2019 (4) TMI 1375 - AT - Income Tax

Revision u/s 263 - non deduction of TDS u/s 195 on commission - whether the order of the AO is erroneous in so far prejudicial to the interest of the Revenue on account of non- deduction of TDS u/s 195 r.w.s 40(a)(i) ? - HELD THAT - Regarding the contention of the assessee that there was not initiated any proceedings under section 263/ 147 in respect of the assessments framed u/s 143(3) pertaining to the assessment year 2011-12 and 2012-13, we find force in his argument. Revenue has admitted the claim of the assessee for the commission expenses to the foreign parties without deducting the TDS u/s 195 in the assessment years 2011-12 and 2012-13 which has reached to the finality. CIT u/s 263 was under the obligation to initiate the proceedings u/s 263, for the assessment years as discussed above. Thus in our considered view after considering the facts circumstances of the case, the order of the AO cannot be held as erroneous insofar prejudicial to the interest of Revenue - Decided in favour of assessee.

Summary

Issues:
1. Validity of notice issued under section 263.
2. Assessment order passed by the Assessing Officer considered erroneous and prejudicial to revenue.
3. Correctness of setting aside the assessment order under section 143(3) by the CIT.
4. Error in setting aside the assessment order based solely on audit objections.
5. Disallowance of commission on export sales paid to non-residents.
6. Verification of expenses debited in the financial statements.
7. Consideration of various authorities regarding commission payable to non-residents.
8. Admissibility of grounds of appeal.

Issue 1: Validity of notice under section 263
The appeal was filed against the order of the Principal Commissioner of Income Tax, Vadodara, challenging the notice issued under section 263 of the Income Tax Act, 1961. The Assessee contended that the notice was void and without jurisdiction.

Issue 2: Assessment order deemed erroneous and prejudicial to revenue
The Assessing Officer's order under section 143(3) was challenged by the Assessee, arguing that it was not erroneous or prejudicial to the interest of the Revenue. The grounds of appeal raised by the Assessee included concerns about the assessment order's correctness and the CIT's decision to set it aside.

Issue 3: Setting aside of assessment order under section 143(3)
The primary issue raised was whether the order of the Assessing Officer was erroneous and prejudicial to the Revenue due to non-deduction of TDS under section 195 of the Act. The CIT proposed to hold the order as erroneous, leading to the appeal by the Assessee.

Issue 4: Error in setting aside based on audit objections
The Assessee argued that setting aside the assessment order solely based on audit objections was incorrect. The dispute centered around the non-deduction of TDS on commission paid to foreign parties and the capital nature of certain expenses.

Issue 5: Disallowance of commission on export sales
The Assessee contested the disallowance of commission on export sales paid to non-residents, citing that the income was not taxable in India due to services provided outside the country. The dispute involved the applicability of TDS under section 195.

Issue 6: Verification of debited expenses
The Assessee challenged the CIT's decision regarding expenses debited in the financial statements, claiming that the Assessing Officer did not make any additions under section 40(a)(i) of the Act in subsequent assessment years.

Issue 7: Consideration of authorities on commission payable to non-residents
The Assessee argued that the CIT erred in not considering authorities stating that commission payable to non-residents was not taxable in India without a Permanent Establishment or Business connection, thus questioning the need for TDS under section 195.

Issue 8: Admissibility of grounds of appeal
The Assessee reserved the right to add, alter, or withdraw any ground of appeal during the hearing. The appeal was heard, considering the arguments presented by both parties and the relevant legal provisions and precedents.

This detailed analysis covers the various issues raised in the legal judgment, providing a comprehensive understanding of the arguments, decisions, and considerations involved in the case.