2018 (9) TMI 106 - HC - Income Tax

Revision u/s 263 - expenditure on commission on sale - Held that - Discount allowed to wholesale dealers from the listed retail price and commission paid to the selling agents did not come within the purview of Section 37(3A) inasmuch as trade discount merely represents lesser realisation of the sale price itself and the commission paid to selling agents are actual selling expenses. The order of assessment has considered disallowance under Section 37(3A), dealt with it elaborately and has given reasons for its findings. The revisional authority is incorrect when it say that the assessing officer did not consider disallowance under Section 37(3A) of the Income Tax Act, 1961. The first ground in the impugned notice is not available to the department to claim that, there is an error of assessment and that, the same has resulted in prejudice to the department. Question of disallowance under Section 37(3A) in the present case, it appears that, the jurisdictional facts required for the purpose of the revisional authority to invoke jurisdiction under Section 263 of the Act of 1961 were not present. In fact, as on the date of issuance of the notice, the second ground based on Shri Shubhlaxmi Mills Ltd. (1989 (3) TMI 2 - SUPREME COURT) may have been available to the revisional authority. However, the subsequent amendments to Section 37(3A) with retrospective effect, took the same way also. As the writ petition is pending since 1990, no useful purpose would be subserved by requiring the petitioner to reply to the show cause notice for the purpose envisaged under the Act of 1961 to decide thereon.

Summary

Issues:
Challenge to notice under Section 263 of the Income-Tax Act, 1961 for assessment year 1985-86.

Analysis:
The petitioner contested a notice issued under Section 263 of the Income-Tax Act, 1961 for the assessment year 1985-86. The senior advocate for the petitioner argued that the revisional authority must establish errors in the assessment order causing prejudice to the revenue to invoke Section 263. The notice alleged errors in the treatment of sales commission expenditure and a different view on reserves creation. However, the advocate contended that the revisional authority's grounds were invalid. He cited precedents like Hindusthan Motors Ltd. and Bata India Ltd. to support his arguments regarding sales commission expenditure and retrospective amendments to Section 37(3A) to counter the view on reserves creation.

The respondent's advocate argued that the petitioner should pursue statutory remedies instead of approaching the Writ Court. He emphasized that issues raised in the writ petition involve factual and legal complexities best addressed by statutory authorities. Citing cases like Indo Asahi Glass Co. Ltd. and The Executive Engineer, Bihar State Housing Board, the respondent's advocate advocated for the jurisdiction of the assessing authorities in determining the assessment quantum.

The Court noted the prolonged pendency of the writ petition since 1990 and proceeded to analyze the grounds of the impugned notice under Section 263. The first ground focused on sales commission expenditure, which was thoroughly considered in the assessment order, rendering the revisional authority's claim baseless. Regarding the second ground on reserves creation, the Court highlighted the retrospective amendments to Section 37(3A, nullifying the reliance on the precedent Shri Shubhlaxmi Mills Ltd. The Court referenced cases like Indo Asahi Glass Co. Ltd. and Ramesh Kumar Singh to address the availability of statutory remedies and the maintainability of the writ petition based on jurisdictional aspects.

In conclusion, the Court found that the jurisdictional facts required for invoking Section 263 were absent, and subsequent amendments with retrospective effect further invalidated the revisional authority's grounds. Given the prolonged pendency of the case and the lack of utility in responding to the show cause notice, the Court quashed the notice and disposed of the writ petition without costs.