CONTROL RISKS INDIA PVT. LTD.,NEW DELHI vs. ACIT, CIRCLE- 6(2), NEW DELHI

The captioned appeal has been filed by the assessee against the order of the Commissioner of Income Tax (Appeals)-II, New Delhi [‘CIT(A)’ in short] dated 19.03.2018 arising from the assessment order dated 29.03.2016 passed by the Assessing Officer (AO) under Section 143(3) of the Income Tax Act, 1961 (the Act) concerning AY 2013-14.

“1. That on the facts and circumstances of the case, the CIT(A) erred in law in upholding the assessment made by the assessing officer ("AO") under section 143(3) of the Income-tax Act, 1961 ("the Act") at an income of Rs.1,59,62,193 as against loss of Rs.1,79,51,014 returned by the Appellant. 2. That on the facts and circumstances of the case, the CIT(A) erred in law in allegedly holding that the documents furnished by the Appellant, viz., (1) Agreements entered into by the Appellant with the non-resident group companies, and (2) No Permanent Establishment Certificates were additional evidences and in absence of application under Rule 46A of the Income-tax Rules, 1962 ("the Rules"), the same could not be admitted for adjudication of the issues involved. 2.1 Without prejudice, that on the facts and circumstances of the case, the CIT(A) erred in law in not granting an opportunity to the Appellant to furnish the aforesaid additional documents by way of application under Rule 46A of the Rules.

3. That on the facts and circumstances of the case, the CIT(A) erred in law in confirming the disallowance made by the AO under section 40(a)(i) of the Act in respect of inter-company fees and international commission payments of Rs.1,96,82,063 and Rs.1,42,31,144 respectively, made by the Appellant to its group companies located outside India on the ground that tax has not been withheld therefrom under section 195 of the Act. 3.1 That on the facts and circumstances of the case, the CIT(A) erred in law in confirming the action of the assessing officer allegedly on the ground that in absence of Agreement (which was not admitted for want of application under Rule 46A of the Rules), the nature of services for which payments have been remitted remained unverified. 3.2 That on the facts and circumstances of the case, the CIT(A) erred in law in confirming the aforesaid disallowance made by the AO under section 40(a)(i) of the Act without returning any finding of its own regarding the nature of services received by the appellant and taxability of income arising from such services in India.”

10 With reference to the non admission of additional evidences, the ld. counsel for the assessee vehemently points out that such remittances towards intercompany fees and commission to overseas group companies located outside India are not susceptible to withholding tax as per the scheme of the Act and when the provisions of the Act and the appropriate Articles of the DTAA are read in conjunction. The ld. counsel contends that the payments have been made to non resident entities who have no permanent establishment in India and the payment made do not confirm the requirement of ‘make available condition’ under DTAA provisions. In continuance, the ld. counsel submits that the TRC and certificate showing presence of PE of non resident entities in India are vital for the determination of the obligation of the assessee under Section 195 of the Act. The ld. counsel contends that merely because some technical mistake might have occurred in the proceedings before the CIT(A), the CIT(A) was not justified in rejecting such crucial documents with disdain without bringing such technical defects to the notice of assessee. The ld. counsel also referred to affidavit placed in this regard before the Tribunal to submit that the TRC and ‘no PE certificate’ of the foreign recipients were actually filed before the Assessing Officer in the assessment proceedings also which have not been considered. The ld. counsel thus contends that the order of the Assessing Officer as well as CIT(A) is vitiated owing to blatant transgression of natural justice and deserves to be set aside.

11.1 It is the case of the assessee that all the relevant documents were placed before the Assessing Officer. Notwithstanding, the documents were filed before the CIT(A) as well. The CIT(A) has ignored the additional evidences on technical grounds and came to an adverse conclusion contrary to the position of law.

11.2 At this stage, we observe that judicial propriety demands that a fair opportunity should be given to the assessee to enable it to explain its case. In the present circumstances, evidences obtained from external sources which have a critical bearing on the outcome of the subject matter ought to have been admitted to reinforce the overriding cause of substantial justice vis-a-vis technical considerations. The breach of sacrosanct principles of natural justice is fundamental and goes to the root of process of framing assessment. Needless to say that the spirit of Rule 46A of IT Rules enabling the assessee to place additional evidences before the CIT(A) are founded on the doctrine of legitimate expectation and principles of natural justice. It is indeed the sacrosanct obligation of the first appellate authority to have ensured that any effective opportunity is granted to the assessee for presenting its case and all evidences are taken into account while determining the issue. The powers of the CIT(A) are not fettered or circumscribed by Rule 46A for admission of additional evidences. In view of mandate of provisions of Section 250(4) of the Act also, the situation existing in the case as narrated above, clearly warranted admission of additional evidences by the CIT(A). We are thus convinced on the fallacy in the action of the CIT(A).