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2020 (1) TMI 48 - AT - Income TaxRevision u/s 263 - AO has not conducted enquiries on various issues in respect of incentives to its employees, trade incentives given to its dealers for which the assessee is liable to deduct the tax at source as per the provisions of section 194H - HELD THAT - In the instant case the assessee has passed on the discounts given by the manufacturer to the distributors/ retailers. The department did not place any material to controvert the submissions of the assessee. Similarly the incentives were paid to the employees of the assessee which comes under the head salaries. As decided in own case 2018 (3) TMI 736 - ITAT VISAKHAPATNAM since the incentives paid to dealers are covered by the decision of this Tribunal and the AO has verified this issue with regard to deduction of tax liability on the part of the deductor and decided the assessment proceedings. Hence the assessment order passed by the AO is neither erroneous nor prejudicial to the department. Similarly, the incentives paid to the employees take the character of salaries u/s 192 and no disallowance is warranted u/s 40(a)(ia) for the payment of salaries. Thus the order passed by the AO is neither erroneous nor prejudicial to the interest of the revenue. Therefore, we set aside the order of the Ld.Pr.CIT and restore the assessment order. - Decided in favour of assessee.
Issues Involved:
1. Legitimacy of the revision order passed by the Principal Commissioner of Income Tax (Pr.CIT) under Section 263 of the Income Tax Act, 1961. 2. Applicability of Tax Deducted at Source (TDS) under Section 194H for incentives given to dealers. 3. Applicability of TDS under Section 194H for incentives given to employees. 4. Examination of the assessment order under Section 143(3) for errors and prejudicial impact on the revenue. Issue-Wise Detailed Analysis: 1. Legitimacy of the Revision Order under Section 263: The appeal was filed against the order of the Pr.CIT, Vijayawada, dated 15.03.2019, for the Assessment Year 2014-15. The Pr.CIT invoked Section 263, stating that the Assessing Officer (AO) did not conduct adequate inquiries regarding the incentives to employees and trade incentives to dealers, which should have been subjected to TDS under Section 194H. The Pr.CIT directed the AO to redo the assessment after detailed verification. The Tribunal, however, found that the AO had indeed examined these issues during the assessment proceedings, and thus, the revision order under Section 263 was not justified. It was held that inadequate inquiry is not a valid reason for revision under Section 263, as supported by Supreme Court judgments in CIT (Central) Ludhiana Vs. Max India Ltd and CIT Gujarat-2 Vs. Quality Steel Supplies Complex. 2. Applicability of TDS under Section 194H for Incentives to Dealers: The Tribunal examined whether the incentives paid to dealers qualify as commission or brokerage under Section 194H. The assessee argued that these incentives were discounts passed on by the manufacturer (Nokia) to dealers and did not constitute commission or brokerage. The Tribunal supported this view, citing previous decisions, including the assessee's own case for A.Y. 2012-13 and other judicial pronouncements, which established that such incentives do not create a principal-agent relationship and thus do not attract TDS under Section 194H. The Tribunal concluded that the incentives were merely discounts and not subject to TDS. 3. Applicability of TDS under Section 194H for Incentives to Employees: The Tribunal also addressed the issue of incentives paid to employees, which the assessee claimed were part of salaries and thus not subject to TDS under Section 194H. The Tribunal agreed with the assessee, stating that these incentives fall under the head of salaries and are subject to TDS under Section 192, not Section 194H. Therefore, no disallowance under Section 40(a)(ia) was warranted. 4. Examination of the Assessment Order under Section 143(3): The Tribunal reviewed whether the AO's assessment order under Section 143(3) was erroneous and prejudicial to the interest of the revenue. It was found that the AO had issued a notice under Section 142(1) and obtained necessary details regarding trade schemes and TDS. The Tribunal noted that the AO had conducted an inquiry and taken a plausible view. Thus, the assessment order could not be deemed erroneous or prejudicial to the revenue. The Tribunal emphasized that the AO's inquiry, even if deemed inadequate, does not justify revision under Section 263. Conclusion: The Tribunal set aside the order passed by the Pr.CIT under Section 263 and restored the original assessment order. It was concluded that the incentives to dealers were discounts not subject to TDS under Section 194H, and the incentives to employees were part of salaries subject to TDS under Section 192. Consequently, the appeal of the assessee was allowed. The order was pronounced in the open court on 31st December 2019.
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