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Re-assessment proceedings are invalid where AO frames reasons to believe at insistence of a jurisdictional Audit Wing officer: HC

2019-TIOL-1926-HC-AHM-IT

IN THE HIGH COURT OF GUJARAT

AT AHMEDABAD

R/Tax Appeal No. 274 of 2019

PRINCIPAL COMMISSIONER OF INCOME TAX 4

Vs

VAIBHAVLAXMI INTERNATIONAL LTD

J B Pardiwala & A C Rao, JJ

Dated: July 15, 2019

Appellant Rep by: Mrs Mauna M Bhatt, (174)
Respondent Rep by: None

Income tax – Sections 5(2)(b), 9(2) & 40(a)(i)

Keywords – Commission earned – Payment to non-resident – Services rendered overseas

The Revenue preferred the present appeal challenging the action of CIT(A) in deleting the addition of Rs.23,96,563/- made by AO on account of disallowance u/s 40(a)(i), without properly appreciating the facts of the case and the material brought on record that the payments made to non-residents were governed by clause(b) to Sub section (2) of Section 5 of the Income tax Act and not u/s 9(2) of Income Tax Act. On appeal, the Tribunal held that commission paid to non-resident for services performed overseas, cannot be brought to tax in India by way of deeming fiction.

On appeal, the High Court held that,

Whether any person paying interest or any other sum to a non-resident is liable to deduct TDS if such sum is not taxable under the I-T Act – NO: HC

++ the first question proposed by the Revenue has something to do with Section 40(a)(ia) of the Act. The issue is with regard to the deletion of the addition made on account of the disallowance of Rs 23,14,214/- under Section 40(a)(ia) of the Act for non-deduction of the tax of the source of commission payable to the foreign agent. The question as proposed by the Revenue is no longer res integra in view of the decision of this Court in the case of PR CIT vs. MGM Exports. The ratio of the decision of this Court referred to is that a person paying interest or any other sum to a nonresident is not liable to deduct tax if such sum is not chargeable to tax under the Act. Thus, the first question proposed by the Revenue is squarely covered.

Revenue’s appeal dismissed

Case followed –

PR CIT vs. MGM Exports 2018-TII-31-HC-AHM-INTL

JUDGEMENT

Per: J B Pardiwala:

1 This Tax Appeal under Section 260A of the Income Tax Act, 1961 (for short, “the Act, 1961”) is at the instance of the Revenue and is directed against the order passed by the Income Tax Appellate Tribunal, Ahmedabad ‘A’ Branch, Ahmedabad dated 22nd October 2018 in the ITA No.2143/Ahd/2014 = 2018-TII-435-ITAT-AHM-INTL for the assessment year 2009-10.

2. The Revenue has proposed the following two questions of law:

“[A] Whether the Appellate Tribunal has erred in law and on facts in upholding the decision of CIT(A) deleting the addition made on account of disallowance u/s 40(a)(ia) of commission of Rs.23,13,214/paid to foreign client without complying the provision of Section 195 of the Act and provision made on account of commission of Rs.82,349/?

[B] Whether the Appellate Tribunal has erred in law and on facts in upholding the decision of CIT(A) deleting the addition of Rs.1,49,18,219/- made in respect of estimation of Gross profit?”

2. The first question proposed by the Revenue has something to do with Section 40(a)(ia) of the Act. The issue is with regard to the deletion of the addition made on account of the disallowance of Rs.23,14,214/under Section 40(a)(ia) of the Act for nondeduction of the tax of the source of commission payable to the foreign agent. The question as proposed by the Revenue is no longer res integra in view of the decision of this Court in the case of PR CIT vs. MGM Exports rendered in the Tax Appeal No.309 of 2018 dated 11th April 2018 = 2018-TII-31-HC-AHM-INTL.

3. The ratio of the decision of this Court referred to above is that a person paying interest or any other sum to a nonresident is not liable to deduct tax if such sum is not chargeable to tax under the Act. Thus, the first question proposed by the Revenue is squarely covered.

4. So far as the second question proposed by the Revenue, the findings recorded by the Tribunal are as under:

“17. We have noted that when Assessing Officer was confronted with the explanation of the assessee, he did not have anything to say beyond that “action taken in the original assessment proceedings was correct” as, according to the Assessing Officer, “there were discrepancies”. These findings of the CIT(A) are not claimed to be perverse or factually incorrect. When the Assessing Officer declines to meet the specific points raised by the assessee in first appellate proceedings, there is obviously no point in challenging the conclusions arrived at in the first appellate proceedings based on vague generalities. No specific issues are raised in appeal before us. We have also noted that the learned CIT(A) has granted impugned relief on the basis of specific explanations of the assessee which have remained uncontroverted. In the light of these discussions as also bearing in mind entirely of the case, we approve well reasoned arrived at by the learned CIT(A) and decline to interfere in the matter.”

5. In view of the aforesaid findings of fact, we are not inclined to admit this appeal even so far as the second question as proposed by the Revenue is concerned.

6. In view of the aforesaid, this appeal fails and is hereby dismissed.

(Paras are numbered as per the original text: Editor)

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