AMBATTUR DEVELOPER (P) LTD.,CHENNAI vs. DCIT INTERNATIONAL TAXATION 1(1), CHENNAI

आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by assessee for Assessment Year (AY) 2009-10 arises out of the order of learned Commissioner of Income Tax (Appeals)-16, Chennai dated 31.08.2017 in the matter an order passed by Ld. Assessing Officer (AO) u/s 201(1) / (1A) of the Act on 29.03.2016. The grounds taken by the assessee read as under:

2. That on the facts and in the circumstances of the case and in law, the CIT(A) erred in upholding the action of the Assessing Officer (AO) in passing an order under Section 201(1) and 201(1 A) of the Act which is barred by limitation as contemplated under section 201 (3) of the Act as applicable for AY 2009-10.

3. That on the facts and in the circumstances of the case and in law, the CIT(A) failed to appreciate that the time limit for initiation of proceedings under section 201(1) of the Act expired on 31.03.2012 and as such the notice issued under Section 201(1) of the Act on 14.03.2016 is void ab initio.

4. That on the facts and in the circumstances of the case and in law, the CIT(A) grossly erred in not appreciating that the order under section 201 (1) is passed belatedly on 29.03.2016 much after the expiry of the statutory time limit prescribed under the 201(3) of the Act as applicable for AY 2009-10, which is 31.3.2012.

5. Without prejudice to the above, that on the facts and in the circumstances of the case and in law, the CIT(A) erred in confirming the order of AO in holding that the payment to HBA International AC, is taxable in India and consequently tax should have been withheld.

6. Without prejudice to the above, that on the facts and in the circumstances of the case and in law, the CIT(A) erred in not appreciating that the payment is not chargeable to tax in India as per the DTAA between India and USA 7. The Appellant prays for leave to add, alter, amend, substitute, rescind, modify and/or withdraw in any manner whatsoever all or any of the foregoing grounds of appeal

before or at the hearing of the appeal. As is evident, the assessee is aggrieved by confirmation of certain demand raised by Ld. AO u/s 201 (1) / (IA). The assessee also submits that the order has been passed belatedly and therefore, the same is bad in law. To support the same, reliance has been placed on various judicial pronouncements, the copies of which have been placed on record. Having heard rival submissions and after perusal of case records, the appeal is disposed-off as under.

2. In order dated 29.03.2016 passed by Ld. AO u/s 201 (1) / (IA), it transpired that during financial year 2008-09, the assessee made payment to an overseas entity namely M/s HBA International AC as professional charges. The assessee did not deduct tax at source (TDS) and also could not furnish any document or copy of agreement etc. in support of its claim. However, the assessee submitted that order u/s 201(3) could not be passed after expiry of 4 years which was rejected by Ld. AO considering the decision of 3 - Hon’ble Calcutta High Court in Bhura Exports Ltd. vs. ITO (13 Taxmann.com 162) wherein it was held that there was no time limit for passing a withholding tax order u/s 201 of the Act for period prior to 01.04.2010 since the Act did not prescribe any time limit for passing such an order. Similar was stated to be the decision of Hon’ble Punjab & Haryana High Court in HMT Ltd. (15 Taxmann.com 85). Considering the same, Ld. AO held that the limitation was introduced by Finance Act, 2009 w.e.f. 01.04.2010 which would not apply to AY 2009-10 and therefore, the order could have been passed at any time. Accordingly, the assessee was deemed to be an assessee-in-default and a demand of Rs.22.05 Lacs was raised against the assessee u/s 201(1) & 201(IA). The Ld. CIT(A) confirmed the stand of Ld. AO against which the assessee is in further appeal before us.

(ii) six years from the end of the financial year in which payment is made or credit is given, in any other case Provided that such order for a financial year commencing on or before the 1st day of April, 2007 may be passed at any time on or before the 31st day of March, 2011. 10.4 The question whether the order passed u/s. 201(1) and 201(1A) of the Act for the assessment year 2011-12, was barred by limitation was decided against the assessee by the CIT(A), on the reason that it is observed from the provisions of section 201(3) that the time limit period of six years is applicable for the failure to deduct whole or any part of the tax from the person resident in India and in the appellant’s case the deductee is not an Indian resident company and therefore the time limit period of six years prescribed u/s. 201(3) will not apply to the present case. In view of the above, it is held that the order passed by the Assessing Officer is legally valid. 10.5 The learned DR submitted that the order passed u/s 201(1) and 201(1A) was not barred by limitation u/s 201(3) of the I.T. Act for the reason that the payee in the instant case is a non-resident, whereas, the limitation prescribed u/s 201(3) of the I.T.Act would apply only to payments made to Indian resident company. Section 201(3) and (4) was inserted by the Finance (No.2) Act, 2009 with effect from 01.04.2010 and it was later substituted by the Finance (No.2) Act, 2014 with effect from 01.10.2014. Prior to the time limit being prescribed by virtue of insertion of section 201(3), the Courts have held that when the statute does not prescribe the time limit for passing an order u/s 201(1) / 201(1A) of the I.T.Act, then reasonable time limit ought to be read into the provisions. The Special Bench of the Tribunal in the case of Mahindra & Mahindra Ltd. v. DCIT reported in [(2010) 122 ITD 216 (Mum.)] had held that order passed u/s 201(1) is akin to an order of assessment and the reasonable time limit for passing an order u/s 201(1) / 201(1A) would be same as the time limit prescribed for initiating and completion of reassessment u/s 147 of the I.T.Act. The Special Bench of the Tribunal was confirmed by the Hon’ble Bombay High Court in the case of Director of Income tax (International � Taxation) v. Mahindra & Mahindra Ltd. reported in [(2014) 48 taxmann.com 150 (Bombay)]. The Special Bench order was considering payments made to non-residents. In our case also the payees are non-resident and that was the reason for the CIT(A) to hold that the time limit mentioned u/s 201(3) of the I.T.Act does not have application to this case. 10.6 When no time limit is prescribed under the statute for initiating and completion of a proceedings, the Hon’ble Kerala High Court in the case of Iswara Bhat v. Commissioner of Agricultural Income-tax [(1993) 200 ITR 238 (Ker.)] had held that the powers should be exercised within the reasonable time. The Hon’ble High Court was considering the powers of the Commissioner to exercise the revisionary jurisdiction. The Kerala Agricultural Income-tax Act, 1950 did not prescribe a time limit for initiating a suo moto revisional proceedings. However, the Hon’ble Kerala High Court held that the Commissioner has to pass an order within a reasonable time and what is a reasonable time limit depends on the facts of that particular case. 10.7 The Hon’ble Delhi High Court in the case of CIT v. NHK Japan Broadcasting Corporation reported in [(2008) 305 ITR 137 (Delhi)] had held that the order passed u/s 201 of the I.T.Act beyond four years was not reasonable and had quashed the same as barred by limitation. Similar view was taken by the Hon’ble Himachal Pradesh High Court in the case of CIT v.

Satluj Jal Vidyut Nigam Ltd. reported in [(2012) 345 ITR 552 (HP)]. As mentioned earlier, the learned DR submitted that the time limit prescribed in sub-section (3) of section 201 does not have application since the payee is a non-resident. The Hon’ble Bombay High Court in the case of Director of Income-tax (International Taxation) v. Mahindra & Mahindra Ltd. (supra) had held even if there is no time limit prescribed under the statute for passing an order u/s 201(1) / 201(1A) of the I.T. Act, a reasonable time limit should be read into the provision. The Hon’ble Bombay High Court had confirmed the Special Bench order of the Tribunal, wherein the time limit prescribed for initiating and completion of reassessment u/s 147 of the I.T. Act was upheld to be correct. The Hon’ble High Court was considering the following substantial question of law:- “(1) Whether the Tribunal was justified in prescribing the time limit for initiation and completion of proceedings under sub-sections (1) and (1A) of Section 201 of the Income-tax Act, 1961 in the absence of any time-limit provided under the said Act? (2) Whether the Tribunal was justified in prescribing the time limit statutorily provided for initiation and completion of reassessment proceedings under Section 147 of the Income-tax Act, 1961 for the purposes of sub- sections (1) and (1A) of Section 201 of the said Act?” In deciding the above question, the Hon’ble High Court confirmed the Special Bench order of the Tribunal by following the judgment of the Hon’ble Delhi High Court in the case of CIT v. NHK Japan Broadcasting Corporation (supra). 10.8 In the instant case, the financial year concerned is 2010-11 and notice for initiating proceedings u/s 201(1) / 201(1A) was issued on 19.03.2018. The orders u/s 201(1) / 201(1A) of the I.T. Act was finally passed on 31.03.2018, which is seven years from the end of the financial year. Therefore, it cannot be stated in facts of this case, the order u/s 201(1) / 201(1A) was passed within a reasonable time, going by the dictum laid down by the judicial pronouncement mentioned supra and the prescription of limitation mentioned u/s 201(3) and (4) of the I.T.Act. Similar view was taken by the Co-ordinate Bench, Cochin, vide order dated 10.04.2018 in for assessment year 2007-2008 in the case of M/s. U.S. Technology Resources (P) Ltd., wherein the present Accountant Member was the co-author of the said order. In view of the aforesaid reasoning, we hold that the order passed u/s 201(1)/ 201(1A) of the I.T. Act was barred by limitation in the facts and circumstances of the case. It is ordered accordingly We find that similar facts exist before us in the present case and the above adjudication of Tribunal would squarely apply. Respectfully following the same, the order passed in 7th year from end of relevant financial year could not be held to be legally sustainable. We order so. The order is held to be bad in law and accordingly, quashed.