Assessing Officer must consider the relevant aspects before passing orders

The Madras High Court has ruled that an Assessing Officer must thoroughly consider all relevant aspects of a case before issuing orders. In this instance, the court found that the Assessing Officer failed to properly consider the reasons for input tax credit ineligibility and the nature of payments made to directors. Consequently, the assessment orders were quashed, and the case was sent back to the Assessing Officer for reconsideration.

The Hon'ble Madras High Court in the case of Global Calcium (P.) Ltd. v. Assistant Commissioner (ST) [Writ Petition No. 170 of 2024 dated February 01, 2024], held that the Assessing Officer must consider the relevant aspects before passing any order. Therefore, the case was remanded back to the Assessing Officer.

Facts

Global Calcium (P.) Ltd. ("the Petitioner") was engaged in the business of supply of Bulk Drugs and Pharmaceutical Intermediaries. The Petitioner filed returns periodically. An audit was conducted of the Petitioner's records, certain discrepancies were noticed and communicated by issuing notices. The Petitioner replied to these notices, including the show cause notice ("the SCN") under Section 73 of the Tamil Nadu Goods and Services Tax Act, 2017 ("the TNGST Act"). Eventually, the three separate Assessment Orders ("the Impugned Orders") were issued by the Assessing Officer ("the Respondent") relating to financial years 2017-2018, 2018-2019, and 2019-2020 wherein three defects were dealt with:

1. suppression of purchases by not availing of available Input Tax Credit ("ITC"),
2. the payment of performance linked incentives to two persons who held office as whole-time directors of the company, and
3. discrepancies relating to E-way bills.

Hence, aggrieved by the Impugned Orders, the Petitioner filed the present writ petition.

Issue

Whether an Assessing Officer can pass an order without considering relevant aspects of the Petitioner?

Held

The Hon'ble Madras High Court in Writ Petition No. 170 of 2024, held as under:

• Observed that, the Respondent did not take into consideration the following points before passing the Impugned Order:

a. With respect to the first defect, the ITC was not claimed on account of ineligibility. By referring to discrepancies between the different returns, the proposed liability was partly confirmed and partly dropped.

b. With respect to the second defect, the Respondent examined the balance sheet, Form-16, and FORM 26AS. The expenditure incurred by the Petitioner towards remuneration and performance-based incentives would have been reflected in the profit and loss account of the Petitioner for the relevant financial years. The deduction of tax under Section 192 of the Income Tax Act, 1961 ("the IT Act") was a material fact, but is not conclusive. Ultimately, the test is whether such remuneration was paid towards services provided as an employee of the company or whether services were provided under a contract for service for fees or other consideration.

c. Circular No. 140/10/2020-GST dated June 10, 2020 clarified that the part of the Director's remuneration thatis declared as 'Salaries' in the books of a company and subject to TDS under Section 192 of the IT Act is not taxable being consideration for services by an employee to the employer in the course of or in relation to his employment in terms of Schedule II of the Central Goods and Services Tax Act, 2017 ("the CGST Act")

• Held that, it is also possible that the Petitioner did not place on record all relevant documents. In these circumstances, the Impugned Orders were not sustainable and are hereby quashed. Further, the case was remanded back to the Petitioner. Hence, the writ petition was disposed of.

Our Comments

Section 73 of the CGST Act, talks about "Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized for any reason other than fraud or any willful misstatement or suppression of facts". According to sub-section (1) of Section 73 of the CGST Act,mentions that where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded, or where ITC has been wrongly availed or utilized for any reason, other than the reason of fraud or any willful-misstatement or suppression of facts to evade tax, he shall serve notice on the person chargeable with tax which has not been so paid or which has been so short paid or to whom the refund has erroneously been made, or who has wrongly availed or utilized ITC, requiring him to show cause as to why he should not pay the amount specified in the notice along with interest payable thereon under Section 50 and a penalty is leviable under the provisions of the CGST Act.
Further, it is to be noted that the Assessing Officer can issue the notices only after considering all the facts presented by the Company. Without considering the same, the Assessing Officers should not issue any SCN under Section 73 of the CGST Act.
Furthermore, Directors' remuneration is taxable only when consideration is paid by the Company, other than salary such as commission fees, sitting fees, etc. Just because in FORM 26AS the Directors' remuneration is mentioned, the Assessing Officer without knowing that the said expenditure incurred by the Company is towards salary where TDS has been deducted under Section 192 of the IT Act, is not taxable being consideration for services by an employee to the employer in the course of or in relation to his employment in terms of Schedule II of the CGST Act.