2024 (8) TMI 352 - AT - Income Tax

Validity of reassessment proceedings as barred by period of limitation - HELD THAT - The impugned notice u/s 148 dated 15.04.2021 to re-open the assessment for AY 2015-16 is barred by limitation u/s 149(1)(b) of the Substituted Act of 2021 i.e; Finance Act, 2021. Hence, all consequential reassessment proceedings pursuant to the impugned notice u/s 148 dated 15.04.2021 are set aside. AO had no sanction or approval for issuance of notice u/s 148 as per newly substituted Finance Act, 2021. Therefore, appellant succeeds on the legal issues. Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of the assessment order dated 12 December 2023.
2. Taxability of Guarantee Fees received by the Appellant.
3. Validity of the reassessment proceedings initiated by the Assessing Officer (AO).

Issue-wise Detailed Analysis:

1. Legality of the Assessment Order:
The appellant challenged the assessment order dated 12 December 2023, arguing that it is bad in law and contrary to the facts and circumstances of the case. The assessment was framed under section 143(3) read with sections 147 and 144C(13) of the Income Tax Act, 1961, following the direction of the Dispute Resolution Panel (DRP).

2. Taxability of Guarantee Fees:
The appellant contested the addition of INR 3,908,249 as Guarantee Fees received from its Indian subsidiary, arguing that:
- The AO and DRP erroneously concluded that the guarantee fees accrue and arise in India and are liable to tax under section 5(2) read with section 9(1)(i) of the Act at a rate of 40% plus applicable surcharge and cess.
- The situs of the guarantee issue is outside India, as the guarantee was given by the appellant to banks outside India.
- The appellant held a NIL withholding certificate under section 195 read with section 197 of the Act, which was produced during reassessment proceedings.
- Under Article 22(1) of the India-Korea Double Taxation Avoidance Agreement (DTAA), the guarantee fees arise only in Korea and are not taxable in India.
- Article 22(2) of the DTAA would apply only if the appellant had a permanent establishment in India, which it did not.

3. Validity of the Reassessment Proceedings:
The appellant raised additional grounds challenging the reassessment proceedings as barred by limitation:
- The guarantee fee of INR 3,908,249 is below the threshold limit of INR 5,000,000 prescribed under section 149(1)(b) of the Act, as amended by the Finance Act, 2021.
- The AO issued a notice under section 148 on 15 April 2021 without adhering to the amended provisions of sections 148 to 151 of the Act, which are mandatory.
- The AO did not obtain the necessary sanction for issuing the notice under section 148 as required under section 151.

Legal Precedents and Tribunal's Decision:
- The Tribunal considered the additional grounds, noting that such legal grounds, which go to the root of the matter, do not require new facts or evidence and were available before the DRP and AO.
- The Tribunal referenced several case laws, including National Thermal Power Co. Ltd. vs. CIT, CIT vs. Indian Bank, and Mavany Brothers vs. CIT, which support the admissibility of additional grounds of appeal.
- The Tribunal admitted the additional grounds, emphasizing that the AO's notice dated 15 April 2021 was issued under the erstwhile section 148, which should be deemed as issued under section 148A of the substituted Finance Act, 2021, as per the Supreme Court's judgment in Union of India vs. Ashish Agarwal.
- The Tribunal found that the AO issued the notice without following the amended provisions and without necessary sanction, making the reassessment proceedings invalid.
- Consequently, the Tribunal set aside the impugned notice under section 148 dated 15 April 2021 and all consequential reassessment proceedings, rendering other grounds on the merits of the addition academic and infructuous.

Conclusion:
The appeal was allowed, and the reassessment proceedings were quashed due to the AO's failure to comply with the amended provisions and obtain necessary sanctions. The Tribunal's decision was pronounced on 22 July 2024.