2015 (9) TMI 122 - AT - Income Tax

Disallowance u/s 40(a)(i) - non deduction of TDS on payment of commission to non-residents - revision u/s 263 - Held that - This Tribunal is of the considered opinion that it is incumbent on the part of the Assessing Officer to disclose the reasons in the assessment order for allowing or disallowing a claim of the assessee. This Tribunal is of the considered opinion that the CIT has rightly exercised his jurisdiction u/s 263 of the Act. However, the CIT has directed the Assessing Officer to disallow a sum of Rs. 19,54,363/- said to be paid to the non-residents for non-compliance of provisions of section 40(a)(i) of the Act. This Tribunal is of the considered opinion that an opportunity shall be given to the assessee to explain the nature of payment before the Assessing Officer. Accordingly, the order of the CIT is modified and the Assessing Officer is directed to examine the payment of commission to the non-residents independently and decide the same in accordance with law. It is made clear that the Assessing Officer shall examine the issue independently without being influenced by the observation made by the CIT(A) in the impugned order or by this Tribunal in this order and decide the same in accordance with law after giving a reasonable opportunity to the assessee. - Decided partly in favour of assessee.

Summary

Issues:
- Disallowance of foreign commission payment under section 40(a)(i) of the Act
- Jurisdiction of CIT under section 263 of the Act
- Requirement of recording reasons in the assessment order

Analysis:

1. Disallowance of foreign commission payment under section 40(a)(i) of the Act:
The case involved a dispute regarding the disallowance of a foreign commission payment of Rs. 19,54,363 under section 40(a)(i) of the Act. The Assessing Officer allowed the payment, but the CIT, in the exercise of revisional jurisdiction under section 263, found it liable for TDS. The Tribunal emphasized the necessity for the Assessing Officer to reflect the application of mind in the assessment order. It was noted that the Assessing Officer did not discuss the nature of the payment or the application of mind in the assessment order. The Tribunal highlighted that reasons for reaching a conclusion must be contained in the assessment order itself. The tribunal cited precedents emphasizing the importance of recording reasons to ensure fairness and minimize arbitrariness in decision-making.

2. Jurisdiction of CIT under section 263 of the Act:
The CIT exercised jurisdiction under section 263 to direct the Assessing Officer to disallow the foreign commission payment. The Tribunal upheld the CIT's exercise of jurisdiction but modified the order to give the assessee an opportunity to explain the nature of the payment before the Assessing Officer independently. The Tribunal stressed that the Assessing Officer should decide the issue without being influenced by prior observations, ensuring a fair and lawful decision-making process.

3. Requirement of recording reasons in the assessment order:
The Tribunal highlighted the necessity for the Assessing Officer to disclose reasons in the assessment order for allowing or disallowing a claim. It referenced legal principles emphasizing that recording reasons ensures fairness, clarity, and minimizes arbitrariness in decision-making. The Tribunal concluded that the CIT rightly exercised jurisdiction under section 263 but directed the Assessing Officer to independently examine the payment of commission to non-residents and decide accordingly, emphasizing the importance of a reasoned and lawful decision-making process.

In conclusion, the Tribunal partly allowed the appeal, emphasizing the significance of recording reasons in the assessment order, fair decision-making processes, and independent examination of issues by the Assessing Officer.