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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)
2 ITA No.774/PUN/2019 Wockhardt Ltd.,
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
3 ITA No.774/PUN/2019 Wockhardt Ltd.,
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.
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.
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
4 ITA No.774/PUN/2019 Wockhardt Ltd.,
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.
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.”
5 ITA No.774/PUN/2019 Wockhardt Ltd.,
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
6 ITA No.774/PUN/2019 Wockhardt Ltd.,
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
7 ITA No.774/PUN/2019 Wockhardt Ltd.,
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 ITA No.6803/Mum/2018 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
8 ITA No.774/PUN/2019 Wockhardt Ltd.,
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.
Sd/- Sd/- (S.S.VISWANETHRA RAVI) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; िदनांक Dated : 02nd June, 2021 सतीश
आदेश की �ितिलिप अ�ेिषत/Copy of the Order is forwarded to: अपीलाथ� / The Appellant; 1. ��थ� / The Respondent; 2. 3. The CIT(A)-2, Aurangabad 4. The PCIT-2, Aurangabad 5. DR, ITAT, ‘C’ Bench, Pune गाड� फाईल / Guard file. 6.
आदेशानुसार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune
ITA No.774/PUN/2019 Wockhardt Ltd.,
Date 1. Draft dictated on 02-06-2021 Sr.PS 2. Draft placed before author 02-06-2021 Sr.PS 3. Draft proposed & placed before JM the second member 4. Draft discussed/approved by JM Second Member. 5. Approved Draft comes to the Sr.PS Sr.PS/PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *