2014 (5) TMI 482 - HC - Income Tax

Validity of assessment order passed u/s 147 despite stay order - notice u/s 148 of the Act Disallowance u/s 40(a)(ia) of the Act TDS not deducted u/s 194H - Trade discount provided by newspaper publishers to advertising agencies Held that - We have duly considered the explanation which has been tendered by the Assessing Officer in her affidavit. The Assessing Officer has stated that a copy of the order of stay passed by this Court was not produced before her and only a letter was placed as a result of which she proceeded to pass an order of re-assessment having regard to the bar of limitation which was to expire on 31 March 2014 but subject to the decision of the Supreme Court in the pending special leave petition and of this Court in these proceedings. We consider it appropriate to accept the explanation of the Assessing Officer and drop the notice to show cause which has been issued to her. Decision in case of Jagran Prakashan Limited Versus The Deputy Commissioner Of Income Tax (Tds) 2012 (5) TMI 488 - ALLAHABAD HIGH COURT followed wherein it was held that, (i) there is no relationship of principal and agent between the petitioner and the advertising agencies; (ii) the advertising agencies do not render any service to the petitioner; (iii) 15% trade discount allowed by the petitioner to the advertising agencies is not a payment of commission within the meaning of section 194-H of the Income Tax Act; and (iv) the petitioner was not liable to deduct tax at source on the trade discount allowed to the advertising agencies and, hence, proceedings under section 201/201(1A) could not have been initiated against the petitioner. - Decided in favour of Asessee.

Summary

Issues:
Challenge to notice under section 148 of the Income Tax Act, 1961 for re-opening assessment for A.Y. 2005-06 and questioning notice under section 142(1) for disallowance under section 40(a)(ia) for non-deduction of tax at source under section 194-H.

Analysis:
The petitioner challenged a notice dated 30 March 2012 under section 148 of the Income Tax Act, 1961, seeking to re-open the assessment for A.Y. 2005-06. Additionally, the petitioner questioned a notice dated 18 March 2014 under section 142(1) calling for a disallowance under section 40(a)(ia) for not deducting tax at source under section 194-H. The petition was based on a Division Bench judgment stating no principal-agent relationship between the petitioner and advertising agencies, trade discounts not considered commission under section 194-H, and no liability to deduct tax at source. The re-opening reasons were also based on the same facts, alleging non-deduction of TDS on commission paid to advertising agents.

The Court granted a stay on further proceedings due to an impending Supreme Court hearing on a related matter. Despite the stay, the Assessing Officer proceeded with re-assessment on 31 March 2014. The Court adjourned the hearing to await the Supreme Court's decision, but the re-assessment order was passed in violation of the stay. The Assessing Officer explained the oversight, attributing it to not receiving the stay order copy. The Court accepted the explanation and dropped the show-cause notice issued to the Assessing Officer.

The Supreme Court dismissed the special leave petition against the Division Bench judgment, establishing the legal position against the Revenue. As a result, the Court quashed the notice of re-assessment under section 148, the notice under section 142(1), and the re-assessment order dated 31 March 2014. The order of re-assessment was passed subject to the pending decisions, and the petitioner was not required to pursue an appeal. The Court allowed the petition, setting aside all challenged notices and orders, with no costs imposed.