The Bangalore Bench of Income Tax Appellate Tribunal (ITAT) held that the Assessment Order allowing deduction of commission payments has been passed without verification, which should have been made, and the Principal Commissioner of Income Tax (PCIT) was well within the jurisdiction to have invoked the revisionary powers under Section 263 of the Income Tax Act,1961.
The Assessee M/s. Seiko Watch India Pvt. Ltd is a company filed the return of income by declaring total income at Rs.6,09,29,350/-. The return of income was processed under Section 143(1)(a) of the Income Tax Act assessing total income of Rs.6,10,29,750/-. The assessment was completed under Section 143(3) of the Income Tax Act assessing the total income at Rs.6,10,29,750/-.
The PCIT initiated revisionary proceedings under Section 263 of the Income Tax Act and was of the view that the assessment order passed under Section 143(3) of the Income Tax Act was erroneous and prejudicial to the interest of the Revenue as the Assessing Officer (AO) had failed to make enquiries / verification, which should have been made.
The PCIT held that the AO has not made enquiry which he ought to have made while allowing the deduction of commission payments which was not subjected to TDS under Section 194H of the Income Tax Act. Further it referred to the Assessment Orders for Assessment Years 2016-17 and 2017-18 wherein similar additions were made under Section 40(a)(ia) of the Income Tax Act for non-deduction of the tax under Section 194H of the Income Tax Act on such sales incentives.
Aggrieved, assessee has filed the present appeal before the Tribunal. The Authorised Representative of the assessee Nithin Surana, submitted that during the course of assessment proceedings, the AO had called for the details of the payments of sales incentives and assessee had satisfactorily explained the same to the AO, and he further contended on the facts of the instant case that sales incentives are nothing but discounts and not commission per se.
The Departmental Representative D. K. Mishra, submitted that for identical issue in Assessment Years 2016-17 and 2017-18, disallowance of expenditure was made by invoking provisions of Section 40(a)(ia) of the Income Tax Act. The AO ought to have examined / scrutinized the matter carefully before allowing the claim of deduction since there was no deduction of tax under Section 194H of the Income Tax Act with reference to the commission payments made to the dealers.
The Bench Comprising of George George K, Vice President and Laxmi Prasad Sahu, Accountant Member observed that f the sales incentive is a payment made on principal-to-principal basis, the same need not be subjected to TDS under Section 194H of the Income Tax Act, and stated that to determine whether the sales incentive which is paid by the assessee to its dealers is in the nature of ‘discount’ or ‘commission’, necessarily the agreement between the assessee and its dealers has to be examined.
The Tribunal held that the Assessing Officer has allowed the impugned expenditure without examining / verifying the agreement entered into between the assessee (the payer) and its dealers (the payees), thus the Principal Commissioner of Income Tax (PCIT) was well within the jurisdiction to have invoked the revisionary powers under Section 263 of the Income Tax Act.
Thus the Bench upheld the order of the PCIT and appeal filed by the assessee was dismissed.
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