DY. COMMISSIONER OF INCOME TAX-1, INTERNATIONAL TAXATION, HYDERABAD vs. EMAAR HILLS TOWNSHIP PRIVATE LIMITED, HYDERABAD

Brief facts of the case are that the assessee was incorporated as a Special Purpose Vehicle (SPV) and its parent company, Emaar PJSC, Dubai entered into a collaboration agreement with the Adhara Pradesh Industrial Infrastructure Corporation Limited (APIIC) to develop a township. Learned Assessing Officer found from the balance sheet of the assessee company for the financial year 2005-06, an amount of Rs. 2,54,94,928/- was shown as ‘Architectural Fee’ under capital work in progress being the foreign remittance made to Emaar PJSC, Dubai, but without discharging its obligation to make TDS under section 195 of the Income Tax Act, 1961 (for short “the Act”).

Though the assessee pleaded that the payment is in the nature of reimbursement, and no TDS is required to be affected on such reimbursement, learned Assessing Officer stated that the assessee failed to produce any evidence to prove the said fact, passed an order under section 201(1) and 201(1A) of the Act fastening the tax liability and interest thereon, by order dated 03/03/2014.

Aggrieved by such an action of the learned Assessing Officer, assessee preferred appeal before the learned CIT(A) and argued that the reimbursement does not require any TDS and further that the impugned order was also barred by limitation since such an order was passed beyond seven years from the end of the financial year 2005-06.

Learned CIT(A), followed the decision of ITAT, Visakhapatnam in the case of Bheemarasetty Sunitha vs. DDIT in dated 23/06/2017, following the decision of the Special Bench of the Tribunal in the case of Mahindra & Mahindra vs. DCIT [2009] 30 SOT 374

ITA-IT No. 1770/Hyd/2019 (Mumbai)(SB), wherein it was held that the time limit for initiating proceedings under section 201(1) and 201(1A) of the Act is four years from the end of the financial year in which the assessee was required to deduct tax at source, and accordingly, held that the order under section 201(1) and 201(1A) of the Act is invalid and bad under law.

Revenue has preferred this appeal challenging the order of learned CIT(A) stating that the proviso to section 201(1) of the Act is applicable only to resident assessees, so also section 201(3) of the Act prescribing time limit for completion of proceedings under section 201(1) of the Act.

Per contra, learned AR submitted that in the case of Mahindra & Mahindra (supra), the Special Bench of the Tribunal considered the order passed under section 201(1) of the Act for violation of the provisions under section 195 of the Act and held that the expression ‘any such person’ referred to in section 201(1) of the Act extends to person deducting and failing to deposit tax, but also to person failing to deduct the tax at source. He submits that in the case of Bheemarasetty Sunitha (supra), while following the decision of the Hon’ble Delhi High Court in the case of Bharathi Airtel vs. UOI, 76 taxmann.com 256 (Del) held that four years is the reasonable period to pass the order under section 201(1) and 201(1A) of the Act.

We have gone through the record in the light of the submissions made on either side. Admittedly, the alleged lapse committed by the assessee was in the financial year 2005-06, which ended by 31/03/2006. The impugned order under section 201(1) and 201(1A) of the Act was passed on 03/03/2014, well beyond seven years thereafter. Further, it

Having regard to this passing of orders under section 201(1) and 201(1A) of the Act on a piece meal basis, we are of the considered opinion that the public policy demands that such orders must pass within reasonable time and cannot be extended to limitless period of time. Section 201(3) of the Act was introduced by Finance Act, 2009 w.e.f. 01/04/2010 setting time limit to pass an order under section 201(1) of the Act as four years from the end of the financial year in which the payment was made or credit was given. And later on, it was extended to seven years, by amendment by insertion of a new section by Finance Act, 2014.

The order passed under section 201(1) and 201(1A) of the Act in this case was beyond even the period of seven years. When the Revenue had an opportunity to verify the record on the occasion of the first order dated 06/07/2010, it would be quite unreasonable to accept the order passed four years later, because the order under challenge is passed clearly beyond seven years. In the case of CIT vs. Acer India Pvt. Ltd., (2022) 286 Taxman 570 (Kar) for the assessment year 2009-10, the Hon’ble Karnataka High Court held that at relevant point of time, limitation of two years was existing but it was subsequently substituted by Finance Act, 2014. However, a right was accrued to the assessee prior to the Finance Act, 2014 and, therefore, the subsequent amendment will be reviving the ITA-IT No. 1770/Hyd/2019 period of limitation and take away the vested right accrued to the assessee.

Respectfully following the decisions referred to above, we hold that the impugned order under section 201(1) and 201(1A) of the Act is barred by limitation. We, therefore, do not find anything illegality or irregularity in the orders passed by the learned CIT(A).

In the result, appeal of the Revenue is dismissed.