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Vodafone South Ltd. Versus The Commissioner of Income-tax (TDS) , Chandigarh

2015 (8) TMI 1296 - ITAT CHANDIGARH

Revision u/s 263 - tds non deductibility - inadequate v/s no inquiry - whether the arrangement between Appellant and the pre-paid distributors during the subject FY was on a 'principal to agent' basis and the Appellant had duly deducted tax u/s 194H of the Act on the commission paid to the pre-paid distributors? - Held that:- It would be a case of splitting of hair if we try to distinguish between the expression 'verified' used in the notice and 'dealt with' used in the revisionary order. The ba .....

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arly shows that no question has been asked with respect to non-deduction of tax on commission/incentive on prepaid cards. No reply seems to have been given. Assuming for arguments sake, that it is not necessary to mention everything in the order but nothing has been field before us to show that relevant question on this issue was asked by the Assessing Officer and replied were also given. Therefore, it is a clear case of non-enquiry in respect of this issue. The Ld. CIT-DR has correctly submitte .....

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lly possible then such order cannot be held to be erroneous and prejudicial to the interest of Revenue. However, as we have seen above, this is a case of non-enquiry and, therefore, it cannot be said that Assessing Officer has taken a particular view.. In view of the above discussion, we uphold the revisionary order passed u/s 263 by Ld. Commissioner. - Decided against assessee - IT Appeal Nos. 610 to 614 (Chd.) of 2013 - Dated:- 6-8-2015 - BHAVNESH SAINI, JUDICIAL MEMBER AND T.R. SOOD, ACCOUNTA .....

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acts and circumstances of the case and in law, the notice issued under section 263 of the of Income Tax Act, 1961 ('Act') by the learned Commissioner of Income Tax (TDS), Chandigarh (hereinafter referred to as the 'learned CIT(TDS)') and the order passed under section 263 of the Act are illegal, bad in law and without jurisdiction. 2. On the facts and in circumstances of the case and in law, the learned CIT(TDS) erred in assuming the jurisdiction under section 263 of the Act sinc .....

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officer. 2.3 the order passed by the learned ACIT is neither 'erroneous' nor 'prejudicial' to the interest of the revenue since the learned ACIT took one of the two permissible views after conducting a detailed enquiry in respect of various expenses incurred by the Appellant. 3. On the facts and circumstances of the case and in law, the order passed by the learned CIT(TDS) under section 263 of the Act is bad in law and void ab intio, since the learned CIT has completely ignored .....

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that issue regarding TDS on commission paid in view of section 194H was not considered by ACIT (TDS). The assessee was provided with an opportunity of being heard. In response, the assessee filed a detailed reply which has been reproduced by Ld. Commissioner at pages 2 to 8 of his order. In this reply it has been submitted that for exercising power u/s 263 it has to be established that order passed by the authority is erroneous as well as prejudicial to the interest of Revenue and has led to lo .....

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ted by the Assessing Officer himself who passed order u/s 201(1)/201(1A) for all these years. Therefore, the orders passed by the AO are erroneous. Since, the AO has not deemed the assessee an assessee in default for not having deducted TDS on the payments made as discount/commission to the vendors against prepaid sim cards/recharge vouchers, despite the fact that on the postpaid sim cards the assessee has been deducting tax at source 194H and also having not charged the mandatory interest u/s 2 .....

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the Assessing Officer in this case has not taken any view and decision at all on this issue, hence the question of two possible views does not arise. Conversely, it is a case where assessing officer, who passed the order u/s 201(1)/201(1A), himself admitted the fact of having omitted this issue of the assessee being liable for deducting tax at source u/s 194H of the I.T. Act on the discount/commission paid to the vendors on prepaid sim cards/recharge vouchers. 3. The claim of the assessee that d .....

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h Section 20(1A) was held to be erroneous and prejudicial to the interest of Revenue. The same was set aside with a direction to Assessing Officer to examine the default of the assessee to the extent of not deducting tax at source on discount/commission paid to the vendors against pre paid sim card/recharge voucher during these years. 5. Before us Ld. Counsel for the assessee referred to page 1 of the paper book, which is copy of the notice issued by the Income Tax Officer (HQ). He pointed out t .....

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urce from the payment made towards commission/incentive of pre paid cards as required u/s 194H. From this observation, it becomes clear that issue was duly examined by the ACIT (TDS). He further submitted that under section 263 the Commissioner was required to indicate in the notice that order passed by the lower authorities was erroneous and prejudicial to the Revenue but no such mention has been made in the notice. Therefore, notice was without jurisdiction and in this regard he referred to th .....

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. He contended that similar view was taken by the Chandigarh Bench of the Tribunal in the case of Nand Parkash & Co. v. ITO [1991] 38 ITD 1. In this regard he read out para 9 of this judgment. 7. The Ld. counsel pointed out that order u/s 201(1) has been passed on 24.3.2011, on that date there was a precedent already available in case of Asstt. CIT v. Idea Cellular Ltd. [2010] 125 ITD 222 (Hyd.) where it was held that provisions of section 194H were not applicable in case of sale of sim card .....

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e Ld. Counsel further contended that Commissioner has no power to pass an order beyond the issues raised in notice and in this regard he relied on the decision of Hon'ble Punjab & Haryana High Court in the case of CIT v. Jagadhri Electric Supply & Industrial Co. [1983] 140 ITR 490. However, when Ld. Counsel was confronted by the Bench that how the Ld. Commissioner has travelled beyond the notice, he simply stated that in the notice it has been stated that issue regarding deduction of .....

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of the Act. He contended that Assessing Officer has simply set up a preamble in the order u/s 201 regarding non-deduction of tax u/s 194H but no query was raised in this regard and no replies were file. Therefore, it is a clear case of non-application of mind by the Assessing Officer. Once this defect was noticed, the Assessing Officer put up a proposal for revision u/s 263 of the Act which was examined by the Commissioner and then he directed to issue a notice. In this regard he filed copies of .....

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e of the possible views. Firstly, the Assessing Officer has not examined the issue of deduction of tax from the commission paid on prepaid/recharge vouchers on which TDS was liable to be deducted u/s 194H. In any case the decision in the case of Idea Cellular Ltd. v. Dy. CIT [2010] 123 ITD 620 (Delhi) which was decided by the Tribunal on 28.3.2008 by Delhi Bench was reversed by Hon'ble Delhi High Court on 19.2.2010 which is reported in CIT v. Idea Cellular Ltd. [2010] 325 ITR 148. One more H .....

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sible view. 11. We have considered the rival submissions carefully in the light of the material available on record and the decisions cited by both the parties. We are unable to agree with the submissions of Ld. Counsel for the assessee. Section 263(1) which gives revisionary power to the Commissioner reads as under:- "263 (1) : The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Income-tax Officer i .....

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ny notice before assuming the jurisdiction under this provision. This position has been clarified by Hon'ble Supreme Court in the case of CIT v. Electro House [1971] 82 ITR 824. The head noted of the decision reads as under:- "Unlike section 34, section 33B of the Income-tax Act, 1922, does not require any notice to be issued by the Commissioner before he assumes jurisdiction to proceed to revise an order passed by the Income-tax Officer. The jurisdiction of the Commissioner to proceed .....

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of the principles of natural justice may affect the legality of the order made but that does not affect the jurisdiction of the Commissioner." The above decision makes it absolutely clear that there was no requirement of giving any notice and, therefore, there is no merit in the contention pointing to various defects in the notice. No doubt this decision was rendered u/s 33B of the old Act i.e. Income Tax Act, 1922. Section 33B of this old Act reads as under:- "The Commissioner may cal .....

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ssment and directing a fresh assessment." A careful reading of section 33B of the old Act along with section 263(1) of the new Act i.e. Income tax Act, 1961 would show that provision is identical. The only difference is that instead of expression 'Income tax officer' used in the old Act, expression 'Assessing Officer' is used in the new Act. Therefore, this decision is clearly applicable with reference to the new Act also. 13. Further to above, while commenting on this issue .....

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vanished in recent times. Rules of natural justice are not embodied rules, and they depend on the facts and circumstances of each case. "This principle of what is called 'natural justice' may be burdensome to some minds, but this price - a small price - has to be paid if we desire a society governed by law". A quasi-judicial body may not be required to hold an enquiry in all cases but it will be clear breach of natural justice if it does not inform the party and give him a cha .....

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h of natural justice. In Wiseman v. Borneman' Lord Denning. M R, held that for the purpose of just determining whether there is a prima facie, case or not and for arriving at a sort of preliminary decision, principles of natural justice are not applicable. There is a great difference between a Tribunal which has to decide the rights and wrongs of the parties and one which has to just determine simply whether there is or there is not a prima facie case. Applying the above principles to the pr .....

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Electro House, the "Supreme Court held that section 263 (unlike section 148 corresponding to section 34 of 1922 Act) does not require any notice to be issued by the Commissioner before he assumes jurisdiction to the Commissioner to proceed under section 263 is not dependent on the fulfilment of any condition precedent. He is not required to give any notice before commencing the enquiry. All that he is required to so, before reaching opportunity of being heard and make or cause to make such .....

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om the above it becomes absolutely clear that before Jurisdiction u/s 263, no notice etc. is required to be issued. The only contention is that an opportunity of being heard be provided to the assessee. 14. As far as opportunity of being heard is concerned, it emanates from the first principles of natural justice i.e. audi altern partem in simple English it would mean that nobody should be hanged without being heard. This principle has been incorporated in this section so as revisionary order sh .....

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igh Court or Supreme Court. In view of the above position, we are of the opinion that Ld. Commissioner has invoked the jurisdiction correctly. In fact some arguments were made that how the proposal has been put up by Assessing Officer. However, on questioning by Bench Ld. counsel has fairly agreed that the law permits the subordinate staff including the Assessing Officer to put up a proposal for passing revisionary order before the Commissioner. In this regard we may point out that Hon'ble A .....

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and it is clear that when the proposal was put up before the Ld. Commissioner, the same was approved by the Ld. Commissioner on 26.4.2012. No doubt the notice is dated 23.4.2012 but we are satisfied with the reasoning given by Ld. DR that notices are also prepared simultaneously with the proposal. Further verification of the record shows that notice was dispatched only on 27.4.2012 by speed post i.e. after obtaining the approval of the Ld. Commissioner. In any case the assessee cannot object to .....

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e opinion, that there is no need to discuss few decisions of the Tribunal with respect to the notice because no such notice was required and such decisions were rendered without noticing the binding precedent from Hon'ble Supreme Court in the case of Electro House (supra). 15. Coming to the next important contention i.e. the Commissioner has travelled beyond the notice, we find no force in this contention. The notice in this case reads as under:- "F. No: .CIT(TDS)/Chd/263/2011-12/SS2 Da .....

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) and 201(1A) for the financial years 2006-07, 2007-08, 2008-09, 2009-10 & 2010-11 were passed on 24.03.2011 'by the ACIT(TDS), Chandigarh, but issue of TDS on prepaid sim cards u/s 194H was omitted to be verified and as such no demand u/s 201(1)/201(1A) of the Income tax Act was raised on this issue. Therefore, in view of these facts, the ACIT(TDS), Chandigarh submitted that the order passed by him is erroneous as it is prejudicial to the interest of revenue for not raising any demand u .....

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x Officer, HQ (TDS) Chandigarh" 16. The first para of the finding of the Ld. Commissioner which has already been reproduced is again being reproduced at the cost of repetition as under:- "1. That on examining an scrutiny of the assessment record, I find that the assessing officer has omitted to have dealt with the issue of discount/commission paid on prepaid/recharge vouchers liable for TDS u/s 194H of the I.T. Act. This fact has been admitted by the Assessing Officer himself who passe .....

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deductible amount paid by way of discount/commission to the vendors. Hence, the orders passed for all these years by the AO are prejudicial to the interest of revenue. I am, therefore, satisfied that the provisions of section 263 of I.T. Act, 1961 are attracted for all these years." 17. In our opinion it would be a case of splitting of hair if we try to distinguish between the expression 'verified' used in the notice and 'dealt with' used in the revisionary order. The basic .....

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2.2010. From the details furnish by the assessee deductor company it was noticed that Person Responsible (PR) of the assessee company has non deducted tax at source from the payments made towards commission/incentive on Prepaid cards as required u/s 194H of the I.T. Act, 1961. Similarly, PR did not deducted tax at source from the roaming charges (national Roaming & International Roaming Charges). As required u/s 194J of the I.T. Act, 1961." No doubt it has been mentioned that it was not .....

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for arguments sake, that it is not necessary to mention everything in the order but nothing has been field before us to show that relevant question on this issue was asked by the Assessing Officer and replied were also given. Therefore, it is a clear case of non-enquiry in respect of this issue. The Ld. CIT-DR has correctly submitted that Assessing Officer has merely set up a preamble on this issue in the first para but has not made any enquiry in this respect. In this regard we may mention tha .....

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para:- "It is not necessary for the Commissioner to make further inquiries before cancelling the assessment order of the Income-tax Officer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income-tax Officer should have made further inquiries before accepting the statements made by the assessee in his return. The reason is obvious. The position and function of the Income-tax Officer is very different from that of a civil court. The .....

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he return when the circumstances of the case are such as to provoke an inquiry. It is because it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word "erroneous" in section 263 includes the failure to make such an enquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein ar .....

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particular issue, then such order in view of the above detailed discussion has to be construed as erroneous and prejudicial to the interest of Revenue and therefore, we hold that order is erroneous and prejudicial to the interest of Revenue as Assessing Officer has failed to make any enquiry. 19. The last contention made by the Ld. counsel was that in view of the decision of Hyderabad Bench of the Tribunal in the case of Idea Cellular Ltd. (supra), the Assessing Officer has taken one of the poss .....

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s issue is that similar issue was decided in favour of the assessee by Delhi Bench of the Tribunal in the case of Idea Cellular Ltd. (supra) and Idea Cellular Ltd.'s case (supra) by Hyderabad Bench of the Tribunal. It is to be noted that first decision in the case of Idea Cellular Ltd. (supra) was rendered on March, 28, 2008. This decision was reversed by Hon'ble Delhi High Court on 19.2.2010 which was reported at Idea Cellular Ltd.'s case (supra). Therefore, this decision was no mor .....

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arly held as under:- "Held, dismissing the appeal, that the SIM card was what linked the mobile subscriber to the assessee's network. Therefore, supply of SIM card was only for the purpose of rendering continued services by the assessee to the subscriber of the mobile phone. The position was the same so far as recharge coupons or e topups were concerned which was only air time charges collected from the subscribers in advance. There was no sale of any goods involved as claimed by the as .....

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