2013 (9) TMI 40 - AT - Income Tax

Revision u/s 263 - erroneous order - prejudicial to revenue - payment of commission and discount - Held that - A bare perusal of the assessment order reveals that the Assessing Officer has considered and applied his mind to the issue of discount, while framing the assessment order, as is evident from the relevant part of the said assessment order. The Assessing Officer made warranted enquiry in the matter and obtained confirmation from M/s. United Ink & Varnish Co. P. Ltd., Mumbai on September 18, 2007 and considered the same while adjudicating the issue, restored to his file by the Tribunal. In a nutshell, the Assessing Officer had made due enquiry, verification independently and objectively applied his mind to the issue in question and framed the assessment. The Commissioner of Income-tax invoked the provisions of section 263, merely on the ground of expression, i.e., directly paid used by the hon ble Tribunal, while restoring the matter to the file of the Assessing Officer. In our considered opinion, the issue in question had led to invocation of provisions of section 263 by the Commissioner of Income-tax has been duly considered and adjudicated by the Assessing Officer. There is no assumption of incorrect application of law by the Assessing Officer in the matter. The Assessing Officer had made requisite enquiry and applied his mind, before recording the findings in the said assessment order in the matter in question. Therefore, having regard to the legislative intent, contained in the provisions of section 263 of the Act and plethora of judicial verdicts in the matter, we are of the considered opinion that this is not a fit case for invocation of the provisions of section 263 of the Act. Therefore, the Commissioner of Income-tax acted beyond his jurisdiction, as contemplated under section 263 of the Act - Decided in favour of assessee.

Issues Involved:
1. Legality of the order passed under section 263 of the Income-tax Act, 1961.
2. Adequacy of the Assessing Officer's application of mind and enquiry.
3. Confirmation and routing of discount to M/s. Gopal Sales Corporation.
4. Invocation of section 263 by the Commissioner of Income-tax.
5. Imposition of penalty under section 271(1)(c) of the Act.

Detailed Analysis:

1. Legality of the order passed under section 263 of the Income-tax Act, 1961:
The core issue pertains to the allowance of a discount of Rs. 7,15,772 passed on to M/s. Gopal Sales Corporation. The Commissioner of Income-tax invoked section 263 of the Act, enhancing the income of the assessee by the said amount and initiated penalty proceedings under section 271(1)(c). The assessee contended that the invocation of section 263 was beyond the purview of the Act and bad in law.

2. Adequacy of the Assessing Officer's application of mind and enquiry:
The Assessing Officer had made necessary enquiries and obtained confirmation from M/s. United Ink and Varnish Co. P. Ltd., Mumbai, confirming the discount granted to M/s. Gopal Sales Corporation. The Assessing Officer had duly applied his mind to the issue, considering the confirmation while framing the assessment order. The Tribunal had earlier remanded the issue for fresh adjudication, directing that no addition is called for if the discount was directly paid to the sub-dealer by the principal.

3. Confirmation and routing of discount to M/s. Gopal Sales Corporation:
The Assessing Officer verified the fact that the discount was passed on to M/s. Gopal Sales Corporation through necessary queries from the principal, who confirmed the same. The discount was routed through the consignee agent, which was a mode of passing the entries. The Assessing Officer was convinced that the discount had been made to M/s. Gopal Sales Corporation, as confirmed by the principal, and applied his mind to the issue.

4. Invocation of section 263 by the Commissioner of Income-tax:
The Commissioner of Income-tax invoked section 263 based on the expression "directly paid" used by the Tribunal. However, the Assessing Officer had made due enquiry and verification, applying his mind independently and objectively. The Tribunal concluded that the Commissioner of Income-tax acted beyond his jurisdiction under section 263, as the Assessing Officer had made requisite enquiry and there was no incorrect application of law.

5. Imposition of penalty under section 271(1)(c) of the Act:
The penalty of Rs. 2,40,483 imposed under section 271(1)(c) was based on the addition made in pursuance of the order passed under section 263. Since the Tribunal quashed the order under section 263, the foundation for the penalty ceased to exist. Consequently, the penalty order became non est, and the appeal of the assessee against the penalty was allowed.

Conclusion:
The Tribunal found that the Assessing Officer had duly applied his mind and made necessary enquiries regarding the discount passed on to M/s. Gopal Sales Corporation. The invocation of section 263 by the Commissioner of Income-tax was beyond jurisdiction, and the order was set aside. Consequently, the penalty imposed under section 271(1)(c) was also quashed. Both appeals of the assessee were allowed.

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