2015 (11) TMI 1131 - AT - Income Tax

Revision u/s 263 - Non deduction of TDS - applicability of section 40(a)(i) on data link charges and insurance charges - Held that - In the period under consideration as per the details in 17f of the Form 3CD Report, the assessee has debited an amount on account of data link charges and insurance charges paid/payable to parties outside India, which it has claimed as not chargeable to tax in India based on the decision of Wipro Ltd., Vs. ITO (2004 (12) TMI 304 - ITAT BANGALORE-B ) and, that therefore the provisions of sec. 40(a)(i) are not attracted in its case. - the assessing officer has neither examined and nor verified this issue nor that he has applied his mind to the matter. Passing the order of assessment is the prerogative of the assessing officer and assessee has no control over the officer for passing the order of assessment in a specific manner. However, if the examination of the specific issue is not discernable from the order of assessment, then the higher forum can go through the show cause notice, if any, issued to the assessee and the reply thereto which would indicate that though the order of assessment is silent on the issue, it must have been discussed during the assessment proceedings. No such material is available before us, even in the assessee s reply to the show cause notice issued by the learned CIT in revisionary proceedings u/s 263. The Hon ble Apex Court in the case of Malabar Industries Co. Vs CIT reported in 2000 (2) TMI 10 - SUPREME Court has observed that the acceptance of accounting entries as it is without causing enquiries by the Assessing Officer would render the order of assessment erroneous and prejudicial to the interest of revenue. In the light of the facts and circumstances of the case as discussed above, we are of the view that the learned CIT has rightly considered all these aspects before taking action u/s 263 of the Act. - Decided against assessee.

Issues Involved:
1. Jurisdiction under Section 263 of the Income-tax Act, 1961.
2. Examination of data link charges and applicability of Section 40(a)(i).
3. Adequacy of Assessing Officer's inquiry and verification.

Detailed Analysis:

1. Jurisdiction under Section 263 of the Income-tax Act, 1961:
The primary issue raised by the assessee was whether the Commissioner of Income-tax (CIT) had erred in assuming jurisdiction under Section 263 of the Income-tax Act, 1961. The assessee argued that the conditions precedent for the assumption of jurisdiction were not satisfied, making the order bad in law and liable to be quashed. The assessee contended that the assessment order was passed in conformity with the directions of the Dispute Resolution Panel (DRP), and thus, it could not be treated as erroneous or prejudicial to the interest of the revenue. The CIT's presumption regarding the non-resident payees' substantial presence in India based on internet information was also challenged as conjectural.

2. Examination of Data Link Charges and Applicability of Section 40(a)(i):
The CIT observed that the assessee had debited an amount of Rs. 3,41,52,529/- on account of data link charges paid/payable outside India, claiming that the amount was not chargeable to tax in India based on a previous decision (Wipro Ltd. vs. ITO). The CIT noted that the Assessing Officer (AO) failed to examine and verify whether the provisions of Section 40(a)(i) were attracted for the deduction of tax at source. The CIT issued a show-cause notice to the assessee to explain why proceedings under Section 263 should not be initiated, highlighting the need to investigate whether the payments made to non-residents were liable for TDS and whether the non-residents had a permanent establishment in India.

3. Adequacy of Assessing Officer's Inquiry and Verification:
The Tribunal examined whether the AO had conducted adequate inquiry and verification on the issue of data link charges. It was noted that the AO did not examine or verify the matter, nor did the assessment order reflect any application of mind on this issue. The Tribunal referenced several judicial pronouncements, including the Hon'ble Supreme Court's decision in Malabar Industries Co. vs. CIT, which emphasized that an order passed without proper inquiry or verification could be deemed erroneous and prejudicial to the interest of the revenue.

The Tribunal also cited the Hon'ble Delhi High Court's distinction between lack of inquiry and inadequate inquiry, stating that if there was a lack of inquiry, the assessment order could be branded as erroneous. The Tribunal found that the AO had not made any inquiries or verifications regarding the data link charges, making the assessment order erroneous and prejudicial to the interest of the revenue.

Conclusion:
The Tribunal upheld the CIT's decision to invoke Section 263, concluding that the AO's failure to examine and verify the issue of data link charges rendered the assessment order erroneous and prejudicial to the interest of the revenue. The Tribunal dismissed the assessee's appeal, affirming the CIT's directive to the AO to make a denovo assessment after proper examination and verification of the issue.

Order Pronouncement:
The Tribunal pronounced the order in the open court on 7th October 2015, dismissing the assessee's appeal for the assessment year 2006-07.

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