2020 (12) TMI 561 - AT - Income Tax

Revision u/s 263 - TDS liability on stockiest s margin determined at 2% of the gross sales - HELD THAT - It is a fact on record that the aforesaid order passed under section 263 of the Act was contested by the assessee before the Tribunal and the Tribunal while deciding the appeal has held that jurisdiction under section 263 of the Act was wrongly exercised and accordingly set aside the order passed under section 263 of the Act. Thus, when the order passed under section 263 of the Act has lost its existence by virtue of the order of the Tribunal, all proceedings consequent to the order passed under section 263 of the Act would automatically become invalid. That being the case, the impugned order dated 28th December 2016 passed under section 201(1)/201(1A) r/w 263 of the Act will automatically lose its existence. TDS u/s 194H - Commissioner (Appeals) correctly held that the transaction between the assessee and the stockiest is in the nature of sale. Therefore, there is no need to deduct tax at source under section 194H of the Act on margin allowed to the stockiest as provisions of section 194H of the Act would not be applicable to the margin allowed to the stockiest.

Issues:
1. Justification of CIT(A) allowing the appeal on technical grounds
2. Reliance on ITAT order referring to previous assessment years
3. TDS liability on stockiest's margin under section 194H

Issue 1: Justification of CIT(A) allowing the appeal on technical grounds

The appeal was filed by the Revenue challenging the order passed by the Commissioner of Income Tax (Appeals) for the assessment year 2012-13. The Revenue contended that the CIT(A) erred in allowing the appeal on technical grounds related to the order under section 263 of the Income Tax Act. The Assessing Officer had raised a demand against the assessee for not deducting tax on the stockiest's margin, treating them as an assessee in default under section 201(1). The CIT set aside the order and directed the Assessing Officer to determine the TDS liability at 10% of the gross sales. However, the Tribunal later held that the jurisdiction under section 263 was wrongly exercised, rendering the subsequent order invalid. Consequently, the order passed under section 201(1) also became infructuous. The CIT(A) rightly decided in favor of the assessee as the order under section 263 was declared null and void.

Issue 2: Reliance on ITAT order referring to previous assessment years

The Revenue questioned the CIT(A)'s reliance on the ITAT order concerning the assessee's previous assessment years, arguing that the facts of the current year were different, specifically regarding the applicability of section 194H of the Act. However, the Tribunal upheld the decision of the CIT(A) that the transaction between the assessee and the stockiest was on a principal-to-principal basis, not necessitating TDS under section 194H. The Tribunal's decision in ITA no.3938/Mum./2018 supported the CIT(A)'s conclusion. Therefore, the Tribunal dismissed the Revenue's grounds and upheld the decision of the CIT(A) on merits.

Issue 3: TDS liability on stockiest's margin under section 194H

The Assessing Officer had initially raised a demand against the assessee for not deducting tax on the stockiest's margin, determining it at 2% of the gross sales. Subsequently, the CIT directed the TDS liability to be computed at 10% of the gross sales. However, the Tribunal found that the jurisdiction under section 263 was wrongly exercised and set aside the order. As a result, all proceedings consequent to the order under section 263 became invalid. The Tribunal further affirmed that the provisions of section 194H were not applicable to the margin allowed to the stockiest, as decided by the CIT(A) and upheld in a separate appeal. Therefore, the Tribunal dismissed the appeal, upholding the decision of the CIT(A) on the TDS liability issue.

In conclusion, the Appellate Tribunal upheld the decision of the Commissioner of Income Tax (Appeals) in favor of the assessee, dismissing the Revenue's appeal challenging the TDS liability on the stockiest's margin under section 194H. The Tribunal found that the jurisdiction under section 263 was wrongly exercised, rendering subsequent orders invalid, and affirmed the CIT(A)'s decision based on the principal-to-principal nature of the transaction between the assessee and the stockiest.

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