2022 (4) TMI 1223 - AT - Income Tax

Revision u/s 263 by CIT - AO not making disallowance u/s 40(a)(ia) of the Act on account of non-deduction of tax at source/short deduction of tax at source on payments covered u/s.194A, 194J and 194H - HELD THAT - On being called upon to produce the details of the parties to whom commission or brokerage was paid and the rate at which deduction of tax at source was made, the assessee failed to furnish any such detail. The same position prevailed at the level of the ld. PCIT as well. In the absence of the assessee having produced details of commission or brokerage, the case of short deduction of tax at source is not established. Be that as it may, it is an admitted position that the assessee reported shortfall on account of lower TDS in its Tax Audit report but the AO did not conduct any inquiry on this point. It is a clear case of non-application of mind by the AO which empowered the ld. PCIT to invoke jurisdiction u/s.263 of the Act. Non-deduction of tax at source on discount to Stockists/Distributors - Admittedly, the AO did not inquire into this issue nor discussed it in the body of the assessment order. For invoking jurisdiction u/s.263 of the Act, it is essential to first ingrain that the point in question could have been decided against the assessee, which the AO either did not examine or decided wrongly after examination. But if the point is of such a nature that it cannot go against the assessee, even after thorough examination, that would not lead to classifying the assessment order erroneous even if there is no discussion of it in the assessment order. As such, it becomes sine qua non on the part of the PCIT to specifically point out as to how the decision of the AO in expressly or impliedly allowing deduction on a particular point is erroneous. Adverting to the factual matrix of the case, it is seen that the assessee company sold its products to distributors at a price lower than the Maximum Retail Price (MRP), which difference has been opined by the ld. PCIT as Commission requiring deduction of tax at source u/s 194H of the Act. It is simple and plain that a manufacturer would sell his goods to Stockists or Distributors at a price below the MRP, who, in turn, will add up their margin and then sell the products to the retailers. MRP is the price which is charged by a Retailer from the ultimate consumers. All the intermediaries between the Manufacturer and ultimate consumer are to be compensated within the overall MRP of the product. The assessee sold its products to Stockists obviously at a price below the MRP, which the Stockists were to sell to Retailers and from Retailers to ultimate consumers. The difference between the MRP and the price sold to Stockists, by no stretch of imagination, can be considered as commission or brokerage paid by the assessee to its Stockists. In order to get covered u/s.194H, it is apparent that principal and agent relation must be established. If the transaction is done on principal-to-principal basis, there can be no scope for payment of commission requiring deduction of tax at source u/s.194H. Here is a case in which the assessee sold its products to Stockists on principal-to-principal basis, who, in turn, sold the same products to Retailers again on principal-to-principal basis for onward sale to customers again on principal-to-principal basis. In that view of the matter, the relation between the assessee and its stockists cannot be described as that of principal and agent. We, therefore, hold that the ld. PCIT was not justified in holding the assessment order to be erroneous and prejudicial to the interest of the Revenue on account non-deduction of tax at source from such amount warranting any disallowance u/s.40(a)(ia) - As there is no involvement of any commission payment to Stockists on this score, we hold that the AO correctly accepted the assessee s claim in this regard even though impliedly. The impugned order is overturned on this score. The order passed by the PCIT is sustainable on three out of four counts as taken note of by him, the impugned order on an overall basis cannot be declared as unlawful. It is, therefore, held that the ld. PCIT was justified in invoking his revisionary power u/s.263

Summary

Issues Involved:
1. Failure to add back Provision for doubtful debts in the computation of book profit u/s.115JB of the Act.
2. Non-addition back of unascertained provision made for doubtful debts, advances, and CDR recompense.
3. Failure to make disallowance u/s 40(a)(ia) of the Act on account of non-deduction/short deduction of tax at source.
4. Non-deduction of tax at source on discount to Stockists/Distributors.

Issue 1:
The first issue pertains to the failure to add back the Provision for doubtful debts in the computation of book profit u/s.115JB of the Act. The ld. PCIT found the assessment order erroneous as the assessee did not add back the provision in question. The ld. AR admitted the error and did not challenge the order on this ground.

Issue 2:
The second issue involves the non-addition back of unascertained provisions made for doubtful debts, advances, and CDR recompense. The ld. PCIT held the deduction inadmissible and the AO's failure to examine it rendered the assessment order prejudicial to the Revenue. The ld. AR also admitted this error and did not contest the issue.

Issue 3:
The third issue concerns the failure to make disallowance u/s 40(a)(ia) of the Act due to non-deduction/short deduction of tax at source. The ld. PCIT found excess deduction due to non-deduction and short deduction of tax at source. The assessee's explanations were considered insufficient, leading to the assessment order being deemed erroneous and prejudicial to Revenue.

Issue 4:
The final issue revolves around the non-deduction of tax at source on discount to Stockists/Distributors. The ld. PCIT held the assessment erroneous for not deducting tax at source on the discounts provided. However, the Tribunal found that the difference between the MRP and the price sold to Stockists did not constitute commission, thus no tax deduction was warranted.

In conclusion, the Tribunal partially allowed the appeal, overturning the ld. PCIT's decision on the issue of non-deduction of tax at source on discount to Stockists/Distributors. The Tribunal upheld the ld. PCIT's decision on the other three issues, deeming the assessment order erroneous and prejudicial to Revenue.