2015 (6) TMI 356 - AT - Income Tax

Reopening of assessment - disallowance u/s 40(a)(ia) - Held that - Carefully examining the orders of the lower authorities and we find that the ld. CIT(A) has examined this issue in the light of assessee s contentions and was of the view that the royalty was not examined by the Assessing Officer during the course of original assessment proceedings. Therefore, the re-assessment proceedings were rightly initiated and the assumption of jurisdiction by the Assessing Officer is proper and is in order. Since no argument was raised to challenge the findings of the ld. CIT(A), we are of the view that the reopening is valid and accordingly we reject this ground of appeal. - Decided against assesse. Non deduction of TDS on payment of royalty - Held that - On reading of clauses of the agreement, it is clear that the assessee was allowed to enjoy certain benefits in running the medical shop and for those benefits assessee was required to make payment of royalty per month to SRMS. It is also an undisputed fact that the assessee is well connected with SRMS, a Trust to whom payments are made. We have also carefully examined the definition of royalty given in Explanation 2 to clause (vi) of sub-section (1) of section 9 of the Act and we are of the view that these payments were made on account of facilities given to the assessee. Therefore, it is a royalty payment and the assessee is required to deduct TDS under section 194J of the Act. Decided against assesse. Applicability of provisions of section 40(a)(ia) - Held that - During the course of hearing, though the assessee has contended that SRMS has taken into account the royalty receipts and has filed return of income under section 139(1) of the Act, but no evidence is placed on record in this regard. But, we are of the view that once these facts are established, disallowance under section 40(a)(ia) of the Act cannot be made. We accordingly set aside the order of the ld. CIT(A) and restore the matter to the file of the Assessing Officer for necessary verification. If it is established that SRMS has credited the aforesaid receipts of royalty to its income & expenditure account and filed return of income under section 139(1) of the Act, no disallowance under section 40(a)(ia) of the Act can be made in the hands of the assessee. Decided in favour of assesse.

Issues:
1. Reopening of assessment on account of change of opinion.
2. Disallowance under section 40(a)(ia) for non-deduction of TDS on royalty payment.
3. Applicability of second proviso to section 40(a)(ia) for cases pending as of the date of enactment of Finance Act 2012.
4. Validity of the order passed by lower authorities and principles of natural justice.
5. Charging of interest under sections 234B & 234C.
6. Issue of notice under section 271(1)(c) for alleged concealment or inaccurate particulars of income.

Analysis:

1. The appeal challenged the reopening of assessment due to a change of opinion. The tribunal found that the Assessing Officer rightly initiated re-assessment proceedings as the royalty issue was not examined during the original assessment. The tribunal upheld the validity of the reopening, rejecting the appeal on this ground.

2. The assessee disputed the disallowance under section 40(a)(ia) for not deducting TDS on royalty payment. The tribunal noted that the payment was indeed royalty, not merely for locational advantage as claimed by the assessee. The tribunal upheld the disallowance, emphasizing that the payment fell within the purview of TDS provisions.

3. Regarding the applicability of the second proviso to section 40(a)(ia), the tribunal held that if the recipient had paid taxes and filed returns, no disallowance could be made. Citing precedents, the tribunal set aside the order and directed verification to determine if the recipient had accounted for the royalty receipts.

4. The tribunal dismissed the challenge to the order passed by lower authorities, finding no merit in the arguments against the principles of natural justice. The tribunal highlighted the lack of loss to revenue as insufficient grounds to quash the order.

5. The issue of charging interest under sections 234B & 234C was raised. The tribunal acknowledged the absence of an order for charging interest and deemed the charging of interest as against the law. This aspect was noted for rectification.

6. Lastly, the tribunal addressed the issue of issuing notice under section 271(1)(c) for alleged concealment or inaccurate particulars of income. The tribunal found that there was no concealment or furnishing of inaccurate particulars by the assessee, deeming the notice under this section as against the law.

In conclusion, the tribunal partially allowed the appeal, maintaining the disallowance under section 40(a)(ia) while directing verification of tax payments by the recipient for potential waiver of disallowance. The tribunal's detailed analysis and application of legal provisions ensured a comprehensive resolution of the various issues raised in the appeal.

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