2023 (9) TMI 548 - AT - Income Tax

TDS u/s 195 - expenses intercompany fee and commissions attributable to Non-Resident entities - Non admission of additional evidence - CIT(A) confirmed the action of the AO and refused to admit additional evidences filed by the assessee in the form of no PE certificate from certain entities, Tax Residency Certificate (TRC) etc. on the ground that no formal application has been moved under Rule 46A explaining the reasons why such evidences were not submitted in the course of assessment proceedings - counsel contended that the additional evidences placed before CIT(A) goes to the root of the matter and would demonstrate the absence of obligation for deduction of withholding tax contemplated u/s 195 - HELD THAT - In the present circumstances, evidences obtained from external sources which have a critical bearing on the outcome of the subject matter ought to have been admitted to reinforce the overriding cause of substantial justice vis-a-vis technical considerations. The breach of sacrosanct principles of natural justice is fundamental and goes to the root of process of framing assessment. Needless to say that the spirit of Rule 46A of IT Rules enabling the assessee to place additional evidences before the CIT(A) are founded on the doctrine of legitimate expectation and principles of natural justice. It is indeed the sacrosanct obligation of the first appellate authority to have ensured that any effective opportunity is granted to the assessee for presenting its case and all evidences are taken into account while determining the issue. The powers of the CIT(A) are not fettered or circumscribed by Rule 46A for admission of additional evidences. In view of mandate of provisions of Section 250(4) of the Act also, the situation existing in the case as narrated above, clearly warranted admission of additional evidences by the CIT(A). We are thus convinced on the fallacy in the action of the CIT(A). The order of the CIT(A) on the subject matter of appeal is thus set aside and restored to the file of the Assessing Officer for de novo adjudication in accordance with law, after making or causing proper inquiry as may be deemed expedient and after taking into account of such evidences as may be placed before him by the assessee - Appeal of the assessee is allowed for statistical purposes.

Summary

Issues involved:
The issues involved in this case include the alleged upholding of assessment by the CIT(A) under section 143(3) of the Income-tax Act, 1961, the disallowance made under section 40(a)(i) of the Act in respect of inter-company fees and international commission payments, and the refusal to admit additional evidences by the CIT(A) without a formal application under Rule 46A.

Assessment Upheld by CIT(A):
The appellant challenged the assessment made by the AO under section 143(3) of the Income Tax Act, claiming a loss of Rs. 1,79,51,014, which was assessed as income of Rs. 1,59,62,193 by the CIT(A). The appellant argued that certain documents furnished were not considered without an application under Rule 46A, preventing adjudication of the issues involved.

Disallowance of Expenses under Section 40(a)(i):
The CIT(A) confirmed the disallowance made by the AO under section 40(a)(i) of the Act in relation to inter-company fees and international commission payments. The appellant contended that the payments made to non-resident entities did not require withholding tax under Section 195 when considering the provisions of the Act and the Double Taxation Avoidance Agreements (DTAA).

Refusal to Admit Additional Evidences:
The CIT(A) refused to admit additional evidences, such as 'no PE certificate' and Tax Residency Certificate (TRC), filed by the appellant without a formal application under Rule 46A. The appellant argued that these documents were crucial in demonstrating the absence of obligation for withholding tax under Section 195 of the Act.

Judgment:
The Tribunal found that the CIT(A) erred in not admitting crucial additional evidences, which were vital for determining the appellant's obligations under Section 195 of the Act. The Tribunal emphasized the importance of natural justice and fair opportunity for the appellant to present its case. It concluded that the CIT(A) violated principles of natural justice by ignoring these evidences on technical grounds.

Decision and Order:
The Tribunal set aside the order of the CIT(A) and remanded the issues back to the Assessing Officer for fresh adjudication in accordance with law. It directed the Assessing Officer to consider all evidences placed before him by the appellant and provide a reasonable opportunity for the appellant to address the issues involved. The appeal of the appellant was allowed for statistical purposes.