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Income Tax Appellate Tribunal, PUNE BENCH, ‘C’ PUNE – VIRTUAL COURT
Before: SHRI R.S. SYAL & SHRI S.S.VISWANETHRA RAVI
आदेश / ORDER
This appeal by the Revenue is directed against the order passed by the CIT(A)-2, Aurangabad on 15-03-2019 in relation to the assessment year 2010-11.
The first issue raised by the Revenue is against declaring the initiation of the re-assessment as invalid. Succinctly, the facts of the case are that the assessee filed its original return u/s.139(1) of the Income-tax Act, 1961 (hereinafter called `the Act’) declaring total income at Rs.14.24 crore. The assessment was completed u/s.143(3) on 30-05-2014 determining the total income at Rs.160.62 crore. Another assessment order was passed u/s.143(3) r.w.s.147 in this case on 29-03-2016. Thereafter, a survey action was conducted by the office of the DCIT (TDS) on 14-02-2017 which divulged that the assessee had not deducted tax at source on Discount to stockiest amounting to Rs.272.89 crore; Payment of bonus amounting Rs.1.35 crore; and Payment of interest amounting to Rs.9.49 lakh. An order u/s. 201(1)/201(1A) was passed treating the assessee in default on the above scores. On the basis of this information, the Assessing Officer (AO) recorded reasons for reassessment on 31-03-2017 and issued notice u/s.148 of the Act. The assessment was finalized u/s. 143(3) r.w.s.147 determining total income at Rs.435.18 crore, making afore-referred three disallowance u/s.40(a)(ia) to the income earlier determined at Rs.160.90 crore. The ld. CIT(A) quashed the reassessment and also deleted the additions on merits, against which the Revenue has come up in appeal before the Tribunal.
We have heard the rival submissions through virtual court and cogitated over the relevant material on record. The reasons recorded by the AO for initiating the reassessment are reproduced as under:
“A survey u/s.133A(2A) of the IT Act, 1961 was conducted on the premises of the assessee M/s. Wockhardt Ltd. on 14/02/2017 for the purpose of verification of compliance to the provisions of the Chapter XVIIB of the Act by the DCIT(TDS)-2(3), Mumbai. Based on the information shared by the said office vide letter dated 30/03/2017,
It is observed that the assessee had given bonus on commission to stockiest of Rs.1,35,00,436/-. However, no TDS was deducted on such payments as required by the provisions of sec.194H of the Act. Such failure attracts provisions of section 40(a)(ia) of the I.T. Act, 1961 according to which the 100% expenses need to be disallowed. Hence the amount of Rs.1,35,00,436/- was required to be added to the total income which the assessee has failed to do. It is only owing to the survey action that this discrepancy has come to light. Hence, I have reasons to believe that income to the extent of Rs.1,35,00,436/- has escaped assessment.
2. Further, it is also observed that the assessee provides a discount to the stockiest/distributors. The margin of such discount is worked out to be of 30% which comes out to be Rs.272,89,86,540/-. This is benefit provided to the distributor/stockiest equivalent to commission paid on which TDS was required to be deducted as per the provisions of sec.194H of the Act which the assessee has failed to deduct. Such failure attracts provisions of section 40(a)(ia) of the I.T. Act 1961 according to which the 100% expenses need to be disallowed. Hence the amount of Rs.272,89,86,540/- was required to be added to the total income which the assessee has failed to do. It is only owing to the survey action that this discrepancy has come to light. Hence, I have reasons to believe that income to the extent of Rs.272,89,86,540/- has escaped assessment on this count.
3. Also, it is further observed that there is a failure on part of the assessee to deduct tax at source on payments/provisions made for interest to medium and small enterprises amounting to Rs.9,49,140/- as required by provisions of section 194A of the Act, which the assessee has failed to deduct. Such failure attracts provisions of section 40(a)(ia) of the I.T. Act 1961 according to which the 100% expenses need to be disallowed. Hence the amount of Rs.9,49,140/- was required to be added to the total income
which the assessee has failed to do. It is only owing to the survey action that this discrepancy has come to light. Hence, I have reason to believe that income to the extent of Rs.9,49,140/- has escaped assessment on this count.
4. Without prejudice to Point No.3, it is stated that in response to the show cause notice issued by the office of the DCIT (TDS)-2(3), Mumbai on 20/03/2017, the assessee filed reply dated 24/03/2017 wherein it is stated that,
“During FY 2009-10, the Company has made provision for interest amounting to INR 9,49,150/-. The provision is made in respect of interest payable by the Company for delay in payment of purchase price of the goods and services. The Company has not deducted/withheld any taxes while making provision for interest in its books.” Thus, it is apparent that the assessee has only made a provision of Rs.9,49,150/- towards interest that may be payable by the company for delay in payments. Thus, this is contingent liability and not an ascertained liability the deduction for which is not allowed under any of the provisions of the Act. Thus the same is required to be added to the total income of the assessee which the assessee has failed to do. Hence I have reason to believe that income to the extent of Rs.9,49,140/- has escaped assessment on this count.
Therefore, I am satisfied that this is a fit case reopening the assessment under the provisions of section 147 of the Income Tax Act 1961 as based on facts stated above, I have reason to believe that the income to the tune of Rs.274,34,36,116/- has escaped assessment within the meaning of section 147 of the Income Tax Act.
The necessary approval of the Pr. Commissioner of Income Tax-2, Aurangabad is being sought u/s.151(1) of the Act.”
Based on such reasons, the AO opined that the income of the assessee escaped assessment inasmuch as it failed to deduct tax at source on Discount to stockiest amounting to Rs.272.89 crore; Payment of bonus amounting Rs.1.35 crore; and Payment of interest amounting to Rs.9.49 lakh and further that interest of Rs.9.49 lakh was not deductible in any case as it was a contingent liability.
At this juncture, it is pertinent to mention that the assessment in this case was initially completed u/s.143(3) on 12-10-2010 and the assessment order in the instant proceedings has been passed on 29.12.2017 after recording reasons on 31.3.2017. Section 147 deals with the reassessment and provides through the first proviso that no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year unless any income chargeable to tax has escaped assessment by reason of the failure on the part of the assessee, inter alia, to disclose fully and truly all material facts necessary for his assessment, where the assessment was earlier made u/s.143(3) of the Act for the relevant assessment year. The necessary ingredient for espousing the reassessment after the expiry of four years from the end of the relevant assessment year - where the original assessment was completed u/s.143(3) - is that there must be failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. If there is no such failure, the AO cannot take recourse to section 147 of the Act.
From the Reasons extracted above, it is seen that all of them are in the realm of the assessee making payments without deduction of tax at source and the last portion is about the assessee claiming deduction of provision of Rs.9.49 lakh towards interest which was contingent in nature. The factum of such three payments and non deduction of tax at source from them and further claiming deduction of the alleged contingent liability towards interest were patent on the face of the return and the accompanying documents. In our opinion, the reasons recorded by the AO cannot be brought within the purview of the `failure of the assessee to disclose fully and truly all material facts necessary for his assessment’ as, obviously, the relevant items were properly disclosed at the time of filing the return of income. Having not drawn any adverse inference against such items in the original assessment, the AO was debarred by the first proviso to invoke section 147 on the basis of the same material which was fully and truly disclosed by the assessee and was available at the time of original assessment. In view of the above factual panorama, we uphold the action of the ld. CIT(A) in quashing the initiation of the reassessment on this legal issue.
The other grounds are on merits of the deletion of additions.
It is trite law that if the reassessment order has been quashed on a preliminary legal issue, then there remains no need to go into the merits of the additions separately. As the Revenue has taken specific grounds on this count, we will briefly touch the issue on merits.
The reassessment was prompted because of the TDS survey at the assessee’s premises. An order u/s.201(1)/(1A) was passed treating the assessee in default on account of failure to deduct tax at source from Discount to stockiest amounting to Rs.272.89 crore; Payment of bonus amounting Rs.1.35 crore; and Payment of interest amounting to Rs.9.49 lakh. The first appeal against that order was rendered in favour of the assessee. In the second appeal preferred by the Revenue, the Tribunal, vide order dated 11-12- 2020 in has accorded its imprimatur on the view point of the ld. CIT(A) deleting all the three disallowances made u/s.40(a)(ia) of the Act. When the order u/s.201(1)/(1A), forming bedrock of the additions made in the reassessment order, has itself been quashed, there remains no raison d`etre whatsoever to sustain the additions on merits as well.
We, therefore, uphold the impugned order in its entirety.
In the result, the appeal is dismissed.
Order pronounced in the Open Court on 02nd June, 2021.