CHEMS DEAL INC P LTD. ,INDORE vs. THE CIT-1, INDORE

Per Vijay Pal Rao, JM:

This appeal by the assessee is directed against the order dated 28.03.2023 of Pr. Commissioner of Income Tax passed u/s 263 of the Act for A.Y.2018-19. The assesse has raised following grounds of appeal:

“01. That on the facts and in the circumstance of the case the learned Pr. Commissioner of Income tax was wrong in invoking the power of revision u/s 263 of the Income tax Act. 02. That the learned Pr. Commissioner of Income tax erred in passing an order u/s 263 without appreciating the fact that proper inquiry was conducted by the AO during the course of assessment proceedings. 03. That the learned Pr. Commissioner of Income tax erred in not appreciating that complete details of the agreement with Accretion Page 1 of 9

ITA No.166/Ind/2023 Chems Deal INC Pvt. Ltd. Page 2 of 9 Global Ltd were submitted during the course of assessment proceedings. 04. That the learned Pr. Commissioner of Income tax erred by not appreciating the fact that the details of profit sharing with Accretion Global Ltd was for the four years since Financial year 2014-15 was filed and accepted by the NFAC. 05. That the learned Pr. Commissioner of Income tax erred in ignoring the filing of the agreement with Accretion Global Ltd before the AO. 06. That the case was selected for limited scrutiny on the issue of: (i) Defaults in TDS & Disallowance for such default.That only enquiry Regarding TDS & default was made it cannot be termed as either erroneous or prejudicial to interest of revenue. 07.That the assessee company craves leave to add, alter, amend and / or delete any grounds of appeal.” 2. In the case of the assessee the assessment was completed u/s 143(3) r.w. section 143(3A & 143(3B) of the Act on 01.09.2020. Thereafter the Pr. CIT on going through the assessment record found that certain points mentioned for selection of the case under CASS were not taken into consideration by the AO while finalizing the assessment u/s 143(3) of the Act. The Pr. CIT noted that the AO has passed assessment order without necessary examination/investigation which resulted the assessment order being erroneous and in so far as prejudicial to the interest of revenue. Accordingly show cause notice u/s 263 dated 23.02.2023 was issued on the issue of disallowance of the payment of Rs.31,30,968/- made to M/s. Accretion Global Limited under the agreement dated 1st April 2014 without deduction of tax at source and thereby attracting provisions of section 40(a)(i) of the Act. The assesse filed its reply to the show cause notice and submitted that the AO has conducted a proper inquiry on this issue by issuing notice u/s 142(1). In response to the same the assesse filed the relevant record to show that the amount paid to M/s. Accretion Global Limited is not in the nature of commission or payment attracting TDS. The assessee has also submitted that the recipients of this amount has considered the same in its return of income and referred to the acknowledgement of return of income filed by M/s. Accretion Global Limited as well as copy of the computation of total income to show that Page 2 of 9

ITA No.166/Ind/2023 Chems Deal INC Pvt. Ltd. Page 3 of 9 recipients of this amount has considered the same in the return of income. The Pr. CIT was not impressed with the reply of the assesse and held that assessment order dated 01.09.2020 is erroneous so far as prejudicial to the interest of revenue on account for lack of inquiry on the part of the AO and consequently the order of the AO was set aside to the file of the AO for reexamination of the issue and passing fresh order as per law.

“01. Maa Narmada Agrotech and Infrastructures Ltd. Indore vs. Pr. Commissioner of Income tax Indore (2023) 47 ITJ 690 (Trib.-Indore)

Page 3 of 9

ITA No.166/Ind/2023 Chems Deal INC Pvt. Ltd. Page 4 of 9 02. M/s Om Rudra Priya Holiday Resort Pvt. Ltd. Vs. Pr. Commissioner of Income tax ITA No. 416/JP/2018 54 CCH 0597 ITAT Jaipur

ANNEXURE Please refer to the notice issued u/s 142(1), dated 10.12.2019 & 24.02.2020 and your reply dt. 11.03.2020, wherein you have requested some time to furnish your reply, but till date no reply has been received from you. In this connection, at this point of time you are requested to furnish your reply as under:

Page 4 of 9

ITA No.166/Ind/2023 Chems Deal INC Pvt. Ltd. Page 5 of 9 The tax auditor has reported that an amount of Rs. 31,30,968/- is inadmissible under section 40(a)(i). But on observation, it is seen from the ITR submitted for the year under consideration that you have made no such disallowance under section 40(a)(i) in the computation of total income. Therefore, you are requested to please explain with evidence as to why the same should not be added back to your total income.

Yours faithfully, Additional/Joint/Deputy / Assistant Commissioner of Income Tax/ Income-tax Officer, National e-Assessment Centre, Delhi 6. Thus, the AO has duly raised this query about the inadmissible claim of deduction of Rs.31,30,968/- u/s 40(a)(i) of the Act for want of deduction of tax at source. The assessee filed its reply dated 25th August 2020 to the show cause notice issued u/s 142(1) dated 11.08.2020 and the relevant part of the reply is as under:

“Reference to your honour query in respect of the non deduction of TDS on the amount paid to Accretion Globle Ltd it is submitted as under: In the query letter it has been stated that the Auditor has qualified that an amount of Rs. 3130968/-is inadmissible. That your honor's attention is drawn to the following facts: That as per agreement dated 01.04.2014 the assessee company entered into an understanding with Accretion Global Ltd to share net profit @ 50% on business generated by them. That since a substantial to amount of business was bring carried on through Accretion Global Ltd it was feasible to agree to the terms. That the Directors of Accretion Globle Ltd were well connected with the Birla Century and had some deals with then in the past. That the assessee company with a view to increase their business and earn more profit agreed to the condition of profit sharing on the business procured through them i.e. Accretion Globle Ltd.

Page 5 of 9

ITA No.166/Ind/2023 Chems Deal INC Pvt. Ltd. Page 6 of 9 We are enclosing herewith a chart of Total turnover from the Financial year 2014- 15, along with the amount of profit earned.Page No. 14 That a perusal of the same would show that the turnover of the assessee not only increased but the profit derived also increased. That a business house or any assessee always tries to earn more income and as along as it is beneficial. Sir, it is not for the department to see how the assessee carries on its business but it is restricted to that the activities are carried on in proper manner. We rely on the following decision J.K. WOOLLEN MANUFACTURERS V. COMMISSIONER OF INCOME TAX, U.P. 72 ITR 612 (SC) Held "In applying the test of commercial expediency for determining whether an expenditure was wholly and exclusively laid out for the assessee's business, purpose of the reasonableness of the expenditure has to be judged from the point of view of the businessman and not of the income-tax department. It is, of course, open to the Appellate Tribunal to come to a conclusion either that the alleged payment is not real or that it is not incurred by the assessee in the character of a trader or it is not laid out wholly and exclusively for the purposes of the business of the assessee and to disallow it. It is not the function of the Tribunal to determine the remuneration which in their view should be paid to an employee of the assessee." Pr. Commissioner of Income Tax v/s. Chain House International (P.) Ltd. (2018) 33 ITJ 785 (MP) Held "Issuing the share at a premium was a commercial decision. It is the prerogative of the Board of Directors of a company to decide the premium amount and it is the wisdom of shareholder whether they want to subscribe the shares at such a premium or not-There is no dispute about the identity, creditworthiness and genuineness of the investor and therefore, the same has been established beyond any doubt and there should not have been any question or dispute about premium paid by the investor-" That, as stated above the assessee entered into an agreement on 01.04.2014 and the profit sharing was never questioned.Page No. 15 to 17 Page 6 of 9

ITA No.166/Ind/2023 Chems Deal INC Pvt. Ltd. Page 7 of 9 That there is no change in the method of accounting nor is there a change in the business activities. That the Auditor should have taken all the facts into consideration. It is therefore submitted that since there was no obligation to deduct tax at source no disallowance may be made.” 6. Further the assessee has also filed the agreement dated 1st April 2014 under which the said payment was made. The assessee also filed acknowledgement of return of income and computation of total income of M/s. Accretion Global Limited along with audit report with the balance sheet. The AO has accepted this explanation of the assessee and consequently did not make any disallowance u/s 40(a)(i) of the Act in respect of this payment. Thus, it is clear that the assesse claimed the payment of the amount in question as sharing of profit on the business generated by M/s. Accretion Global Limited which was accepted by the AO. The Pr. CIT has invoked the provisions of section 263 on the ground of lack of proper inquiry on the part of the AO. After issuing show cause notice the Pr. CIT has referred various case laws and finally set aside the assessment order in para 7 as under:

“7. Therefore, in view of the detailed discussion made in above paras, I am of the considered opinion that the assessment order dated 01/09/2020 for A.Y. 2018-19 is erroneous in so far as it is also prejudicial to the interest of revenue on account of passing of the assessment order without making required enquiries/investigations. Accordingly, I am satisfied that provisions of section 263 of Income Tax Act 1961 are required to be invoked. Therefore, the assessment order for A.Y. 2018-19 framed on 01/09/2020 is hereby set aside to the file of AO to re-examine issues, indicated in the preceding discussion, u/s 263 and passing fresh order as per the law after making necessary verification, inquiries and investigations. It would be not out of place to mention that the AO shall re-examine only the issue which has been indicated for further investigation in the preceding discussion, after giving due opportunity of being heard to the assessee.” 7. Thus, the Pr. CIT has not even made an attempt to consider and verified relevant record already filed by the assessee and available on the assessment record to find out the nature of payment which was accepted by the AO as share of profit not liable for TDS. Further once the assessee

Page 7 of 9

ITA No.166/Ind/2023 Chems Deal INC Pvt. Ltd. Page 8 of 9 has produced the relevant record in the shape of return of income and computation of income of M/s. Accretion Global Limited to show that recipients of the said amount has taken into account for computing income in the return of income filed and paid the due tax on the income declared by the said company then no disallowance is called for u/s 40(a)(i) of the Act. Once the AO was satisfied with the reply of the assessee that this payment is not liable or subjected to the TDS as per Chapter XVII-B of the Act and further recipients of the payment has considered this amount in the computation of income and filed the return of income as evident from the acknowledgment of return of income and computation of the income of the recipients then without bringing any contrary fact or material on record or giving conclusive finding that the view of the AO accepting the claim of the assessee is absolutely not permissible as per the provisions of the Act or contrary to the facts. The Pr. CIT cannot invoke the provisions of section 263 of the Act merely on the ground that the AO has not conducted a proper inquiry when the claim is otherwise an allowable claim. The Ld. AR has relied upon various decisions of this Tribunal as well as judgment of Hon’ble Bombay High Court in case of Pr. CIT vs. Shivshahi Punarvasan Prakalp Ltd. (supra) which are squarely applicable in the facts of the present case.

“Provided further that where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII- B on any such sum but is not deemed to be an assessee in default under the first proviso to sub-section (1) of section 201, then, for the purposes of this sub-clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the payee referred to in the said proviso.”

Page 8 of 9

ITA No.166/Ind/2023 Chems Deal INC Pvt. Ltd. Page 9 of 9 Accordingly in the facts and circumstances of the case as discussed above the impugned order of the Pr. CIT is not sustainable and liable to be quashed. We order accordingly.

Order pronounced in the open court on 30 .11.2023

Sd/- Sd/- (B.M. BIYANI) (VIJAY PAL RAO) Accountant Member Judicial Member

Indore, .11.2023

Patel/Sr. PS

Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPY Sr. Private Secretary Income Tax Appellate Tribunal Indore Bench, Indore

Page 9 of 9