors and accordingly decides to reward them with credit the distributors and accordingly decides to reward them with credit notes described as sales discount. The assessee has given Various notes described as sales discount. The assessee has given Various notes described as sales discount. The assessee has given Various Discount schemes namely Target discount Discount schemes namely Target discount-spare parts, Consistency spare parts, Consistency discount -spare parts and Cash Discount to spare parts and Cash Discount to dealers- -Spare parts/- these discounts are directly passed through credit notes, by way of these discounts are directly passed through credit notes, by way of these discounts are directly passed through credit notes, by way of credit note to its dealers. Since, this amount was not part of the credit note to its dealers. Since, this amount was not part of the credit note to its dealers. Since, this amount was not part of the invoice as in the case of cash discounts given by the assessee; invoice as in the case of cash discounts given by the assessee; invoice as in the case of cash discounts given by the assessee; therefore, it should be treated as therefore, it should be treated as commission and consequently it commission and consequently it should be disallowed by applying the provisions of sec. 40(a)(ia) on should be disallowed by applying the provisions of sec. 40(a)(ia) on should be disallowed by applying the provisions of sec. 40(a)(ia) on the ground that the assessee has violated the provisions of sec. the ground that the assessee has violated the provisions of sec. the ground that the assessee has violated the provisions of sec. 194H has no tax was deducted at source. 194H has no tax was deducted at source. 15.3.6 The distinction between the 'commission' an 15.3.6 The distinction between the 'commission' and 'discount' as d 'discount' as explained in law dictionaries and in judicial pronouncement. The explained in law dictionaries and in judicial pronouncement. The explained in law dictionaries and in judicial pronouncement. The definition of commission as given in the Black's law dictionary that; definition of commission as given in the Black's law dictionary that; definition of commission as given in the Black's law dictionary that; "the recompense, compensation or reward of an agent, salesman, "the recompense, compensation or reward of an agent, salesman, "the recompense, compensation or reward of an agent, salesman, executor, trustee, receiver, factor; broke executor, trustee, receiver, factor; broker or bailee, when the same is r or bailee, when the same is calculated as a percentage on the amount of his transactions or on calculated as a percentage on the amount of his transactions or on calculated as a percentage on the amount of his transactions or on the profit to the principal. This was further elaborated in the the profit to the principal. This was further elaborated in the the profit to the principal. This was further elaborated in the decision of the Weiner vs Swales reported in 217 Md 123; as a fee decision of the Weiner vs Swales reported in 217 Md 123; as a fee decision of the Weiner vs Swales reported in 217 Md 123; as a fee paid to an agent or employee paid to an agent or employee for transacting a piece of business or for transacting a piece of business or performing a service." The discount; in general sense, all allowance performing a service." The discount; in general sense, all allowance performing a service." The discount; in general sense, all allowance or deduction made from a gross sum on any account whatever; in a or deduction made from a gross sum on any account whatever; in a or deduction made from a gross sum on any account whatever; in a more limited and technical sense, the taking of interest in advance. more limited and technical sense, the taking of interest in advance. more limited and technical sense, the taking of interest in advance. It was further It was further elaborated as a deduction from an original price or elaborated as a deduction from an original price or

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debt, allowed for paying promptly or in cash. The distinction debt, allowed for paying promptly or in cash. The distinction debt, allowed for paying promptly or in cash. The distinction between the commission and discount as explained by the Hon'ble between the commission and discount as explained by the Hon'ble between the commission and discount as explained by the Hon'ble Bombay High Court in the case of Harihar Cotton Pressing Factory Bombay High Court in the case of Harihar Cotton Pressing Factory Bombay High Court in the case of Harihar Cotton Pressing Factory vs CIT reported in 39 ITR 594 wherein it has been explained the ted in 39 ITR 594 wherein it has been explained the ted in 39 ITR 594 wherein it has been explained the expression; "commission" has no technical meaning but both in legal expression; "commission" has no technical meaning but both in legal expression; "commission" has no technical meaning but both in legal and commercial acceptation of the term it has definite signification and commercial acceptation of the term it has definite signification and commercial acceptation of the term it has definite signification and is understood as an allowance for service or labour in and is understood as an allowance for service or labour in and is understood as an allowance for service or labour in discharging certain duties such four instance of an agent, factor, ing certain duties such four instance of an agent, factor, ing certain duties such four instance of an agent, factor, broker or any other person who manages the affairs or undertakes broker or any other person who manages the affairs or undertakes broker or any other person who manages the affairs or undertakes to do some work or renders some service to another. Rebate, on the to do some work or renders some service to another. Rebate, on the to do some work or renders some service to another. Rebate, on the other hand, is a remission or a payment back and of the nature of other hand, is a remission or a payment back and of the nature of other hand, is a remission or a payment back and of the nature of a deduction from the gross amount deduction from the gross amount 15.3.7 In the decision of the Hon'ble Apex Court in the case of Hon'ble Apex Court in the case of 15.3.7 In the decision of the Cromandel Fertilisers Ltd vs Union of India reported in 17 Cromandel Fertilisers Ltd vs Union of India reported in 17 Cromandel Fertilisers Ltd vs Union of India reported in 17 ELT 607 wherein the Hon'ble Apex Court has applied the aforesaid wherein the Hon'ble Apex Court has applied the aforesaid wherein the Hon'ble Apex Court has applied the aforesaid principles and observed that; 'the trader discounts given to the principles and observed that; 'the trader discounts given to the principles and observed that; 'the trader discounts given to the dealers by the manufacturer were held to be liable to be deducted dealers by the manufacturer were held to be liable to be deducted dealers by the manufacturer were held to be liable to be deducted from the price charged to the dealers for the purpose of arriving a from the price charged to the dealers for the purpose of arriving a from the price charged to the dealers for the purpose of arriving at the excisable value of the goods; but the commissions given to the the excisable value of the goods; but the commissions given to the the excisable value of the goods; but the commissions given to the agents were held to be not deductible from the price for the purpose agents were held to be not deductible from the price for the purpose agents were held to be not deductible from the price for the purpose of arriving at the excisable value of the goods. of arriving at the excisable value of the goods. It is clear from the various decisions that a discount is given from It is clear from the various decisions that a discount is given from It is clear from the various decisions that a discount is given from the gross price and it occur at the instance of sale and purchase the gross price and it occur at the instance of sale and purchase the gross price and it occur at the instance of sale and purchase between the manufacturer and the distributor/dealer. Whereas the between the manufacturer and the distributor/dealer. Whereas the between the manufacturer and the distributor/dealer. Whereas the commission is in the nature of refund or compensation for commission is in the nature of refund or compensation for commission is in the nature of refund or compensation for performing some task or business by one person on behalf of the performing some task or business by one person on behalf of the performing some task or business by one person on behalf of the other and in case of sale and purchase of goods, the commission is er and in case of sale and purchase of goods, the commission is er and in case of sale and purchase of goods, the commission is accrued at the instance of further sales by the dealer or distributor. accrued at the instance of further sales by the dealer or distributor. accrued at the instance of further sales by the dealer or distributor. Thus, the discount given to the trader or distributor by the Thus, the discount given to the trader or distributor by the Thus, the discount given to the trader or distributor by the manufacturer would be liable to be deducted from the price manufacturer would be liable to be deducted from the price manufacturer would be liable to be deducted from the price charged to the dealer or distributor for the value of the goods under the sales to the dealer or distributor for the value of the goods under the sales to the dealer or distributor for the value of the goods under the sales tax and excise Act. In the case in hand, the undisputed fact is that tax and excise Act. In the case in hand, the undisputed fact is that tax and excise Act. In the case in hand, the undisputed fact is that the amount of so called discount has not been reduced from the the amount of so called discount has not been reduced from the the amount of so called discount has not been reduced from the value of price charged by the assessee from value of price charged by the assessee from the distributor for the the distributor for the purpose of GST. purpose of GST. 15.3.8 Reliance is also placed upon the decision of the Hon'ble Delhi 15.3.8 Reliance is also placed upon the decision of the Hon'ble Delhi 15.3.8 Reliance is also placed upon the decision of the Hon'ble Delhi High Court in the case of High Court in the case of Commissioner of Income Commissioner of Income-tax v. Idea Cellular Ltd. reported in 325 ITR 148 Cellular Ltd. reported in 325 ITR 148 wherein the Hon'ble High wherein the Hon'ble High Court has also discuss Court has also discussed the definition of commission as well as ed the definition of commission as well as discount and also the difference between two terms/expression. discount and also the difference between two terms/expression. discount and also the difference between two terms/expression. There is no dispute that there is no necessity for a formal contract of There is no dispute that there is no necessity for a formal contract of There is no dispute that there is no necessity for a formal contract of agency it may be implied which could arise from the act and agency it may be implied which could arise from the act and agency it may be implied which could arise from the act and conduct of the par conduct of the parties or situation in which the parties are put as ties or situation in which the parties are put as

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observed observed observed by by by the Hon'ble Supreme Court the Hon'ble Supreme Court in the Hon'ble Supreme Court in the in the the case of case of case of Lakshminarayan Ram Gopal and Son Ltd. v. Government of Lakshminarayan Ram Gopal and Son Ltd. v. Government of Lakshminarayan Ram Gopal and Son Ltd. v. Government of Hyderabad reported in 25 ITR 449. In the case in hand, it is Hyderabad reported in 25 ITR 449. In the case in hand, it is Hyderabad reported in 25 ITR 449. In the case in hand, it is manifest from the records as well as manifest from the records as well as from the facts and from the facts and circumstances of the case that the benefit/incentive given by the circumstances of the case that the benefit/incentive given by the circumstances of the case that the benefit/incentive given by the assessee through credit note is certainly not in the nature of assessee through credit note is certainly not in the nature of assessee through credit note is certainly not in the nature of discount because the discount is always given at the time of discount because the discount is always given at the time of discount because the discount is always given at the time of transaction of sale and purchase between the ma transaction of sale and purchase between the manufacturer and the nufacturer and the distributor/dealer and the said amount is required to be reduced distributor/dealer and the said amount is required to be reduced distributor/dealer and the said amount is required to be reduced from the gross price and therefore, the sale price is always ex from the gross price and therefore, the sale price is always ex from the gross price and therefore, the sale price is always ex- discount. On the other hand, the commission is given only after the discount. On the other hand, the commission is given only after the discount. On the other hand, the commission is given only after the completion of the task or services or th completion of the task or services or the sale, if it is on sale of e sale, if it is on sale of products by the distributor or dealer to the retailer or consumers. products by the distributor or dealer to the retailer or consumers. products by the distributor or dealer to the retailer or consumers. When the distributor records the purchase price without reducing When the distributor records the purchase price without reducing When the distributor records the purchase price without reducing the amount of so called discount, then the said benefit allowed by the amount of so called discount, then the said benefit allowed by the amount of so called discount, then the said benefit allowed by the assessee to the distribu the assessee to the distributor, would not partake the character of tor, would not partake the character of discount. 15.3.9 Section 194H talks about the payment to a recipient which is 15.3.9 Section 194H talks about the payment to a recipient which is 15.3.9 Section 194H talks about the payment to a recipient which is the income by way of commission or brokerage and does not talk the income by way of commission or brokerage and does not talk the income by way of commission or brokerage and does not talk about the relationship between the payer and the payee necessarily about the relationship between the payer and the payee necessarily about the relationship between the payer and the payee necessarily be of a principal and agent. The explanation to sec. 194H elaborates principal and agent. The explanation to sec. 194H elaborates principal and agent. The explanation to sec. 194H elaborates the terms commission or brokerage by including any payment the terms commission or brokerage by including any payment the terms commission or brokerage by including any payment received or receivable directly or indirectly a person acting on behalf received or receivable directly or indirectly a person acting on behalf received or receivable directly or indirectly a person acting on behalf of another person. Thus, it is clear that the provisions of sec. of another person. Thus, it is clear that the provisions of sec. of another person. Thus, it is clear that the provisions of sec. 194H do not require any formal contract of agency. The relationship do not require any formal contract of agency. The relationship do not require any formal contract of agency. The relationship between the parties depends on the act performed by the parties between the parties depends on the act performed by the parties between the parties depends on the act performed by the parties and facts and situation in which the parties are working. and facts and situation in which the parties are working. and facts and situation in which the parties are working. 15.3.10 In the case in hand, though the assessee has claimed that 15.3.10 In the case in hand, though the assessee has claimed that 15.3.10 In the case in hand, though the assessee has claimed that the discount was given to the dealers under the 'various discount the discount was given to the dealers under the 'various discount the discount was given to the dealers under the 'various discount schemes; however, when this amount is not as per the obligation schemes; however, when this amount is not as per the obligation schemes; however, when this amount is not as per the obligation under any contract, then the assessee was required to produce the under any contract, then the assessee was required to produce the under any contract, then the assessee was required to produce the relevant records and material in support of its claim that relevant records and material in support of its claim that relevant records and material in support of its claim that such scheme of giving the benefit/incentive to the distributor was duly scheme of giving the benefit/incentive to the distributor was duly scheme of giving the benefit/incentive to the distributor was duly approved by the Board of Directors of the assessee company. approved by the Board of Directors of the assessee company. approved by the Board of Directors of the assessee company. Reliance is also placed upon following judicial pronouncement in Reliance is also placed upon following judicial pronouncement in Reliance is also placed upon following judicial pronouncement in support of our above support of our above- mentioned arguments: SKOL Breweries L mentioned arguments: SKOL Breweries Ltd Vs. ACIT ITA No. 6175/Mum/2011 (ITAT Mumbai "K" Bench) Vs. ACIT ITA No. 6175/Mum/2011 (ITAT Mumbai "K" Bench) Vs. ACIT ITA No. 6175/Mum/2011 (ITAT Mumbai "K" Bench) Decision of Apex court in the case of Lakshminarayan Ram Gopal Decision of Apex court in the case of Lakshminarayan Ram Gopal Decision of Apex court in the case of Lakshminarayan Ram Gopal and Son Ltd. vs. Government of Hyderabad reported in 25 ITR 449. and Son Ltd. vs. Government of Hyderabad reported in 25 ITR 449. and Son Ltd. vs. Government of Hyderabad reported in 25 ITR 449. Decision of the Hon'ble Delhi High Court in the case of Decision of the Hon'ble Delhi High Court in the case of Decision of the Hon'ble Delhi High Court in the case of Commissioner o Commissioner of Income-tax v. Idea Cellular Ltd. reported in 325 tax v. Idea Cellular Ltd. reported in 325 ITR 148. 15.3.11 Based on the above facts and arguments, it is clearly 15.3.11 Based on the above facts and arguments, it is clearly 15.3.11 Based on the above facts and arguments, it is clearly established that amount of 154,40,92,249 debited and/or charged established that amount of 154,40,92,249 debited and/or charged established that amount of 154,40,92,249 debited and/or charged

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to its profit and loss account on account of 'various sale discount to its profit and loss account on account of 'various sale discount to its profit and loss account on account of 'various sale discount schemes' is nothing but in the nature of 'commission' only. Hence, hemes' is nothing but in the nature of 'commission' only. Hence, hemes' is nothing but in the nature of 'commission' only. Hence, Therefore, this office is revising the order u/s 143(3) r.w.s 144C(3) Therefore, this office is revising the order u/s 143(3) r.w.s 144C(3) Therefore, this office is revising the order u/s 143(3) r.w.s 144C(3) of the Act on 27.05.2022 passed by the AO. The AO is directed to of the Act on 27.05.2022 passed by the AO. The AO is directed to of the Act on 27.05.2022 passed by the AO. The AO is directed to disallow disallow the the amount amount of of Rs. Rs. 46,32,27,674/ 46,32,27,674/-(30% (30% of of Rs. Rs. 154,40,92,249). ,40,92,249). 8.1. From the above observation From the above observations of the ld PCIT, it is noticed it is noticed that during the year under consideration, the assessee incurred during the year under consideration, the assessee incurred during the year under consideration, the assessee incurred expenditure of Rs. 154,40,92,249 expenditure of Rs. 154,40,92,249/- in respect of target discount, in respect of target discount, consistency discount and cash discount provided to dealers which consistency discount and cash discount provided to consistency discount and cash discount provided to was debited to the Profit and Loss account. The aforesaid discounts was debited to the Profit and Loss account. The aforesaid discounts was debited to the Profit and Loss account. The aforesaid discounts were provided to the dealers as per the scheme of the assessee. provided to the dealers as per the scheme of the assessee. provided to the dealers as per the scheme of the assessee. Those target discounts and consistency discounts arget discounts and consistency discounts arget discounts and consistency discounts were offered on completion of periodic targets and are compu completion of periodic targets and are computed as a percentage of ted as a percentage of the sales turnover.

8.2 From the above observations of the learned PCIT, it is further From the above observations of the learned PCIT, it is further From the above observations of the learned PCIT, it is further evident that the core dispute revolves around the true nature of the evident that the core dispute revolves around the true nature of the evident that the core dispute revolves around the true nature of the discounts allowed by the assessee to its dealers. discounts allowed by the assessee to its dealers. Accordingly, to the Accordingly, to the ld PCIT said discounts ld PCIT said discounts are actually commission to dealers and are are actually commission to dealers and are liable for deduction of tax at source u/s 194H of the Act, but the liable for deduction of tax at source u/s 194H of the Act, but the liable for deduction of tax at source u/s 194H of the Act, but the assessee has not deducted tax at source on such payments and assessee has not deducted tax at source on such payments and assessee has not deducted tax at source on such payments and therefore those payments are liable for d therefore those payments are liable for disallowance u/s 40(a0(ia) of isallowance u/s 40(a0(ia) of the Act. The learned PCIT proceeded on the footing that the The learned PCIT proceeded on the footing that the The learned PCIT proceeded on the footing that the Assessing Officer had not made any enquiry whatsoever on this Assessing Officer had not made any enquiry whatsoever on this Assessing Officer had not made any enquiry whatsoever on this issue. It is also noted that no material has been brought on record issue. It is also noted that no material has been brought on record issue. It is also noted that no material has been brought on record to demonstrate that any specific enq to demonstrate that any specific enquiry was, in fact, conducted by uiry was, in fact, conducted by the Assessing Officer during the assessment proceedings. the Assessing Officer during the assessment proceedings. the Assessing Officer during the assessment proceedings.

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8.3 Before us, it is submitted that the transaction of the t is submitted that the transaction of the t is submitted that the transaction of the assessee with the dealers represents a sale on a principal with the dealers represents a sale on a principal-to- -principal basis. The dealers purchase spare pa The dealers purchase spare parts from the assessee assessee independently and not as agents of and not as agents of assessee. It is submitted that in case any spare in case any spare parts remain unsold by the dealer, they are not returnable to the parts remain unsold by the dealer, they are not returnable to the parts remain unsold by the dealer, they are not returnable to the assessee and the loss, if any has to be borne by the dealer himself. and the loss, if any has to be borne by the dealer himself. and the loss, if any has to be borne by the dealer himself. It is further submitted that ubmitted that neither is the assessee privy to the sale privy to the sale of spare parts by a dealer to his customers, nor is the customer of spare parts by a dealer to his customers, nor is the customer of spare parts by a dealer to his customers, nor is the customer privy to the sale of spare parts by the privy to the sale of spare parts by the assessee to the dealer. to the dealer.

8.4 The ld counsel invited our attention ld counsel invited our attention to the sample copy of the to the sample copy of the agreement with one such dealers such dealers ( PB: 161-214) and and submitted that extracts of the same fortify the stand of the Appellant. He also extracts of the same fortify the stand of the Appellant extracts of the same fortify the stand of the Appellant invited reference to invited reference to clause 2.1, 2.2, 2.5, 2.6, 4.12, 14.2 of the .6, 4.12, 14.2 of the agreement.

8.5 The ld Counsel submitted that The ld Counsel submitted that in view of the abo n view of the above, it is clear that the relationship between the that the relationship between the assessee and the dealer is that of and the dealer is that of principal to principal and not that of an agent and and the transaction between the assessee assessee and the dealers is purely in the nature of a and the dealers is purely in the nature of a sale transaction and hence the provisions of section 194H are not sale transaction and hence the provisions of section 194H are not sale transaction and hence the provisions of section 194H are not applicable.

8.6 Reliance was placed on Reliance was placed on the decision of the Hon'ble Supreme Hon'ble Supreme Court in the case of Bharti Cellular Ltd. vs. Assistant Bharti Cellular Ltd. vs. Assistant Court in the case of Commissioner of Income of Income-tax [2024] 160 taxmann.com 12 (SC) tax [2024] 160 taxmann.com 12 (SC)

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wherein it is held that where assessees, telecom service providers s held that where assessees, telecom service providers s held that where assessees, telecom service providers entered into agreements with distributors/franchisees for sale of entered into agreements with distributors/franchisees for sale of entered into agreements with distributors/franchisees for sale of their prepaid products, however, contractual obligations of their prepaid products, however, contractual obligations of their prepaid products, however, contractual obligations of distributors/franchisees did not reflect a fiduciary character of hisees did not reflect a fiduciary character of hisees did not reflect a fiduciary character of relationship, or business being done on principal's account, they relationship, or business being done on principal's account, they relationship, or business being done on principal's account, they would not be under a legal obligation to deduct tax at source on would not be under a legal obligation to deduct tax at source on would not be under a legal obligation to deduct tax at source on income/profit income/profit income/profit component component component in in in payments payments payments received received received by by by distributors/franchisees from distributors/franchisees from third parties/customers, or while third parties/customers, or while selling/transferring prepaid coupons or starter selling/transferring prepaid coupons or starter-kits to distributors kits to distributors.

8.7 The ld counsel submitted that issue of cash discount and The ld counsel submitted that issue of cash discount and The ld counsel submitted that issue of cash discount and target incentive is covered in fav target incentive is covered in favour of the assessee ur of the assessee by the decision of Tribunal in the case of assessee for AY 2021 case of assessee for AY 2021-22.

8.8 Reliance was also placed on the following decision also placed on the following decisions, wherein it also placed on the following decision is held that the provisions of section 194H would not be applicable s held that the provisions of section 194H would not be applicable s held that the provisions of section 194H would not be applicable on payments made to distributors / dealers. on payments made to distributors / dealers.  CIT vs. Ahmedabad Stamp Vendors Associatio CIT vs. Ahmedabad Stamp Vendors Associatio CIT vs. Ahmedabad Stamp Vendors Association [2012] 348 ITR 378 (SC)  CIT vs. Intervet India (P.) Ltd [2014] 49 taxmann.com 14 CIT vs. Intervet India (P.) Ltd [2014] 49 taxmann.com 14 CIT vs. Intervet India (P.) Ltd [2014] 49 taxmann.com 14 (Bombay)  Commissioner of Income Commissioner of Income-tax vs. Jai Drinks (P) Ltd [2011] tax vs. Jai Drinks (P) Ltd [2011] 336 ITR 383 (Delhi) 336 ITR 383 (Delhi)  Mahindra & Mahindra Limited (ITA No. 7999/Mum/2011) Mahindra & Mahindra Limited (ITA No. 7999/Mum/2011) Mahindra & Mahindra Limited (ITA No. 7999/Mum/2011)

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 Mahindra & Mahindra Limited (ITA Mahindra & Mahindra Limited (ITA No. 586/Mum/2013) No. 586/Mum/2013) The Department had filed an appeal before the Hon'ble The Department had filed an appeal before the Hon'ble The Department had filed an appeal before the Hon'ble Bombay High Court (ITA No. 1148 of 2014) wherein the Bombay High Court (ITA No. 1148 of 2014) wherein the Bombay High Court (ITA No. 1148 of 2014) wherein the Hon'ble Hon'ble Hon'ble High High High Court Court Court dismissed dismissed dismissed the the the appeal appeal appeal of of of the the the Department.

8.9 The Ld. counsel for the assessee submitted that the Ld. PCIT The Ld. counsel for the assessee submitted that the Ld. PCIT The Ld. counsel for the assessee submitted that the Ld. PCIT before invoking jurisdiction jurisdiction u/s 263 of the Act u/s 263 of the Act ought to have evaluated whether the issue in dispute whether the issue in dispute was covered by the dec covered by the decision of the appellate authorities of the appellate authorities in the case of the assessee or otherwise. in the case of the assessee or otherwise. 8.10 We have heard rival submission of parties on the issue in We have heard rival submission of parties on the issue in We have heard rival submission of parties on the issue in dispute and perused the relevant material on record including dispute and perused the relevant material on record including dispute and perused the relevant material on record including sample copy of agreements with dealers available on paper book sample copy of agreements with dealers available on paper book sample copy of agreements with dealers available on paper book pages 161-214. Before us, the Ld. counsel for the assessee fairly Before us, the Ld. counsel for the assessee fairly Before us, the Ld. counsel for the assessee fairly admitted that no inquiry was carried out by the Assessing Officer admitted that no inquiry was carried out by the Assessing admitted that no inquiry was carried out by the Assessing for verification of the facts of the case particularly the agreements for verification of the facts of the case particularly the agreements for verification of the facts of the case particularly the agreements herefore, in our opinion, vis-a-vis actual conduct of the assessee vis actual conduct of the assessee. Therefore, the assessment order the assessment order is liable to be held as deemed to be erroneous liable to be held as deemed to be erroneous of the revenue invoking in so far as prejudicial to the interest in so far as prejudicial to the interest of the revenue invoking Explanation 2(a/b) to section 263 of the Act. Explanation 2(a/b) to section 263 of the Act.

8.11 The assessee has nevertheless urged that, on merits, the The assessee has nevertheless urged that, on merits, the The assessee has nevertheless urged that, on merits, the relationship with its spare parts dealers is on a principal-to- relationship with its spare parts dealers is on a principal relationship with its spare parts dealers is on a principal principal basis, that the impugned payments are mere trade principal basis, that the impugned payments are mere trade principal basis, that the impugned payments are mere trade discounts forming part of sale transactions, and that the issue iscounts forming part of sale transactions, and that the issue iscounts forming part of sale transactions, and that the issue

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stands covered in its favour by earlier Tribunal orders and by the stands covered in its favour by earlier Tribunal orders and by the stands covered in its favour by earlier Tribunal orders and by the decision of the Hon’ble Supreme Court in decision of the Hon’ble Supreme Court in Bharti Cellular Ltd. Bharti Cellular Ltd.(supra) These submissions, however, cannot be accepted at this stage in These submissions, however, cannot be accepted at this st These submissions, however, cannot be accepted at this st the absence of foundational factual verification by the Assessing the absence of foundational factual verification by the Assessing the absence of foundational factual verification by the Assessing Officer.

8.12 Per Per Per contra, contra, contra, the the the learned learned learned Departmental Departmental Departmental Representative Representative Representative submitted that the assessment order is vitiated both in law and on submitted that the assessment order is vitiated both in law and on submitted that the assessment order is vitiated both in law and on facts. It was contended that the Assessing Officer failed to facts. It was contended that the Assessing Officer facts. It was contended that the Assessing Officer undertake any meaningful or effective enquiry into the true nature undertake any meaningful or effective enquiry into the true nature undertake any meaningful or effective enquiry into the true nature of the relationship between the assessee and its dealers, as well as of the relationship between the assessee and its dealers, as well as of the relationship between the assessee and its dealers, as well as the character of the impugned payments, notwithstanding the the character of the impugned payments, notwithstanding the the character of the impugned payments, notwithstanding the substantial magnitude of the amounts involved. Such omission, substantial magnitude of the amounts involved. Su substantial magnitude of the amounts involved. Su according to the learned DR, renders the assessment order according to the learned DR, renders the assessment order according to the learned DR, renders the assessment order erroneous and prejudicial to the interests of the Revenue. It was erroneous and prejudicial to the interests of the Revenue. It was erroneous and prejudicial to the interests of the Revenue. It was further argued that, having regard to the typical features of further argued that, having regard to the typical features of further argued that, having regard to the typical features of dealership arrangements in the automobile Original Equipment dealership arrangements in the automobile Original Equipm dealership arrangements in the automobile Original Equipm Manufacturer (OEM) sector, and the extensive contractual and Manufacturer (OEM) sector, and the extensive contractual and Manufacturer (OEM) sector, and the extensive contractual and practical controls exercised over dealers, the relationship bears the practical controls exercised over dealers, the relationship bears the practical controls exercised over dealers, the relationship bears the clear indicia of a principal clear indicia of a principal–agent arrangement. Consequently, the agent arrangement. Consequently, the so-called “discounts”, in substance, represent commissi called “discounts”, in substance, represent commissi called “discounts”, in substance, represent commission or incentive paid for services rendered by the dealers in the course of incentive paid for services rendered by the dealers in the course of incentive paid for services rendered by the dealers in the course of promoting and selling the assessee’s products, and therefore promoting and selling the assessee’s products, and therefore promoting and selling the assessee’s products, and therefore squarely fall within the ambit of section 194H of the Act. squarely fall within the ambit of section 194H of the Act. squarely fall within the ambit of section 194H of the Act.

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8.13 Under section 194H, “commission or brokerage” has been Under section 194H, “commission or brokerage” has been Under section 194H, “commission or brokerage” has been defined widely to include defined widely to include any payment, directly or indirectly, to a , directly or indirectly, to a person acting on behalf of another acting on behalf of another for: o services rendered (other than professional services), or services rendered (other than professional services), or services rendered (other than professional services), or o any services in the course of buying any services in the course of buying or selling goods, or or selling goods, or o in relation to any transaction relating to any asset, article in relation to any transaction relating to any asset, article in relation to any transaction relating to any asset, article or thing. 8.14 But the test is not how the parties he test is not how the parties describe describe the payment (discount, incentive, bonus, commission, etc.), but whether, in (discount, incentive, bonus, commission, etc.), but whether, in (discount, incentive, bonus, commission, etc.), but whether, in substance, the recipient is acting “ substance, the recipient is acting “on behalf of” the payer in relation on behalf of” the payer in relation to the buying / selling transaction or in rendering ancillary services. to the buying / selling transaction or in rendering ancillary services. to the buying / selling transaction or in rendering ancillary services.

8.15 The character of the relationship is also governed by sections The character of the relationship is also governed by sections The character of the relationship is also governed by sections 182 to 188 of the Indian Contract Act, 182 to 188 of the Indian Contract Act, 1872, where , where an agent is a person who is employed to do any act for another or to represent employed to do any act for another or to represent employed to do any act for another or to represent another in dealings with third persons, in dealings with third persons, interalia : o obligation to comply with instructions of the principal; obligation to comply with instructions of the principal; obligation to comply with instructions of the principal; o lack of unfettered freedom regarding price, terms, lack of unfettered freedom regarding price, terms, lack of unfettered freedom regarding price, terms, territory and branding; territory and branding; o obligation to protect obligation to protect and promote the principal’s and promote the principal’s business; o authority, express or implied, to represent the principal authority, express or implied, to represent the principal authority, express or implied, to represent the principal to customers and third parties; and to customers and third parties; and

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o Fiduciary obligations such as reporting, accounting, and obligations such as reporting, accounting, and obligations such as reporting, accounting, and adherence to standards prescribed by the principal. adherence to standards prescribed by the principal. adherence to standards prescribed by the principal. 8.16 It is well settled in TDS jurisprudence that l settled in TDS jurisprudence that mere use of the mere use of the expression “principal to principal” in an agreement is not expression “principal to principal” in an agreement is not expression “principal to principal” in an agreement is not conclusive. The real relationship is required to be inferred from: . The real relationship is required to be inferred from: . The real relationship is required to be inferred from: o the terms of the written contract; and the terms of the written contract; and o the actual manner in which the parties the actual manner in which the parties conduct the actual manner in which the parties themselves in the market. themselves in the market. 8.17 In the automobile sector, a dealer is ordinarily appointed as an In the automobile sector, a dealer is ordinarily appointed as an In the automobile sector, a dealer is ordinarily appointed as an “authorised dealer” of the OEM and is permitted to use its “authorised dealer” of the OEM and is permitted to use its “authorised dealer” of the OEM and is permitted to use its trademarks, logos and brand name. The dealership agreement trademarks, logos and brand name. The dealership a trademarks, logos and brand name. The dealership a usually provides inter inter-alia for: (a) Territorial allocation and exclusivity Territorial allocation and exclusivity:- (i)The dealer is confined to a specified territory / area The dealer is confined to a specified territory / area The dealer is confined to a specified territory / area allotted by the OEM. allotted by the OEM. (ii)Appointment of competing dealers in that area is Appointment of competing dealers in that area is Appointment of competing dealers in that area is regulated by the OEM. regulated by the OEM. (b) Price and margin control Price and margin control:- (i)Vehicles / spare parts Vehicles / spare parts are to be sold at prices, are to be sold at prices, discounts, schemes and incentives discounts, schemes and incentives as may be notified by as may be notified by the OEM from time to time the OEM from time to time. (ii)The effective margin of the dealer is largely determined The effective margin of the dealer is largely determined The effective margin of the dealer is largely determined by the OEM through a mix of base discount and by the OEM through a mix of base discount and by the OEM through a mix of base discount and performance performance-linked schemes.

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(c) Mandatory pre-sale and post sale and post-sale services:- (i)The dealer is obliged to provide test drives, pre The dealer is obliged to provide test drives, pre The dealer is obliged to provide test drives, pre-delivery inspection, registration support, and other pre-sale inspection, registration support, and other pre inspection, registration support, and other pre services in the exact manner prescribed by the OEM. services in the exact manner prescribed by the OEM. services in the exact manner prescribed by the OEM. (ii)The dealer is required to provide warranty and fr The dealer is required to provide warranty and free- The dealer is required to provide warranty and fr service obligations to customers service obligations to customers on behalf of the OEM on behalf of the OEM, using genuine parts and trained manpower. using genuine parts and trained manpower. using genuine parts and trained manpower. (d) Branding and infrastructure obligations Branding and infrastructure obligations:- (i)The showroom, signage, workshop layout and staff The showroom, signage, workshop layout and staff The showroom, signage, workshop layout and staff uniforms are to conform strictly to OEM brand uniforms are to conform strictly to OEM brand uniforms are to conform strictly to OEM brand guidelines. guidelines. (ii)The dealer is often required to invest in specified The dealer is often required to invest in specified The dealer is often required to invest in specified equipment, training, IT interfaces and reporting systems equipment, training, IT interfaces and reporting systems equipment, training, IT interfaces and reporting systems mandated by the OEM. mandated by the OEM. (e) Sales promotion and reporting Sales promotion and reporting:- (i)Dealers Dealers Dealers are are are required required required to to to implement implement implement promotional promotional promotional campaigns, display vehicles, conduct campaigns, display vehicles, conduct “melas”, test “melas”, test-drive events and other activities as per OEM instructions. events and other activities as per OEM instructions. events and other activities as per OEM instructions. (ii)Detailed sales / inventory / customer data are Detailed sales / inventory / customer data are Detailed sales / inventory / customer data are periodically reported in formats prescribed by the OEM, periodically reported in formats prescribed by the OEM, periodically reported in formats prescribed by the OEM, enabling the OEM to monitor performance and market enabling the OEM to monitor performance and market enabling the OEM to monitor performance and market share. (f) Monitoring and termination termination:-

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(i)The OEM retains wide powers of inspection and audit The OEM retains wide powers of inspection and audit The OEM retains wide powers of inspection and audit of dealer operations. of dealer operations. (ii)Failure to meet sales targets, maintain standards, or Failure to meet sales targets, maintain standards, or Failure to meet sales targets, maintain standards, or comply with instructions typically entitles the OEM to comply with instructions typically entitles the OEM to comply with instructions typically entitles the OEM to terminate the dealership. terminate the dealership.

8.18 These features demonstrate that, notwithstanding a formal These features demonstrate that, notwithstanding a formal These features demonstrate that, notwithstanding a formal clause describing the arrangement as “principal to principal”, the clause describing the arrangement as “principal to principal”, the clause describing the arrangement as “principal to principal”, the dealer functions in substance as an dealer functions in substance as an extended sales and service arm extended sales and service arm of the OEM, bearing fiduciary obligations and acting on behalf o , bearing fiduciary obligations and acting on behalf of , bearing fiduciary obligations and acting on behalf o the OEM in dealing with customers and promoting its products. the OEM in dealing with customers and promoting its products. the OEM in dealing with customers and promoting its products.

8.19 The assessee stated that the discounts in question are given The assessee stated that the discounts in question are given The assessee stated that the discounts in question are given “as per the scheme of the “as per the scheme of the assessee” and are computed as a ” and are computed as a percentage of sales turnover, often on completion of periodic percentage of sales turnover, often on completion of periodic percentage of sales turnover, often on completion of periodic targets. On a correct appreciation of such schemes in the context of s. On a correct appreciation of such schemes in the context of s. On a correct appreciation of such schemes in the context of the dealer relationship described above, the following features the dealer relationship described above, the following features the dealer relationship described above, the following features become evident:

(a) Payments are contingent on performance of obligations Payments are contingent on performance of obligations Payments are contingent on performance of obligations:- (i)The so-called target / consistency discounts accru called target / consistency discounts accru called target / consistency discounts accrue only if the dealer achieves specified sales volumes, model the dealer achieves specified sales volumes, model the dealer achieves specified sales volumes, model-mix, market-share, or other performance benchmarks which the share, or other performance benchmarks which the share, or other performance benchmarks which the OEM sets for its own business objectives. OEM sets for its own business objectives.

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(ii)These incentives are thus not inherent in the initial sale of These incentives are thus not inherent in the initial sale of These incentives are thus not inherent in the initial sale of spare parts, but are addit spare parts, but are additional consideration for achieving the ional consideration for achieving the OEM’s performance targets. OEM’s performance targets.

(b) Payments compensate for sales Payments compensate for sales-promotion and promotion and market- market development services development services:- (i)Dealers Dealers Dealers incur incur incur substantial substantial substantial expenditure expenditure expenditure in in in conducting conducting conducting promotional activities, maintaining display vehicles, orga promotional activities, maintaining display vehicles, orga promotional activities, maintaining display vehicles, organising sales service strictly as per OEM events, and providing after events, and providing after-sales service strictly as per OEM norms. (ii)Target and consistency incentives are designed to Target and consistency incentives are designed to Target and consistency incentives are designed to reward and induce such sustained efforts at promoting the OEM’s such sustained efforts at promoting the OEM’s such sustained efforts at promoting the OEM’s brand and capturing market share. brand and capturing market share.

(c) Quantum is linked to dea Quantum is linked to dealer’s services to OEM, not merely to a ler’s services to OEM, not merely to a one-off sale price:- (i)The effective rate of incentive varies with the extent to which The effective rate of incentive varies with the extent to which The effective rate of incentive varies with the extent to which the dealer aligns with OEM’s strategic objectives (for example: the dealer aligns with OEM’s strategic objectives (for example: the dealer aligns with OEM’s strategic objectives (for example: selling specified models, pushing slow selling specified models, pushing slow-moving inventory, moving inventory, maintaining a certain stock level). ing a certain stock level). (ii)This shows that the payment is in substance a This shows that the payment is in substance a This shows that the payment is in substance a success fee / commission for fulfilling the OEM’s directions, and not a for fulfilling the OEM’s directions, and not a for fulfilling the OEM’s directions, and not a simple reduction in sale price. simple reduction in sale price.

(d) Credit-note / post note / post-facto nature:-

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(i)In practice, such incentives are In practice, such incentives are ordinarily given by way of ordinarily given by way of credit notes after the period is over and targets are evaluated. credit notes after the period is over and targets are evaluated. credit notes after the period is over and targets are evaluated. (ii)The original supply invoices for spare parts are raised at The original supply invoices for spare parts are raised at The original supply invoices for spare parts are raised at standard list prices. A post standard list prices. A post-sale credit linked to performance is sale credit linked to performance is conceptually closer to “commission” conceptually closer to “commission” than to an upfront trade than to an upfront trade discount embedded in the invoice itself. discount embedded in the invoice itself.

8.20 In light of the above, In light of the above, inference can be drawn inference can be drawn that the incentives to authorised spare parts dealers to authorised spare parts dealers are essentially to authorised spare parts dealers payments for services rendered by the dealers to the OEM in the payments for services rendered by the dealers to the OEM in the payments for services rendered by the dealers to the OEM in the course of buying and selling goods course of buying and selling goods, squarely falling within the , squarely falling within the inclusive definition of “commission or brokerage” in the Explanation inclusive definition of “commission or brokerage” in the Explanation inclusive definition of “commission or brokerage” in the Explanation to section 194H.

8.21 The assessee has contended that the unsold stock is not The assessee has contended that the unsold stock is not The assessee has contended that the unsold stock is not returnable to it and that it returnable to it and that it is not privy to the dealer’s sale to the the dealer’s sale to the ultimate customer. In our opinion, t In our opinion, these factors, by themselves, are hese factors, by themselves, are not conclusive. Even in well not conclusive. Even in well-recognised agency arrangements, recognised agency arrangements, agents may, for reasons of commercial convenience, purchase and agents may, for reasons of commercial convenience, purchase and agents may, for reasons of commercial convenience, purchase and hold goods in their own name; the me hold goods in their own name; the mere incidence of inventory risk re incidence of inventory risk does not, ipso facto, transform an agent into an independent trader. does not, ipso facto, transform an agent into an independent trader. does not, ipso facto, transform an agent into an independent trader. What is of real significance is whether, in economic and contractual What is of real significance is whether, in economic and contractual What is of real significance is whether, in economic and contractual terms, the dealer is obliged to operate in close alignment with the terms, the dealer is obliged to operate in close alignment with the terms, the dealer is obliged to operate in close alignment with the instructions of the OEM in matters relating to pricing discipline, OEM in matters relating to pricing discipline, OEM in matters relating to pricing discipline, incentive schemes, customer interface, branding and market incentive schemes, customer interface, branding and market incentive schemes, customer interface, branding and market representation, representation, representation, and and and whether whether whether the the the impugned impugned impugned payments payments payments are are are

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intrinsically linked to the performance of such obligations. The intrinsically linked to the performance of such obligations. The intrinsically linked to the performance of such obligations. The consistent use of expressions consistent use of expressions such as “authorised dealer”, the such as “authorised dealer”, the imposition of extensive branding, sales and service obligations, and imposition of extensive branding, sales and service obligations, and imposition of extensive branding, sales and service obligations, and the continuous monitoring and supervisory control exercised by the the continuous monitoring and supervisory control exercised by the the continuous monitoring and supervisory control exercised by the OEM, unmistakably indicate that the dealer functions as an OEM, unmistakably indicate that the dealer functions as an OEM, unmistakably indicate that the dealer functions as an extension of the OEM’s sales extension of the OEM’s sales and service apparatus. Accordingly, and service apparatus. Accordingly, the substance of the relationship, and not the formal description of the substance of the relationship, and not the formal description of the substance of the relationship, and not the formal description of it as one of “principal to principal” in the agreement, points towards it as one of “principal to principal” in the agreement, points towards it as one of “principal to principal” in the agreement, points towards an agency relationship in commercial reality. an agency relationship in commercial reality.

8.22 It is relevant to reproduce It is relevant to reproduce clause 4.13 of the dealer’s clause 4.13 of the dealer’s agreement available on page 165 of the paper book, which reads as agreement available on page 165 of the paper book, which reads as agreement available on page 165 of the paper book, which reads as under:

“4.13 BAJAJ shall be entitled to call upon the DEALER to submit an BAJAJ shall be entitled to call upon the DEALER to submit an BAJAJ shall be entitled to call upon the DEALER to submit an Irrevocable Unconditional Bank Guarantee (from Nationalized Bank Irrevocable Unconditional Bank Guarantee (from Nationalized Bank Irrevocable Unconditional Bank Guarantee (from Nationalized Bank or other Bank acceptab or other Bank acceptable to BAJAJ or Security Deposit or both for le to BAJAJ or Security Deposit or both for securing the due performance of the DEALER's obligations under securing the due performance of the DEALER's obligations under securing the due performance of the DEALER's obligations under this Agreement. this Agreement. 4.13.1. The DEALER shall, within ten (10) business days from a 4.13.1. The DEALER shall, within ten (10) business days from a 4.13.1. The DEALER shall, within ten (10) business days from a demand being made by BAJAJ in that regard, deposit such amount demand being made by BAJAJ in that regard, deposit such amount demand being made by BAJAJ in that regard, deposit such amount as may be determined by BAJAJ, from time to time, as Security be determined by BAJAJ, from time to time, as Security be determined by BAJAJ, from time to time, as Security Deposit for the Term of this Agreement to secure the due Deposit for the Term of this Agreement to secure the due Deposit for the Term of this Agreement to secure the due performance by the DEALER of its obligations contained in this performance by the DEALER of its obligations contained in this performance by the DEALER of its obligations contained in this Agreement. The Security Deposit shall not carry any interest. Upon Agreement. The Security Deposit shall not carry any interest. Upon Agreement. The Security Deposit shall not carry any interest. Upon the terminatio the termination or expiry of this Agreement, BAJAJ shall refund the n or expiry of this Agreement, BAJAJ shall refund the Security Deposit amount after deduction of all outstanding dues of Security Deposit amount after deduction of all outstanding dues of Security Deposit amount after deduction of all outstanding dues of the DEALER under this agreement. the DEALER under this agreement. 4.13.2. In lieu of Security Deposit or in addition thereto, BAJAJ may, 4.13.2. In lieu of Security Deposit or in addition thereto, BAJAJ may, 4.13.2. In lieu of Security Deposit or in addition thereto, BAJAJ may, at its discretion, accept an ir at its discretion, accept an irrevocable unconditional bank revocable unconditional bank guarantee of such amount as may be determined by BAJAJ, in the guarantee of such amount as may be determined by BAJAJ, in the guarantee of such amount as may be determined by BAJAJ, in the format agreeable to the BAJAJ to secure the performance of the format agreeable to the BAJAJ to secure the performance of the format agreeable to the BAJAJ to secure the performance of the DEALER's obligation hereunder. The DEALER shall, in such an DEALER's obligation hereunder. The DEALER shall, in such an DEALER's obligation hereunder. The DEALER shall, in such an event, procure and deliver to BAJAJ such event, procure and deliver to BAJAJ such Bank Guarantee within a Bank Guarantee within a

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period of ten (10) business days from a demand being made by period of ten (10) business days from a demand being made by period of ten (10) business days from a demand being made by BAJAJ in that regard BAJAJ in that regard 4.13.3. It is clarified that BAJAJ shall have the right determine the 4.13.3. It is clarified that BAJAJ shall have the right determine the 4.13.3. It is clarified that BAJAJ shall have the right determine the amount of the Security Deposit and or the Bank Guarantee and to amount of the Security Deposit and or the Bank Guarantee and to amount of the Security Deposit and or the Bank Guarantee and to revise it from t revise it from time to time.” 8.23 Thus, the dealer is not only has to purchase but to perform as Thus, the dealer is not only has to purchase but to perform as Thus, the dealer is not only has to purchase but to perform as per expectation of the assessee. per expectation of the assessee.

8.24 The dealer is not mere a buyer or purchaser of goods but is The dealer is not mere a buyer or purchaser of goods but is The dealer is not mere a buyer or purchaser of goods but is required to follow all the conditions of brand and advertisement required to follow all the conditions of brand and advertisement required to follow all the conditions of brand and advertisement fixed by the assessee, which is evident he assessee, which is evident from various clauses from various clauses from 5.1 to 5.11 of the dealer’s agreement. 5.1 to 5.11 of the dealer’s agreement.

8.25 Further, the clause 7.4 of the agreement specifies that the Further, the clause 7.4 of the agreement specifies that the Further, the clause 7.4 of the agreement specifies that the facilities and infrastructure of the dealer shall remain exclusive to facilities and infrastructure of the dealer shall remain exclusive to facilities and infrastructure of the dealer shall remain exclusive to the Bajaj and can’t be us the Bajaj and can’t be used in any manner to display, display, service or sell goods competitive with the products, without written consent of goods competitive with the products, without written consent of goods competitive with the products, without written consent of Bajaj. This clause reflects the control of the assessee over the Bajaj. This clause reflects the control of the assessee over the Bajaj. This clause reflects the control of the assessee over the dealer.

8.26 As per clause 6.12 of dealer agreement, the dealer is required As per clause 6.12 of dealer agreement, the dealer is required As per clause 6.12 of dealer agreement, the dealer is required to give written confirmation that the products sold by the dealer give written confirmation that the products sold by the dealer give written confirmation that the products sold by the dealer have not been sold /marketed outside the have not been sold /marketed outside the territory, which is territory, which is contrary to the claim of the assessee that he is not privy to the sales contrary to the claim of the assessee that he is not privy to the sales contrary to the claim of the assessee that he is not privy to the sales of the dealer. Not only this, the clause 9.2 requires that the dealer of the dealer. Not only this, the clause 9.2 requires that t of the dealer. Not only this, the clause 9.2 requires that t has to maintain its showroom and workshop as per the standard of has to maintain its showroom and workshop as per the standard of has to maintain its showroom and workshop as per the standard of the assessee. The relevan the assessee. The relevant clause is reproduced as under: t clause is reproduced as under:

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“9.2 The DEALER shall maintain the level of Products' Quality and The DEALER shall maintain the level of Products' Quality and The DEALER shall maintain the level of Products' Quality and take care of distribution of the Products in the take care of distribution of the Products in the Territory specified in Territory specified in this Agreement and particularly, as found necessary, and shall: this Agreement and particularly, as found necessary, and shall: this Agreement and particularly, as found necessary, and shall: 9.2.1. maintain the said Showroom, Service Stations and Godown 9.2.1. maintain the said Showroom, Service Stations and Godown 9.2.1. maintain the said Showroom, Service Stations and Godown / Warehouse in good order and condition during the Term; / Warehouse in good order and condition during the Term; / Warehouse in good order and condition during the Term; 9.2.2. ensure that the said Showroom, Service Sta 9.2.2. ensure that the said Showroom, Service Sta 9.2.2. ensure that the said Showroom, Service Stations and Godown / Warehouse facilities are run and managed by expert Godown / Warehouse facilities are run and managed by expert Godown / Warehouse facilities are run and managed by expert personnel and are suitably stocked with the Products; personnel and are suitably stocked with the Products; 9.2.3 shall not change the location or reduce the area of the said shall not change the location or reduce the area of the said shall not change the location or reduce the area of the said Showroom, Service Station or Godown / Warehouse facilities Showroom, Service Station or Godown / Warehouse facilities Showroom, Service Station or Godown / Warehouse facilities without the prior written consent of BAJAJ; t the prior written consent of BAJAJ; 9.2.4. not, during the Term, use the said Showroom, Service 9.2.4. not, during the Term, use the said Showroom, Service 9.2.4. not, during the Term, use the said Showroom, Service Station or Godown / Warehouse facilities in any manner to Station or Godown / Warehouse facilities in any manner to Station or Godown / Warehouse facilities in any manner to service, display or sell any goods competitive with the Products service, display or sell any goods competitive with the Products service, display or sell any goods competitive with the Products without the prior written consent o without the prior written consent of BAJAJ and 9.2.5. acquire, set up and maintain additional Service Stations, if 9.2.5. acquire, set up and maintain additional Service Stations, if 9.2.5. acquire, set up and maintain additional Service Stations, if required by BAJAJ, equipped as above along the main traffic required by BAJAJ, equipped as above along the main traffic required by BAJAJ, equipped as above along the main traffic roads so that customers are always assisted in the best possible roads so that customers are always assisted in the best possible roads so that customers are always assisted in the best possible way.” 8.27 The clause 9.3 also requires the dealer to maintain trained The clause 9.3 also requires the dealer to maintain trained The clause 9.3 also requires the dealer to maintain trained staff as per requirement of the assessee. For ready reference said staff as per requirement of the assessee. For ready reference said staff as per requirement of the assessee. For ready reference said clause is reproduced as under: clause is reproduced as under:

“9.3 If required by BAJAJ, the DEALER shall send at the If required by BAJAJ, the DEALER shall send at the If required by BAJAJ, the DEALER shall send at the DEALER'S own cost, managerial personnel, DEALER'S own cost, managerial personnel, sales personnel, sales personnel, service personnel, engineers or mechanics for training at BAJAJ's service personnel, engineers or mechanics for training at BAJAJ's service personnel, engineers or mechanics for training at BAJAJ's factories or such other place as may be notified by BAJAJ. The factories or such other place as may be notified by BAJAJ. The factories or such other place as may be notified by BAJAJ. The number of such trainees, the duration of such training shall be number of such trainees, the duration of such training shall be number of such trainees, the duration of such training shall be mutually decided in advance between BAJAJ and mutually decided in advance between BAJAJ and the DEALER. the DEALER. The cost of travel, lodging and all expenses of such trainees shall The cost of travel, lodging and all expenses of such trainees shall The cost of travel, lodging and all expenses of such trainees shall be borne entirely by the DEALER. be borne entirely by the DEALER.” 8.28 The dealer is required to provide all details of service carried The dealer is required to provide all details of service carried The dealer is required to provide all details of service carried out to the assessee at all times. The relevant clause is reproduced out to the assessee at all times. The relevant clause is reproduced out to the assessee at all times. The relevant clause is reproduced asunder:

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“10.5 The DEALER shall ensure that the pre The DEALER shall ensure that the pre-delivery inspection delivery inspection and after sales service for Products are carried out fully and and after sales service for Products are carried out fully and and after sales service for Products are carried out fully and efficiently in accordance with the requirements and policies of efficiently in accordance with the requirements and policies of efficiently in accordance with the requirements and policies of BAJAJ established from time to time. In particular, the DEALE BAJAJ established from time to time. In particular, the DEALE BAJAJ established from time to time. In particular, the DEALER shall at all times make complete and accurate reports in the form shall at all times make complete and accurate reports in the form shall at all times make complete and accurate reports in the form and at the times required by BAJAJ in respect of all work carried and at the times required by BAJAJ in respect of all work carried and at the times required by BAJAJ in respect of all work carried out by it in pursuance of BAJAJ service requirement and policies. out by it in pursuance of BAJAJ service requirement and policies. out by it in pursuance of BAJAJ service requirement and policies. The DEALER shall also maintain a service history of each The DEALER shall also maintain a service history of each The DEALER shall also maintain a service history of each vehicle serviced by it in a form required by BAJAJ. serviced by it in a form required by BAJAJ.” 8.29 Therefore, the assessee’s attempt to treat the payments herefore, the assessee’s attempt to treat the payments herefore, the assessee’s attempt to treat the payments mechanically as “trade discounts” is an over mechanically as “trade discounts” is an over-simplification which simplification which ignores the commercial and contractual realities of the dealership ignores the commercial and contractual realities of the dealership ignores the commercial and contractual realities of the dealership arrangement.

8.30 The assessee relies on The assessee relies on Bharti Cellular Ltd. v. ACIT Bharti Cellular Ltd. v. ACIT (supra) and decisions such as Ahmedabad Stamp Vendors Association Ahmedabad Stamp Vendors Association (supra) Ahmedabad Stamp Vendors Association etc., where discounts to distributors were held not to be etc., where discounts to distributors were held not to be etc., where discounts to distributors were held not to be commission. Those decisions turned on their decisions turned on their own specif own specific factual matrices, where:

 distributors purchased products at a discounted price and distributors purchased products at a discounted price and distributors purchased products at a discounted price and were largely free to resell at any price to any customer; were largely free to resell at any price to any customer; were largely free to resell at any price to any customer;  there were no significant territorial, branding or service there were no significant territorial, branding or service there were no significant territorial, branding or service obligations imposed on them in favour of the principa obligations imposed on them in favour of the principa obligations imposed on them in favour of the principal;  incentives were essentially embedded trade discounts without incentives were essentially embedded trade discounts without incentives were essentially embedded trade discounts without post-facto performance conditions of the type seen in facto performance conditions of the type seen in facto performance conditions of the type seen in automobile dealership contracts. automobile dealership contracts.

8.31 In contrast, automobile dealers, as indicated earlier, are In contrast, automobile dealers, as indicated earlier, are In contrast, automobile dealers, as indicated earlier, are deeply integrated into the OEM’s sales an deeply integrated into the OEM’s sales and service network, are d service network, are

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required to represent the OEM to customers, and are bound by required to represent the OEM to customers, and are bound by required to represent the OEM to customers, and are bound by extensive contractual controls. Target and consistency incentives extensive contractual controls. Target and consistency incentives extensive contractual controls. Target and consistency incentives are designed to incentivise and compensate these services incentivise and compensate these services incentivise and compensate these services, and not merely to pass on a lower purchase pric merely to pass on a lower purchase price.

8.32 Thus, the ratio of Thus, the ratio of Bharti Cellular (supra) (supra) cannot be mechanically transplanted onto the facts of an automobile OEM– mechanically transplanted onto the facts of an automobile OEM mechanically transplanted onto the facts of an automobile OEM dealer network without first verifying whether the foundational facts dealer network without first verifying whether the foundational facts dealer network without first verifying whether the foundational facts are indeed comparable. are indeed comparable. Whether those precedents apply to the Whether those precedents apply to the present case is itself a matter requiring careful factual examination, present case is itself a matter requiring careful factual examination, present case is itself a matter requiring careful factual examination, which has admittedly not been carried out by the Assessing Officer. which has admittedly not been carried out by the Assessing Officer. which has admittedly not been carried out by the Assessing Officer. 8.33 The Assessing officer is not only adjudicating officer but he is The Assessing officer is not only adjudicating officer but he is The Assessing officer is not only adjudicating officer but he is investigative officer also. In the present investigative officer also. In the present case, at the least, the t the least, the Assessing Officer ought to have: Assessing Officer ought to have:

(i) Called for and examined complete dealership agreements Called for and examined complete dealership agreements Called for and examined complete dealership agreements with spare parts dealers, including all annexures, circulars and scheme spare parts dealers, including all annexures, circulars and scheme spare parts dealers, including all annexures, circulars and scheme documents relating to target / consistency incentives, and documents relating to target / consistency incentives, and documents relating to target / consistency incentives, and analysed:

 territorial restrictions; territorial restrictions;  obligations regarding branding, showroom standards and obligations regarding branding, showroom standards and obligations regarding branding, showroom standards and service infrastructure; service infrastructure;  provisions on pricing, discounts, mandatory schemes and provisions on pricing, discounts, mandatory schemes and provisions on pricing, discounts, mandatory schemes and incentives;  clauses on termination, inspection, reporting and audit; and clauses on termination, inspection, reporting and audit; and clauses on termination, inspection, reporting and audit; and

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 non-compete / exclus compete / exclusive dealing clauses.

(ii) Verified the actual operation of the schemes Verified the actual operation of the schemes, including: , including: whether incentives were granted through post-period credit  whether incentives were granted through post whether incentives were granted through post notes;  whether they were contingent on achieving sales or market whether they were contingent on achieving sales or market whether they were contingent on achieving sales or market- share targets;  whether they depended on promoting whether they depended on promoting particular models or particular models or clearing OEM-driven inventory; and driven inventory; and  the basis on which the quantum was determined for each the basis on which the quantum was determined for each the basis on which the quantum was determined for each dealer.

(iii) Examined the nature of services rendered by dealers Examined the nature of services rendered by dealers in relation Examined the nature of services rendered by dealers to:  sales promotion events; sales promotion events;  pre-delivery inspection and documentat delivery inspection and documentation;  warranty and after warranty and after-sales service obligations discharged on sales service obligations discharged on behalf of the OEM; and behalf of the OEM; and  data data reporting reporting and and customer customer-relationship relationship management management undertaken as per OEM instructions. undertaken as per OEM instructions.

Considered dealers’ accounting treatment and TDS practices: (iv) Considered dealers’ accounting treatment and TDS practices Considered dealers’ accounting treatment and TDS practices  whether dealers whether dealers treated these receipts as “commission / treated these receipts as “commission / incentive” in their books; incentive” in their books;

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 whether they themselves deducted TDS when passing on whether they themselves deducted TDS when passing on whether they themselves deducted TDS when passing on similar incentives to sub similar incentives to sub-dealers / retailers; and dealers / retailers; and  how comparable OEMs in the same industry have been how comparable OEMs in the same industry have been how comparable OEMs in the same industry have been deducting TDS on similar schemes. deducting TDS on similar schemes.

(v) Applied the correct legal tests under section 194H Applied the correct legal tests under section 194H Applied the correct legal tests under section 194H, in light of:  the inclusive definition of “commission or brokerage”; the inclusive definition of “commission or brokerage”; the inclusive definition of “commission or brokerage”;  the jurisprudence on substance over nomenclature; and the jurisprudence on substance over nomenclature; and the jurisprudence on substance over nomenclature; and the difference between an upfront trade discount embedded in  the difference between an upfront trade discount embedded in the difference between an upfront trade discount embedded in the invoice and a the invoice and a post-facto, performance-linked payment. linked payment.

8.34 No such examination is reflected either in the assessment No such examination is reflected either in the assessment No such examination is reflected either in the assessment order or in the assessment records. The mere fact that certain order or in the assessment records. The mere fact that certain order or in the assessment records. The mere fact that certain Tribunal decisions in other years are claimed to be favourable to the Tribunal decisions in other years are claimed to be favourable to the Tribunal decisions in other years are claimed to be favourable to the assessee does not a assessee does not absolve the Assessing Officer of his duty to bsolve the Assessing Officer of his duty to conduct independent, year conduct independent, year-specific enquiry, especially when: specific enquiry, especially when:

 the quantum involved is substantial; and the quantum involved is substantial; and  The assessing officers in earlier years have disallowed the said The assessing officers in earlier years have disallowed the said The assessing officers in earlier years have disallowed the said incentives.

8.35 In our considered view, the In our considered view, the Assessing Officer was duty Assessing Officer was duty-bound to conduct a detailed, year to conduct a detailed, year-specific enquiry into the dealership specific enquiry into the dealership agreements, the incentive schemes, their actual mode of operation, agreements, the incentive schemes, their actual mode of operation, agreements, the incentive schemes, their actual mode of operation, and the nature of services rendered by the dealers, before arriving and the nature of services rendered by the dealers, before arriving and the nature of services rendered by the dealers, before arriving at a conclusion on the at a conclusion on the applicability of section 194H and the applicability of section 194H and the

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consequential disallowance under section 40(a)(ia). The complete consequential disallowance under section 40(a)(ia). The complete consequential disallowance under section 40(a)(ia). The complete absence of such enquiry vitiates the assessment. absence of such enquiry vitiates the assessment.

8.36 Having regard to the magnitude of the amounts involved and Having regard to the magnitude of the amounts involved and Having regard to the magnitude of the amounts involved and the prima facie nature of the payments, the prima facie nature of the payments, the failure of the Assessing the failure of the Assessing Officer to make enquiries which were clearly warranted has resulted Officer to make enquiries which were clearly warranted has resulted Officer to make enquiries which were clearly warranted has resulted in an assessment order that is not only erroneous but also in an assessment order that is not only erroneous but also in an assessment order that is not only erroneous but also prejudicial to the interests of the Revenue. prejudicial to the interests of the Revenue.

9.1 The relevant finding of ld PCIT is reproduced as finding of ld PCIT is reproduced as finding of ld PCIT is reproduced as under:

15.4 Deduction of expenditure claimed in respect of Dies and Mouls' 15.4 Deduction of expenditure claimed in respect of Dies and Mouls' 15.4 Deduction of expenditure claimed in respect of Dies and Mouls' amounting Rs. 57,01,42,237 and Jigs and Fixture amount to Rs. amounting Rs. 57,01,42,237 and Jigs and Fixture amount to Rs. amounting Rs. 57,01,42,237 and Jigs and Fixture amount to Rs. 37,59,92,362: The assessee had an amount of 57,01,42,237 for 37,59,92,362: The assessee had an amount of 57,01,42,237 for 37,59,92,362: The assessee had an amount of 57,01,42,237 for purchase of 'Dies and Moulds' and Rs. 37,59,92,362/ purchase of 'Dies and Moulds' and Rs. 37,59,92,362/ purchase of 'Dies and Moulds' and Rs. 37,59,92,362/- for purchase of Jigs and Fixture and claimed as revenue expenditure. In this of Jigs and Fixture and claimed as revenue expenditure. In this of Jigs and Fixture and claimed as revenue expenditure. In this regard the assessee has submitted details submission which are regard the assessee has submitted details submission which are regard the assessee has submitted details submission which are reproduced as above. The submission of the assessee is considered reproduced as above. The submission of the assessee is considered reproduced as above. The submission of the assessee is considered but not found to be acceptable. but not found to be acceptable. 15.4.1 The expenditure 15.4.1 The expenditure incurred on dies and moulds is not a routine incurred on dies and moulds is not a routine replacement but a capital expenditure. Dies and moulds are a key replacement but a capital expenditure. Dies and moulds are a key replacement but a capital expenditure. Dies and moulds are a key component of the plant and machinery used in the production of the component of the plant and machinery used in the production of the component of the plant and machinery used in the production of the assessee's goods. Even if these items are replaced periodically, assessee's goods. Even if these items are replaced periodically, assessee's goods. Even if these items are replaced periodically, their purchase or replacement constitutes an enduring benefit in the e or replacement constitutes an enduring benefit in the e or replacement constitutes an enduring benefit in the form of enhanced production capacity, which is characteristic of form of enhanced production capacity, which is characteristic of form of enhanced production capacity, which is characteristic of capital expenditure. capital expenditure.

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15.4.2 The mere fact that dies and moulds have a relatively short 15.4.2 The mere fact that dies and moulds have a relatively short 15.4.2 The mere fact that dies and moulds have a relatively short life span (1-2 months) does not necessarily make 2 months) does not necessarily make the expenditure the expenditure revenue in nature. In many cases, items with a short life span, such revenue in nature. In many cases, items with a short life span, such revenue in nature. In many cases, items with a short life span, such as machinery or tools, still form part of the capital investment, and as machinery or tools, still form part of the capital investment, and as machinery or tools, still form part of the capital investment, and their replacement enhances the productive capacity of the business. their replacement enhances the productive capacity of the business. their replacement enhances the productive capacity of the business. 15.4.3 Similarly, jigs and fixtu 15.4.3 Similarly, jigs and fixtures are part of the production res are part of the production equipment, and their purchase or replacement adds to the long equipment, and their purchase or replacement adds to the long equipment, and their purchase or replacement adds to the long-term efficiency and productivity of the manufacturing plant. While they efficiency and productivity of the manufacturing plant. While they efficiency and productivity of the manufacturing plant. While they are used in the production process, their expenditure should be are used in the production process, their expenditure should be are used in the production process, their expenditure should be capitalized because these i capitalized because these items represent a permanent addition to tems represent a permanent addition to the plant and machinery. the plant and machinery. 15.4.4 This issue has been considered in earlier years and a finding 15.4.4 This issue has been considered in earlier years and a finding 15.4.4 This issue has been considered in earlier years and a finding was given that the purchase of dies and moulds by the assessee was given that the purchase of dies and moulds by the assessee was given that the purchase of dies and moulds by the assessee represents replacement of capital asset and therefore is cap represents replacement of capital asset and therefore is cap represents replacement of capital asset and therefore is capital in nature. Further, in the same way purchase of dies and moulds by nature. Further, in the same way purchase of dies and moulds by nature. Further, in the same way purchase of dies and moulds by the assessee represents Jigs and fixture was also treated in capital the assessee represents Jigs and fixture was also treated in capital the assessee represents Jigs and fixture was also treated in capital in nature by the department. Further, the assessee has stated that in nature by the department. Further, the assessee has stated that in nature by the department. Further, the assessee has stated that in the some of the years CIT(A) has allowed the in the some of the years CIT(A) has allowed the in the some of the years CIT(A) has allowed the claim of the assessee. Further, in some of the years, ITAT has also upheld the assessee. Further, in some of the years, ITAT has also upheld the assessee. Further, in some of the years, ITAT has also upheld the claim of the assessee. In this regard it is pertinent to mention that claim of the assessee. In this regard it is pertinent to mention that claim of the assessee. In this regard it is pertinent to mention that the department has filed further appeal against the said orders. the department has filed further appeal against the said orders. the department has filed further appeal against the said orders. Both the issues of the assessee are recurr Both the issues of the assessee are recurring in nature and pending ing in nature and pending for final adjudication. Therefore, this office is revising the order for final adjudication. Therefore, this office is revising the order for final adjudication. Therefore, this office is revising the order 143(3) r.w.s 144C(3) of the Act on 27.05.2022 passed by the AO. 143(3) r.w.s 144C(3) of the Act on 27.05.2022 passed by the AO. 143(3) r.w.s 144C(3) of the Act on 27.05.2022 passed by the AO. The AO is directed to disallowed the expenditure claimed in respect The AO is directed to disallowed the expenditure claimed in respect The AO is directed to disallowed the expenditure claimed in respect of Dies and Moulds' amounting of Dies and Moulds' amounting Rs.57,01,42,237 and Jigs and Rs.57,01,42,237 and Jigs and Fixture amount to Rs.37,59,92,362/ Fixture amount to Rs.37,59,92,362/-.” 9.2 Before us, the Ld. counsel for the assessee submitted that Before us, the Ld. counsel for the assessee submitted that Before us, the Ld. counsel for the assessee submitted that ‘Dies and Moulds’ are used with die casting machines/moulding are used with die casting machines/moulding are used with die casting machines/moulding machine/sheet metal presses to produce the parts used in machine/sheet metal presses to produce the parts used in machine/sheet metal presses to produce the parts used in manufacture of the products viz. two wheelers and three wheelers. manufacture of the products viz. two wheelers and three wheelers. manufacture of the products viz. two wheelers and three wheelers. The said die and moulds used by the assessee are capable of The said die and moulds used by the assessee are capable of The said die and moulds used by the assessee are capable of producing about 50,000 to 1, producing about 50,000 to 1,00,000 units of a part of a motorcycle. 00,000 units of a part of a motorcycle. ‘Dies and moulds’ are used with die casting machine/ moulding are used with die casting machine/ moulding are used with die casting machine/ moulding machine/ sheet metal presses to produce the parts used in machine/ sheet metal presses to produce the parts used in machine/ sheet metal presses to produce the parts used in manufacture of the products, viz. two wheelers and three wheelers. manufacture of the products, viz. two wheelers and three wheelers. manufacture of the products, viz. two wheelers and three wheelers.

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The said ‘dies and moulds dies and moulds’ used by the assessee are capable of producing about 50,000 to 1,00,000 units of a part of a motorcycle. producing about 50,000 to 1,00,000 units of a part of a motorcycle. producing about 50,000 to 1,00,000 units of a part of a motorcycle. The assessee produces over 40 lakhs two produces over 40 lakhs two-wheelers and three wheelers and three- wheelers annually. Accordingly, the life of the dies and moulds wheelers annually. Accordingly, the life of the dies and moulds wheelers annually. Accordingly, the life of the dies and moulds would approximately be one to t would approximately be one to two months in majority of the cases. wo months in majority of the cases. In view of the above, the In view of the above, the assessee is regularly required to replace is regularly required to replace the dies and moulds initially capitalised to the plant and the dies and moulds initially capitalised to the plant and the dies and moulds initially capitalised to the plant and machinery. Therefore, the expenditure incurred pertains to such machinery. Therefore, the expenditure incurred pertains to such machinery. Therefore, the expenditure incurred pertains to such cost of the new dies and mou cost of the new dies and moulds which represents only lds which represents only replacements either on account of wear and tear of the die or replacements either on account of wear and tear of the die or replacements either on account of wear and tear of the die or change in the design of the press part change in the design of the press part. Hence, the cost of dies and . Hence, the cost of dies and moulds cannot be held to be a capital expenditure and the moulds cannot be held to be a capital expenditure and the moulds cannot be held to be a capital expenditure and the expenditure aggregating to Rs. 57,01,42,23 expenditure aggregating to Rs. 57,01,42,237 incurred on dies and 7 incurred on dies and moulds ought to be allowed as a deduction. moulds ought to be allowed as a deduction.

9.3 It was further submitted that ‘ It was further submitted that ‘Jigs and fixtures Jigs and fixtures’ are basically tooling aids required in the production process. A 'fixture' is tooling aids required in the production process. A 'fixture' is tooling aids required in the production process. A 'fixture' is basically an item to hold in a fixed place, the raw material to be basically an item to hold in a fixed place, the raw mater basically an item to hold in a fixed place, the raw mater worked on. For example, steel sheets will have to be held in place worked on. For example, steel sheets will have to be held in place worked on. For example, steel sheets will have to be held in place when a press with a die hits on it to form a press part. Further, a when a press with a die hits on it to form a press part. Further, a when a press with a die hits on it to form a press part. Further, a 'jig' is a tool used to guide the working tools. For example, if the 'jig' is a tool used to guide the working tools. For example, if the 'jig' is a tool used to guide the working tools. For example, if the components are to be drilled at various po components are to be drilled at various points, it is kept below the ints, it is kept below the drilling head. The component is held in place by the fixture and jig drilling head. The component is held in place by the fixture and jig drilling head. The component is held in place by the fixture and jig on the top of the sheet guides the drill to stay in the required place on the top of the sheet guides the drill to stay in the required place on the top of the sheet guides the drill to stay in the required place to get the drilling done. to get the drilling done. However, the life of the jigs and fixtures is However, the life of the jigs and fixtures is

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approximately 1-2 months after which Jigs and fixtures needs to be months after which Jigs and fixtures needs to be months after which Jigs and fixtures needs to be replaced either on account of wear and tear or change in the design replaced either on account of wear and tear or change in the design replaced either on account of wear and tear or change in the design of parts. Hence, the cost of jigs and fixtures cannot be held to be a of parts. Hence, the cost of jigs and fixtures cannot be held to be a of parts. Hence, the cost of jigs and fixtures cannot be held to be a capital expenditure and the expenditure aggregating to Rs. capital expenditure and the expenditure aggregating to Rs. capital expenditure and the expenditure aggregating to Rs. 37,59,92,362 incurred on the purchase of jigs and fixtures ought to 362 incurred on the purchase of jigs and fixtures ought to 362 incurred on the purchase of jigs and fixtures ought to be allowed as deduction. deduction. Further, the Ld. counsel for the assessee Further, the Ld. counsel for the assessee submitted that expenditure incurred in respect of Dies and Moulds submitted that expenditure incurred in respect of Dies and Moulds submitted that expenditure incurred in respect of Dies and Moulds and Jigs and Fixtures is revenue expenditure as settled by the and Jigs and Fixtures is revenue expenditure as settled by the and Jigs and Fixtures is revenue expenditure as settled by the following decisions of the Hon'ble Tribunal in the case of Bajaj ollowing decisions of the Hon'ble Tribunal in the case of Bajaj ollowing decisions of the Hon'ble Tribunal in the case of Bajaj Holdings & Investment Limited (erstwhile Bajaj Auto Limited, prior Holdings & Investment Limited (erstwhile Bajaj Auto Limited, prior Holdings & Investment Limited (erstwhile Bajaj Auto Limited, prior to demerger):

a. ITAT-AY 2003 AY 2003-04 (ITA No. 1420/Mum/2007) b. ITAT-AY 2002 AY 2002-03 (ITA No. 2899/Mum/2010) c. ITAT-AY 2001 AY 2001-02 (ITA No. 4236/Mum/05) d. ITAT-AY 1999 AY 1999-00 (ITA No. 2125/Mum/05) e. ITAT-AY 2000 AY 2000-01 (ITA No. 3055/Mum/05) f. ITAT-AY 1998 AY 1998-99 (ITA No. 8952/Mum/2004) g. ITAT-AY 1997 AY 1997-98 (ITA No. 5030/Mum/2001) h. ITAT-AY 1996 AY 1996-97 (ITA No. ITA No. 1781/Mum/2000) 97 (ITA No. ITA No. 1781/Mum/2000) i. ITAT-AY 1995 AY 1995-96 (ITA No. 3493/Mum/1999) j. ITAT-AY 1994 AY 1994-95 k. ITAT-AY 1993 AY 1993-94 1. ITAT-AY 1991 AY 1991-92

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9.4 The Ld. counsel further submitted that in assessee’s own case The Ld. counsel further submitted that in assessee’s own case The Ld. counsel further submitted that in assessee’s own case (post demerger) the Ld. CIT(A) has allowed the claim of the assessee (post demerger) the Ld. CIT(A) has allowed the claim of the assessee (post demerger) the Ld. CIT(A) has allowed the claim of the assessee in assessment year 2008 in assessment year 2008-09 to assessment year 2014 ear 2014-15. The ld Counsel submitted that Counsel submitted that once the issues in respect of which a nce the issues in respect of which a proposed action under section 263 is contemplated, have already proposed action under section 263 is contemplated, have already proposed action under section 263 is contemplated, have already been decided on merits in favour of the assessee, action under been decided on merits in favour of the assessee, action under been decided on merits in favour of the assessee, action under section 263 itself becomes without section 263 itself becomes without jurisdiction.

9.5 We have heard rival submissions of the parties and perused We have heard rival submissions of the parties and perused We have heard rival submissions of the parties and perused the relevant materials on record the relevant materials on record. It is undisputed that no inquiry . It is undisputed that no inquiry has been made by the Ld. Assessing Officer whatsoever in the case. has been made by the Ld. Assessing Officer whatsoever in the case has been made by the Ld. Assessing Officer whatsoever in the case He has even not verified that facts of earlier years are identical to He has even not verified that facts of earlier years are identical to He has even not verified that facts of earlier years are identical to the facts of current year and how the decisions of coordinate bench the facts of current year and how the decisions of coordinate bench the facts of current year and how the decisions of coordinate bench or Hon’ble High court in earlier years are applicable in the facts of or Hon’ble High court in earlier years are applicable in the facts of or Hon’ble High court in earlier years are applicable in the facts of the year under consideration. the year under consideration. The ld AO has not examined , which examined , which are dyes have moulds purchased in the year under consideration are dyes have moulds purchased in the year under consideration are dyes have moulds purchased in the year under consideration and whether they are replacement of old dyes or new dyes with and whether they are replacement of old dyes or new dyes with and whether they are replacement of old dyes or new dyes with change of designs of products. The ld AO has not examined the life change of designs of products. The ld AO has not examined the life change of designs of products. The ld AO has not examined the life of the dyes and what happened to the dyes after of the dyes and what happened to the dyes after their useful life and their useful life and whether they have been sold as scrap or still lying with the whether they have been sold as scrap or still lying with the whether they have been sold as scrap or still lying with the assessee. The assessing officer has accepted the claim of the assessee. The assessing officer has accepted the claim of the assessee. The assessing officer has accepted the claim of the assessee at face value. Not making the basic enquiries has defeated assessee at face value. Not making the basic enquiries has defeated assessee at face value. Not making the basic enquiries has defeated the purpose for which the case was selecte the purpose for which the case was selected for scrutiny d for scrutiny assessment.

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9.6 Undisputedly the first purchase of Dies and Moulds and Jigs ndisputedly the first purchase of Dies and Moulds and Jigs ndisputedly the first purchase of Dies and Moulds and Jigs and Fixtures was capitalize and Fixtures was capitalized by the assessee and depreciation was by the assessee and depreciation was claimed thereof. The issue in dispute is regarding the replacement claimed thereof. The issue in dispute is regarding the replacement claimed thereof. The issue in dispute is regarding the replacement expenditure, therefore, for asc expenditure, therefore, for ascertaining first of all it was to be ertaining first of all it was to be examined whether the Dies and Moulds and Jigs and Fixtures are examined whether the Dies and Moulds and Jigs and Fixtures examined whether the Dies and Moulds and Jigs and Fixtures part of plant and machinery or part of plant and machinery or separately a machinery machinery, eligible for deduction of depreciation. After the inserting of depreciation. After the inserting of concept of concept of block of asset, any sale of asset under the block of asset is reduced asset under the block of asset is reduced and any asset under the block of asset is reduced addition to the item under the block of asset is added to be block of addition to the item under the block of asset is added to be block of addition to the item under the block of asset is added to be block of asset and depreciation asset and depreciation thereon is accordingly computed on the is accordingly computed on the written down value of the block of asset. written down value of the block of asset. In the instant In the instant case the first purchase expenditure of these items was treated by the assessee as expenditure of these items was treated by the assessee as expenditure of these items was treated by the assessee as capital expenditure and thereafter if their value got obsolete then capital expenditure and thereafter if their value got obsolete then capital expenditure and thereafter if their value got obsolete then effect of should have been allowed under the computation of the effect of should have been allowed under the computation of the effect of should have been allowed under the computation of the block of asset. In our opinion, the Assessing Officer in the capacity In our opinion, the Assessing Officer in the capacity In our opinion, the Assessing Officer in the capacity of investigator was not required to remain silent on the submission not required to remain silent on the submission not required to remain silent on the submission and merely accept the submission of the assessee for the reason in and merely accept the submission of the assessee for the reason in and merely accept the submission of the assessee for the reason in earlier year same was admitted by the Ld. CIT(A). Admittedly, no earlier year same was admitted by the Ld. CIT(A). earlier year same was admitted by the Ld. CIT(A). inquiry whatsoever kind nquiry whatsoever kind was carried out by the Assessing Officer for carried out by the Assessing Officer for verification of claim deduction under deduction under the provisions of the Act. the provisions of the Act.

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assessee has been allowed relief by the appellate authority , the assessee has been allowed relief by the appellate authority , the assessee has been allowed relief by the appellate authority , the case of assessee squarely falls under the Explanation-2 of the case of assessee squarely falls under the Explana case of assessee squarely falls under the Explana section 263 of the Act, accordingly, the assessment order is deemed section 263 of the Act, accordingly, the assessment order is deemed section 263 of the Act, accordingly, the assessment order is deemed to erroneous in so far so far as prejudicial to the interest of Revenue. as prejudicial to the interest of Revenue. Accordingly, we uphold the order of the ld PCIT uphold the order of the ld PCIT. The grounds of appeal of the assessee are accordingly dismi appeal of the assessee are accordingly dismissed.

Order pronounced in ounced in the open Court on 23/ /01/2026. Sd/- Sd/ Sd/- (NARENDER KUMAR CHOUDHRY NARENDER KUMAR CHOUDHRY) (OM PRAKASH KANT OM PRAKASH KANT) JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 23/01/2026 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. BY ORDER, BY ORDER, //True Copy// (Assistant Registrar) (Assistant Registrar) ITAT, Mumbai ITAT, Mumbai