The ITAT, Chennai in Konda Srinivasaiyer v. The Principal Commissioner of Income Tax-1 [ITA No.: 290/Chny/2022 dated January 4, 2023] has upheld the order passed by the Revenue Department setting aside the Assessment order passed under Section 143(3) of the Income Tax Act, 1961 (“the IT Act”) verifying the turnover discount claimed as expenses, on the ground that the assessee failed to comply with Tax Deducted at Source (“TDS”) provisions. Held that, the Assessment order passed by the Assessing Officer (“AO”) is erroneous and prejudicial to the interest of the revenue.
Facts:
Konda Srinivasaiyer (“the Appellant”) is engaged in wholesale trading business and filed its return of income for the Assessment Year (“A.Y.”) 2017-18 on December 25, 2017, admitting total income of INR 30,29,350/-.
The scrutiny assessment was initiated and completed under Section 143(3) of the IT Act on December 18, 2019, wherein, the total income was determined to be INR 67,69,575/- by making addition towards cash deposits under Section 68 read with Section 115BBE of the IT Act and disallowing 50% of sale promotional expenses. Further, the AO verified the issues of cash discount and turnover discount and after considering explanation furnished by the Appellant and completed the assessment without making any addition.
Subsequently, the case was taken up for revision proceedings and accordingly a Show Cause Notice dated February 3, 2022 (“the Impugned SCN”) under Section 263 of the IT Act was issued to the Appellant by the Revenue Department (“the Respondent”), stating that, although the Appellant had allowed cash discount and turnover discount which comes under the definition of commission as defined under Section 194C of the IT Act, it had failed to deduct TDS. However, the AO has still allowed the claim of the Appellant while completing the assessment which rendered the assessment order to be erroneous and prejudicial to the interests of the revenue.
Therefore, the Respondent set aside the order passed by the AO dated December 18, 2019 and vide order dated March 24, 2022 (“the Impugned Order”) directed the AO to redo the assessment after making necessary enquiries with regard to the issue of applicability of TDS provisions on the claim of incentive and decide the issue in accordance with law.
Being aggrieved, this appeal has been filed.
The Respondent was of the opinion that, initially the Appellant claimed that it had allowed incentive to customers, however, the Appellant changed its stand and argued that it is turnover discount allowed to the customers and thus, provisions of Section 194C or Section 194H of the IT Act does not arise, but no evidence had been furnished to justify the arguments of the Appellant.
Issue:
Whether the assessment order passed by the AO is erroneous and prejudicial to the interests of Revenue?
Held:
The ITAT, Chennai in ITA No.: 290/Chny/2022 held as under:
- Noted that, the AO has not verified the issue of discount in right perspective of law or in light of details furnished by the Appellant, while completing the assessment proceedings under Section 143(3) of the IT Act.
- Observed that, the Appellant initially claimed that it is incentive paid to customers, but subsequently changed its stand and argued that it is trade discount.
- Stated that, if at all the discount allowed to customers by the Appellant is in the form of incentive, it should be examined in light of the provisions of Section 194H of the IT Act. Further, if the same is in the form of trade discount provided by the Appellant, the issue needs to be examined in light of relevant provisions i.e. either under Section 194C or Section 194H of the IT Act.
- Further stated that, the Appellant should prove its claim with relevant material including sales invoice to prove that trade discount has been allowed to customers in the invoice itself. However, no details were furnished regarding this.
- Upheld the Impugned Order.
- Held that, the AO has failed to verify the issue in right perspective of law and the Respondent has rightly held that the assessment order passed by the AO is erroneous being prejudicial to the interest of the revenue.
Relevant Provisions:
Section 143(3) of the IT Act:
“On the day specified in the notice issued under] sub-section (2), or as soon afterwards as may be, after hearing such evidence as the assessee may produce and such other evidence as the Assessing Officer may require on specified points, and after taking into account all relevant material which he has gathered, the Assessing Officer shall, by an order in writing, make an assessment of the total income or loss of the assessee, and determine the sum payable by him or refund of any amount due to him on the basis of such assessment:
Provided that in the case of a-
(a) research association referred to in clause (21) of section 10;
(b) news agency referred to in clause (22B) of section 10;
(c) association or institution referred to in clause (23A) of section 10;
(d) institution referred to in clause (23B) of section 10,
which is required to furnish the return of income under sub-section (4C) of section 139, no order making an assessment of the total income or loss of such research association, news agency, association or institution, shall be made by the Assessing Officer, without giving effect to the provisions of section 10, unless-
(i) the Assessing Officer has intimated the Central Government or the prescribed authority the contravention of the provisions of clause (21) or clause (22B) or clause (23A) or clause (23B), as the case may be, by such research association, news agency, association or institution, where in his view such contravention has taken place; and
(ii) the approval granted to such research association or other association or institution has been withdrawn or notification issued in respect of such news agency or association or institution has been rescinded:
Provided further that where the Assessing Officer is satisfied that any fund or institution referred to in sub-clause (iv) or trust or institution referred to in sub-clause (v) or any university or other educational institution referred to in sub-clause (vi) or any hospital or other medical institution referred to in sub-clause (via), of clause (23C) of section 10, or any trust or institution referred to in section 11, has committed any specified violation as defined in Explanation 2 to the fifteenth proviso to clause (23C) of section 10 or the Explanation to sub-section (4) of section 12AB, as the case may be, he shall-
(a) send a reference to the Principal Commissioner or Commissioner to withdraw the approval or registration, as the case may be; and
(b) no order making an assessment of the total income or loss of such fund or institution or trust or any university or other educational institution or any hospital or other medical institution shall be made by him without giving effect to the order passed by the Principal Commissioner or Commissioner under clause (ii) or clause (iii) of the fifteenth proviso to clause (23C) of section 10 or clause (ii) or clause (iii) of sub-section (4) of section 12AB:
Provided also that where the Assessing Officer is satisfied that the activities of the university, college or other institution referred to in clause (ii) and clause (iii) of sub-section (1) of section 35 are not being carried out in accordance with all or any of the conditions subject to which such university, college or other institution was approved, he may, after giving a reasonable opportunity of showing cause against the proposed withdrawal to the concerned university, college or other institution, recommend to the Central Government to withdraw the approval and that Government may by order, withdraw the approval and forward a copy of the order to the concerned university, college or other institution and the Assessing Officer.”
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