2021 (4) TMI 37 - HC - Income Tax

Revision u/s 263 - no proper and adequate enquiry as regard to the TDS obligation on payments made by it to the foreign company - HELD THAT - When the matter was taken up today, the learned counsel for the assessee submitted that theissue involved in this appeal has been set at rest in view of the decision rendered by the Supreme Court in ENGINEERING ANALYSIS CENTRE OF EXCELLENCE PRIVATE LIMITED VS.THE COMMISSIONER OF INCOME TAX ANOTHER 2021 (3) TMI 138 - SUPREME COURT and the issue involved in this appeal has been answered against the Revenue and in favour of the assessee.

Summary

Issues:
1. Jurisdiction under Section 263 of the Income Tax Act, 1961
2. Proper and adequate enquiry by assessing officer regarding TDS obligations
3. Disallowance under section 40 of the Act for purchases made by the appellant

Jurisdiction under Section 263 of the Income Tax Act, 1961:
The appeal was filed against the order passed by the Income Tax Appellate Tribunal pertaining to the assessment year 2006-2007. The substantial questions of law included whether the Tribunal was justified in holding the order under section 143(3) as erroneous and prejudicial to the interest of Revenue. The appellant argued that the issue had been settled by a Supreme Court decision in a different case, which was in favor of the assessee. The Revenue did not contest this submission. Consequently, based on the Supreme Court judgment, the High Court answered the substantial questions of law in favor of the assessee and quashed the order of the Income Tax Appellate Tribunal.

Proper and adequate enquiry by assessing officer regarding TDS obligations:
Another issue raised was whether the assessing officer had failed to make a proper enquiry regarding the TDS obligations on payments made to a foreign company. The appellant contended that there was a favorable order from the Tribunal in earlier years, and thus, there was no error prejudicial to the interest of revenue. The High Court, relying on the Supreme Court judgment, ruled in favor of the assessee, indicating that the assessing officer's actions were not erroneous.

Disallowance under section 40 of the Act for purchases made by the appellant:
The third issue concerned whether the purchases made by the appellant were subject to disallowance under section 40 of the Act. The appellant argued that the payments towards software purchases were allowable under section 28 of the Act and, therefore, no revision under section 263 was permissible. The High Court, following the Supreme Court's decision, held in favor of the assessee, stating that the purchases did not warrant disallowance under section 40. Consequently, the order of the Income Tax Appellate Tribunal was quashed, and the appeal was allowed in favor of the assessee.