2017 (8) TMI 1068 - HC - Income Tax

Revision u/s 263 - addition under section 40(a)(ia) - Held that - Merely because the Assessing Officer noted the provision of section 40(a)(ia) and made certain limited disallowance, the order of assessment cannot be taken into revision. We do not propose to lay down such broad legal propositions. Nevertheless in the facts of the present case we are not inclined to interfere for entirely different reasons. As noted the assessee s contentions before the Assessing Officer and the Commissioner was that the recipient of the payments, the German Company had no tax liability and there was therefore no question of deducting tax at source and further that with respect to the second head of payments, the assessee company had merely corrected an error and recovered the amounts from the company. These issues were before the Assessing Officer and unless shown to the contrary can be presumed to have been considered by him while not making the additions. If the Commissioner was of the opinion that either of the two contentions were invalid in facts or law, he ought to have come to such a conclusion without holding to the contrary. He merely brushed aside the assessee s contentions observing that the Assessing Officer had not made proper inquiries. - Decided against revenue.

Summary

Issues:
1. Revision powers of the Commissioner (Appeals) under section 263 of the Income Tax Act.
2. Disallowance under section 40(a)(ia) of the Act for non-deduction of tax at source.

Issue 1: Revision Powers of the Commissioner (Appeals)
The High Court considered the appeal by the Revenue against the Income Tax Appellate Tribunal's judgment regarding the revision powers of the Commissioner (Appeals) under section 263 of the Income Tax Act. The dispute arose from the non-deduction of tax at source and consequential disallowance under Section 40(a)(ia) of the Act. The Assessing Officer had made a limited disallowance, but the Commissioner disagreed, alleging that tax should have been deducted on payments made to a German company and for SAP service charges. The assessee argued that the payments to the German company were not taxable, and the SAP service charges were reimbursement of expenses, not subject to TDS. The Commissioner, however, made the disallowance under section 40(a)(ia) without considering these objections, citing inadequate inquiries by the Assessing Officer.

Issue 2: Disallowance under Section 40(a)(ia) for Non-Deduction of Tax at Source
The Assessing Officer appealed to the Tribunal, which reversed the Commissioner's order, noting that the queries were raised, and a disallowance was made under section 40(a)(ia). The Tribunal found that the Assessing Officer had not overlooked the provisions of the section. The High Court, however, disagreed with the Tribunal's reasoning, stating that the mere acknowledgment of the provision and limited disallowance by the Assessing Officer did not preclude revision. Despite this, the High Court declined to interfere in this case due to different reasons. It noted that the assessee's contentions were considered by the Assessing Officer, who did not make the additions based on those arguments. The Commissioner's disregard of the assessee's contentions without proper examination was criticized, leading to the dismissal of the tax appeal.

In conclusion, the High Court dismissed the tax appeal, emphasizing the importance of considering the assessee's contentions and proper examination before making revisions or disallowances under the Income Tax Act.