Bombay High Court Judgments — 2021

The High Court held that the ITAT was not justified in interfering with the PCIT's order. The Court found that the twin conditions under Section 263 were fulfilled. The AO's order was considered erroneous because it failed to make necessary inquiries into the allowability of expenditure and the carry-forward of losses, especially when the assessee claimed significant business expenses against minimal business income and interest income. The Court relied on precedents like K.A. Ramaswamy Chettiar, Rampyari Devi Sarogi, and Duggal and Co. to establish that failure to make prudent inquiries renders an order erroneous and prejudicial to revenue. The Court also cited Amitabh Bachchan and Daniel Merchants P. Ltd. to support the PCIT's power to direct further investigation when a claim is made and then withdrawn or when circumstances warrant deeper scrutiny. The PCIT's order, which directed the AO to conduct a thorough inquiry after giving the assessee an opportunity to be heard, was upheld. The ITAT's order was set aside, and the substantial questions of law were answered in favour of the Revenue.

The High Court held that the first substantial question of law should be answered against the Revenue. It noted that the ITAT decision in Hindustan Coca Cola Beverages was reversed by the Rajasthan High Court. Furthermore, this High Court had previously approved the view taken by the Karnataka High Court in Bharti Airtel Ltd. (which differed from the Kolkata ITAT's view in Bharti Cellular Ltd.) in its own decisions in Vodafone Cellular Ltd. and Idea Cellular Ltd. The Court also found concurrent findings of fact by the Commissioner (Appeals) and ITAT that the transactions were on a principal-to-principal basis, involving trade discounts, not commission, and these findings were not perverse. For the second substantial question, the Court found the ITAT's view consistent with the Allahabad High Court's ruling in Jagran Prakashan Ltd., which was acknowledged by CBDT Circular No. 5/2016. This circular clarified that TDS is not attracted on payments by media companies to advertising agencies for booking advertisements, and that 'commission' in Circular No. 715 did not refer to such payments. The Court held that this subsequent clarification binds the Revenue. Concurrent findings of fact that the dealings were principal-to-principal and no commission was paid were also noted, with no perversity pointed out. Therefore, both substantial questions of law were answered against the Revenue and in favour of the Assessee.

The High Court held that the substantial question of law framed in paragraph 5(c) of the appeal memo should be answered against the Revenue and in favour of the Assessee. The Court reasoned that Section 194A(3)(v) of the IT Act, as it stood for AY 2012-2013, provided an exemption from the provisions of Section 194A(1) for income credited or paid by a cooperative society to its member. There was no dispute that this was the position for the relevant assessment year. Therefore, the CIT(A) and the ITAT were correct in holding that there was no liability for deducting tax at source on interest paid by the cooperative society to its members, even if the amount exceeded ₹10,000/-. The subsequent amendment to Section 194A(3)(v) by the Finance Act, 2015, restricting the exemption to co-operative societies other than co-operative banks, was not applicable to AY 2012-2013. The Court dismissed the appeal.