2019 (3) TMI 1870 - AT - Income Tax

Revision u/s 263 - AO, before completing the assessment, failed to make proper and adequate enquiry with regard to the TDS obligation on payments made to Ansys Inc., USA and disallowance u/s. 40(a)(ia) of the Act - HELD THAT - It is clear from earlier paras the CIT has discussed the nature of payments as being in the nature of royalty, the conclusion of the CIT for invoking jurisdiction u/s. 263 of the Act are justified in the light of failure on the part of AO to make enquiries, which he ought to have made before completing assessment - mere reference of international transaction on purchase of software to the TPO for determination of ALP cannot be the basis to say that the AO made adequate and due enquiries before completing the assessment. The law is well settled that failure on the part of the AO to make proper and adequate enquiries renders his order erroneous and prejudicial to the interests of revenue. See GEE VEE ENTERPRISES VERSUS ADDITIONAL COMMISSIONER OF INCOME-TAX, DELHI I, AND OTHERS 1974 (10) TMI 29 - DELHI HIGH COURT There was a failure on the part of AO to make any enquiry with regard to payments made to Ansys Inc., USA in the light of provisions of section 40(a)(ia) of the Act. In that view of the matter, we are of the view that the jurisdiction u/s. 263 of the Act was rightly invoked by the CIT. We are also of the view that the CIT has remanded the matter to the AO for fresh consideration and has not concluded on the issue, as was sought to be canvassed by the ld. counsel for the assessee before us. Therefore, the Assessee is at liberty to agitate on the issue on merits without any fetters. - Decided against assessee.

Summary

Issues:
1. Correctness of order passed under section 263 of the Income-Tax Act, 1961 regarding the deduction of tax at source on payments made to a foreign company.
2. Whether the Assessing Officer (AO) made adequate and proper enquiries before completing the assessment.

Issue 1: Correctness of order passed under section 263:
The case involved an appeal against an order passed by the Commissioner of Income-tax (CIT) under section 263 of the Income-Tax Act, 1961. The CIT found the AO's order to be erroneous and prejudicial to the revenue's interests due to the failure of the assessee to deduct tax at source on payments made to a foreign company. The CIT contended that these payments were in the nature of royalty, requiring tax deduction at source under section 195 of the Act. The CIT directed the AO to make a fresh assessment order, emphasizing the need for proper enquiry before allowing certain claims or tax credits. The CIT relied on a High Court judgment to support the requirement for reasons to be provided in the assessment order. The assessee argued against the CIT's decision, citing previous tribunal and court judgments supporting their position. However, the Tribunal upheld the CIT's decision, emphasizing the importance of the AO's duty to investigate and make proper enquiries before finalizing the assessment.

Issue 2: Adequacy of enquiries by the Assessing Officer (AO):
The Tribunal focused on whether the AO conducted adequate and proper enquiries before completing the assessment. The CIT invoked section 263 due to the AO's failure to investigate the obligation to deduct tax at source on payments made to a foreign company. The Tribunal agreed with the CIT's decision, highlighting the AO's duty to inquire further when circumstances warrant investigation. The Tribunal referenced a High Court judgment to explain that the AO's failure to make necessary inquiries renders the order erroneous and prejudicial to revenue interests. Despite the assessee's arguments based on previous judgments, the Tribunal upheld the CIT's decision, emphasizing the importance of the AO's active role in investigating and verifying facts stated in the return. The Tribunal dismissed the appeal, affirming the CIT's decision to remand the matter to the AO for fresh consideration, allowing the assessee to challenge the issue on its merits without constraints.

This detailed analysis of the judgment highlights the key issues involved, the arguments presented by the parties, and the Tribunal's decision based on the adequacy of enquiries conducted by the Assessing Officer and the correctness of the order passed under section 263 of the Income-Tax Act, 1961.