M/S. EPP COMPOSITES PVT. LTD.,RAJKOT vs. THE PRINCIPAL COMMISSIONER OF INCOME TAX-1, RAJKOT

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ITA 154/RJT/2018Status: DisposedITAT Rajkot14 September 2022AY 2013-145 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the Assessing Officer had verified the issue of TDS and foreign payments, and the assessee had provided satisfactory evidence. Therefore, the assessment order was not erroneous or prejudicial to the interest of the revenue, and the invocation of Section 263 was not justifiable.

What were the facts?

The assessee paid foreign commission and deducted TDS, but credited it to the government account in a subsequent year. The PCIT initiated revision proceedings under Section 263, holding the assessment order prejudicial to revenue due to delayed TDS payment. The assessee argued that the AO had considered the issue and that no income was chargeable in India.

What were the issues?

Whether the PCIT was justified in invoking Section 263 when the AO had already considered and verified the issue of TDS and foreign payments? Whether the delayed payment of TDS attracted disallowance under Section 40(a)(i) when the AO had taken a plausible view?

Which sections of the Income-tax Act were involved?

Section 263,Section 40(a)(i),Section 195,Section 9

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT

Before: Ms. SUCHITRA KAMBLE & SHRI WASEEM AHMED

For Appellant: Shri D.M. Rindani, AR
For Respondent: Shri B.D. Gupta, DR
Hearing: 04.08.2022Pronounced: 14.09.2022

O R D E R

PER SUCHITRA KAMBLE, JUDICIAL MEMBER :

1.

This appeal is filed by the assessee against the order dated 26.03.2018 passed by the Principal Commissioner of Income Tax-1, Rajkot for the Assessment Year 2013-14.

2.

The assessee has raised the following grounds of appeal:

“1. The learned Principal Commissioner of Income Tax, Rajkot-1, Rajkot erred in assuming jurisdiction u/s.263 of the Act, particularly in the light of reasons stated by him in the show cause notice and in the order passed u/s.263 of the Act and hence the impugned order is bad in law.

2. The learned Principal Commissioner of Income Tax, Rajkot-1, Rajkot erred in holding that while finalizing the assessment, the AO failed to verify the applicability of provisions of chapter XVII of the Act and make disallowance of foreign commission paid during the year as per the sec.40(a)(i) of the Act.

3.

The learned Principal Commissioner of Income Tax, Rajkot-1, Rajkot failed to appreciate that impugned payments made to non- residents were not hit by Sec.195 of the Act read with Sec.9 of the Act.

4. The learned Principal Commissioner of Income Tax, Rajkot-1, Rajkot failed to appreciate that only because tax at source was paid in a subsequent year did not necessarily mean that tax was deductible at source.”

3. The assessee is a closely held Private Limited Company engaged in the business of manufacturing of GRP pipes & fittings, Chemical Equipments, Pultreded items, prefab etc. The assessee filed return of income at Rs.67,20,521/- on 30.11.2014. The Assessing Officer issued notice under Section 143(2) of the Income Tax Act, 1961 on 31.08.2015 and notice under Section 142(1) on 05.10.2015. The assessee filed details as well as written submissions. The Assessing Officer observed that Profit & Loss account and Balance Sheet is maintained by the assessee revealing that the assessee made investments in shares of it’s subsidiary Rotec EPP Composites Pvt. Ltd. The only income likely to arise from this investment is dividend which is exempt and do not form part of the gross total income. No expenses were attributed to the assessee towards earning of this income. Therefore, the Assessing Officer observed that the same cannot be said that no expenses have been incurred in respect of the said exempt income and therefore, disallowance under Section 14A read with Rule 8D was worked out at Rs.2,79,880/-. The PCIT issued notice under Section 263 of the Act on 09.03.2018. The PCIT asked the assessee that the assessee had paid the sum of Rs.1,37,56,848/- as foreign commission and deducted TDS under Section 195 of the Act during the months of September, October, November 2012 and March 2013. However, the deducted TDS was credited into the Government account only in March 2014 which is beyond the period mentioned in Section 40(a)(i) of the Act, i.e. after the date of filing the return under Section 139(1) of the Act. Therefore, the assessment order passed by the Assessing Officer is prejudicial to the interest of Revenue. The PCIT vide order dated 26.03.2018 passed under Section 263 of the Act directed the Assessing Officer to make afresh assessment denovo after allowing adequate opportunity of being heard to the assessee and cancelled the order of assessment.

4.

Being aggrieved by the order under Section 263 of the Act passed by the PCIT, the assessee filed appeal before us.

5.

The Ld. AR submitted that the PCIT has not shown as to which is the exact error or why tax was deductible in law by the assessee or where the Assessing Officer committed error. The Ld. AR further submitted that the payment of TDS itself does not attract disallowance under Section 40(a)(i) of the Act. Even otherwise, there was no income of payee chargeable in India – there can be estoppel or acquiescence against law. Even if there was error, there is no prejudice to the Revenue, the payment would be deductible in the year of tax deduction & there is no change in tax structure. Deduction of Rs.1,37,56,848/- was not claimed again in A.Y. 2014-15. Ld. AR further submitted that the Assessing Officer asked pointed questions on the issue of TDS and foreign payments, which were addressed by the assessee in assessment, which was framed even after TDS payments was made, which means AO is deemed to have applied his mind. The assessee was provided invoices and Form 15CB along with certificate of CA showing nil deduction. Thus, the Assessing officer took a plausible view and there is change of view by PCIT. By agreeing to pay and bear TDS amount, the assessee did not agree to or accept the liability, it maintained its stand during assessment, even before the ITO (International Tax). Installation and commission services were rendered outside India in respect of export of goods by the assessee, hence Section 9 itself does not apply to the non- resident payee and consequently in law there was no liability to deduct tax at source under Section 195, as there was no income chargeable in India. The Ld. AR relied upon the decision of Hon’ble Supreme Court in the case of GE India Technology Centre (P) Limited (2010) 327 ITR 456 (SC), Peerless General Finance and Investment Co. Ltd. (2019) 416 ITR 1 (SC) and Maruti Suzuki India Limited (2019) 416 ITR 613 (SC). The Ld. AR alternately contended that if it is held that there was error in the order of assessment as stated by the PCIT, the directions of the PCIT be modified to allow deduction of Rs.1,37,56,848/- in the year of payment of TDS.

6.

Ld. DR submitted that the Assessing Officer has not taken cognisance of the delayed payment of TDS to the Government Treasurer as well as action of the assessee’s explanation that the assessee was liable to pay TDS but late payment made by the assessee comes under the purview of Section 40(a)(i) of the Act. The ld. DR relied upon the order of the PCIT.

7.

We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that the Assessing Officer during the assessment proceedings has asked query in its questionnaire regarding issue of TDS and foreign payment which were replied by the assessee during the assessment proceedings along with investment and Form 15CB. Thus, the issue was very much verified by the Assessing Officer and the Assessing Officer has taken proper cognisance of the said issue. Once the Assessing Officer has taken the precaution of verifying the doubtful issue in the present case that of TDS and foreign payment then these issues cannot be treated as non-verification of the issue or the same is erroneous and prejudicial to the interest of Revenue. The assessee has satisfied the Assessing Officer during the assessment proceedings with the evidence on record and, therefore, the liability of payment cannot come under the purview of Section 40(a)(i) of the Act. Thus, the PCIT has taken a different view which is not plausible for invocation of Section 263 of the Act which is revisionary power of the PCIT. The PCIT has not taken cognisance of the records and evidences produced before the Assessing Officer which has been duly taken into account by the Assessing Officer and therefore order of the Assessing Officer cannot be treated as erroneous and prejudicial to the interest of Revenue. Hence, invocation of Section 263 of the Act is not justifiable. Appeal of the assessee is, therefore, allowed.

8.

In the result, appeal filed by the assessee is allowed.

Order pronounced in the open Court on this 14th day of September, 2022.

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