ADABALA MANMOHAN,VISAKHAPATNAM vs. THE INCOME TAX OFFICER, INTERNATIONAL TAXATION, VISAKHAPATNAM

In this appeal, there is a delay of 296 days in filing the instant appeal before the Tribunal. The assessee has filed condonation petition. However, as per the decision of the Hon’ble Supreme Court in SMW(A) No.3 of 2020, the period of limitation for filing the appeals under general laws and all special laws falling between 15/3/2020 and 28/02/2022 shall be excluded for calculating the delay. Considering the same, we hereby condone the delay of 296 days in filing the present appeal before the Tribunal and proceed to adjudicate the case on merits.

Brief facts of the case are that the assessee purchased an immovable property in plot no.9, Block No.45, TS No.1031/2, admeasuring 216.88 sq yds, Waltair Ward, Visakhapatnam from Smt. Davuluri Swapna, non-resident and Sri Kodali Rajendra Prasad, a resident. The AO proposed to treat the assessee as an assessee in default u/s. 201(1) and accordingly issued a letter. There was no response from the assessee. Again a show cause notice dated 20/03/2018 was issued for which also there was no response from the assessee. The AO then treated the assessee as an assessee in default U/s. 201(1) of the Act and passed order U/s. 201(1) of the Act along with the interest U/s. 201(1A) of the Act. Aggrieved by the order of the Ld. AO, the assessee filed an appeal before the Ld. CIT(A), Hyderabad.

The Ld. CIT(A) partly allowed the appeal of the assessee. Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before us. The assessee has raised the following grounds of appeal:

The assessee also submitted a petition for withdrawal of the grounds no.3, 5 & 6. Since the Grounds no.1 and 8 are general in nature the assessee pressed the Grounds no. 1, 2 and 7 only.

The Ld. AR argued that the AO has not given any reasonable time to respond which is against the principles of natural justice. The Ld. AR also contended that various High Courts and Tribunals have held that generally four years was treated as a period of time limit for initiating action U/s. 201(1) / 201(1A) of the Act. The Ld. AR submitted that the notice was issued after expiry of five years and hence not a valid notice. The Ld. AR also pointed out that the payment was made to NRI during the March 2011 and hence the limitation period expires on March 2015. The Ld. AR also submitted that the provisions of section 50C are not applicable in the case of deduction of tax U/s. 195 of the Act. The Ld. AR relied on the orders of the juri ictional Coordinate Bench of ITAT in the case of (i) Sri Malla Appala Naidu vs. ITO (International Taxation), ITA

We have heard both the sides and perused the material available on record. In this case the admitted facts are that the assessee has purchased a property during the FY 2010-11 relevant to the AY 2011-12 on 7/3/2011. The assessee has paid a sum of Rs. 54,22,000/- out of which Rs. 50,39,500/- was paid to the NRI. As per the provisions of section 195 of the Act, the assessee is required to deduct tax at source on payments made to non-residents. In the instant case, the assessee required to deduct the tax at source on the sums chargeable to capital gains. The assessee has failed to deduct the tax at source, therefore the assessee is liable for payment tax and interest U/s. 201(1)/201(1A) of the 6 Act. The Ld. AO passed order U/s. 201(1)/201(1A) on 27/03/2018 which is after a lapse of five years from the end of the relevant assessment year. There is no time limit provided under the Act for treating the assessee as an assessee in default in respect of payment made to non-resident. As per section 201(3), as rightly pointed out by the Ld. AR it applies to residents and not to non-residents. The identical issue has come up before this Tribunal in the case of Bheemarasetty Sunitha cited supra and this Tribunal after considering the decisions of Hon’ble Delhi High Court in the case of Bharti Airtel Limited & Anr Vs. Union of India & Anr and the decision of NHK Japan Broadcasting Corporation [305 ITR 0137], the decision of Hon’ble Supreme Court in the case of GE India Technology Centre and the decision of Hon’ble Bombay High Court in the case of Mahindra & Mahindra Ltd. [365 ITR 0560 (Bom)] held that the reasonable time limit for issue of notice u/s 201(1)/201(1A) is 4 years. In cases, where the notice is issued beyond 4 years, the Coordinate Bench of ITAT held that the same is barred by limitation. For the sake of clarity and convenience, we extract relevant part of the order of this Tribunal in para No.6 to 7 which reads as under :

The Hon’ble Delhi High Court while deciding the writ petition in the case of Bharti Airtel& Another rendered the judgement considering the statement of Objects and Reasons of the Finance (No.2) Bill, 2009. In respect of time limit, Hon’ble Bombay High Court has considered the issue in detail and held that 6 years is reasonable period for initiating the action u/s 201 and 201(1A). The Hon’ble Delhi High Court in the decision relied upon by the Assessee considered the issue with regard to the limitation of time for initiating the proceedings u/s 201/201(1A) and held that 4 years is the reasonable time forinitiating proceedings u/s 201/201(1A). While holding so, the Hon’ble High Court has relied on the decision of CIT Vs. NHK Japan Broadcasting Limited [305 ITR 137] and the CIT Vs. Hutchison Essar Telecom. Limited [323 ITR 330], Further, Hon’ble Delhi High Court has considered amendment made to Section 201 of the Act vide Finance Bill, 2009 and viewed that the Parliament did not make any amendment to the time limits for the non residents which indicates that the Parliament has accepted the judicial pronouncements for the limitation period already set out by the courts. The Hon’ble Delhi High Court also considered the decision of Hon’ble Supreme Court in the case of GE India Technology Centre Vs. CIT (2010) (10) SCC 29, wherein, the Hon’ble Supreme Court held that the proceedings should be initiated u/s 201/201(1A) within reasonable period and it cannot extend without limitation. After considering the decision of the Hon’ble Supreme court in GE India Technology and the Vodafone Essar Mobiles Ltd. the Hon’ble Japan Broadcasting Limited (supra) and held that 4 years is the reasonable period for initiating the proceedings u/s 201/201(1A) of IT Act. The Ld. DR relied on the decision of Hon’ble Bombay High Court in the case of Mahindra & Mahindra Ltd. Considering the Hon’ble Supreme court decision in CIT Vs.Vegetable Products Ltd., 88 ITR 192 (SC) and CIT Vs. Karamchand Premchand Ltd (1960) 40 ITR 106, we are also of the view that the decision favourable to the assessee is required to be taken.

Similarly, the Hon’ble AP High Court in the case of M/ s U.B.Electronic Instruments Limited cited supra held that the 4 years is reasonable time. For ready reference, we extract relevant part of the order of the AP High Court which reads as under :

In the instant case, Smt. Davuluri Sai Swapna has filed her return of income in response to the notice U/s. 148 of the Act for the AY 2012- 13 admitting a total taxable income of Rs. 16,16,878/- and offered capital gains of Rs. 15,22,953/-. The AO of the non-resident ITO, Ward- 12(2), Hyderabad passed the assessment order U/s. 143(3) r.w.s 147 of the Act on 12/6/2019 accepting the return filed by the NRI Smt. Davuluri Sai Swapna. Since the non-resident has discharged her obligation with respect to payment of capital gains tax, the assessee cannot be taxed once again for non-deduction of TDS U/s. 195 of the Act. It is also observed that the seller Smt. Davuluri Sai Swapna is a 9 non-resident from the assessment order passed by AO, Ward-12(2), Hyderabad. Similarly it is also noticed that the AO erred in not adopting the SRO value as prescribed U/s. 50C of the Act while concluding the assessment of the Non-Resident. The reliance placed by the Ld. DR in ITO vs. Shri Rang Infrastructure (P) Ltd (supra) is distinguishable on the fact that the extension of the period of time limit U/s. 201(3) applies only to residents and not to NRIs and hence reliance cannot be placed for the instant case. Respectfully following the judicial precedents as discussed in the earlier paras, we are of the considered view that treating the assessee as an assessee in default U/s. 201 of the Act is not valid in law. We therefore are inclined to quash the order of the Ld. CIT(A). It is ordered accordingly.

In the result, appeal of the assessee is allowed.

Visakhapatnam गधर्ा फ़धईऱ / Guard file 6. आदेशधनुसधर / BY ORDER