2013 (9) TMI 368 - AT - Income Tax

Revision u/s 263 - erroneous or prejudicial to revenue order - Disallowance of Free Airtime to Distributors u/s 40(a)(ia) Held that - The issue had not at all been examined by the Assessing Officer in the course of assessment proceedings for the assessment year 2007-08 - No reference thereof was there in the assessment order the Assessing Officer had not issued any query in this regard and not obtained necessary details - Hence it cannot be said that the Assessing Officer had applied one of the two views possible - It was observed that assessee was liable to TDS on these payments under section 194H but has failed to do so Following CIT v. Idea Cellular Ltd. 2010 (2) TMI 24 - DELHI HIGH COURT - it was the submission of the assessee s counsel that on these issues there were case law in favour of the assessee at that time. Hence the Assessing Officer had applied one of the two views possible - Hence the order cannot be said to be erroneous and prejudicial to the interests of the Revenue. Disallowance of Roaming Charges Paid u/s 40(a)(ia) - Held that - The Assessing Officer had mechanically accepted what the assessee wanted him to accept without any application of mind or enquiry - Similarly no evidence had been placed that the claim made by the assessee was objectively examined or considered by the Assessing Officer either on record or in the assessment order Following Arvee International v. Addl. CIT 2006 (1) TMI 173 - ITAT BOMBAY-High court - The perusal of the assessment order passed by the Assessing Officer does not show any application of mind - It is simply says in one line that loss returned by the assessee is accepted - It was held that no greater evidence is required than the mere reproduction of the aforesaid order from the assessment order to establish that it was a case where the Assessing Officer has mechanically accepted what the assessee wanted him to accept without any application of mind or enquiry - No evidence had been placed that the claim made by the assessee was objectively examined or considered by the Assessing Officer either on record or in the assessment order - It was because of such non-consideration of the issues on the part of the Assessing Officer that the loss claimed by the assessee stood automatically allowed without any scrutiny - The assessment order was clearly erroneous as it was passed without proper examination or enquiry or verification or objective consideration of the claim made by the assessee - The Assessing Officer had completely omitted the issue in question from consideration and made the assessment in an arbitrary manner. Gee Vee Enterprises v. Addl. CIT 1974 (10) TMI 29 - DELHI High Court - the Income-tax Officer should have made further enquiries before accepting the statements made by the assessee in his return - The Assessing Officer in this regard had not made any enquiry and had accepted the statements made by the assessee in his return. Revisional Jurisdiction u/s 263 - The Assessing Officer had completely omitted the issue in question from consideration and made the assessment in an arbitrary manner - it was a fit case for the Commissioner to exercise his revisional jurisdiction under section 263 which he rightly exercised by cancelling the assessment order and directing the Assessing Officer to pass a fresh order in view of the above two issues after giving reasonable opportunity of hearing to the assessee and make a speaking order.

Summary

Issues Involved:
1. Disallowance of free airtime to distributors under section 40(a)(ia) of the Income-tax Act.
2. Disallowance of roaming charges paid under section 40(a)(ia) of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Disallowance of Free Airtime to Distributors:
The learned Commissioner of Income-tax (CIT) erred in passing the order under section 263 of the Income-tax Act, as the assessee had provided free airtime to distributors, which was treated as commission expenses. The assessee failed to deduct TDS under section 194H, leading to disallowance under section 40(a)(ia). The CIT referenced the Delhi High Court's judgment in CIT v. Idea Cellular Ltd. [2010] 325 ITR 148 (Delhi), which confirmed the principal-agent relationship between telecom service providers and distributors. The CIT observed that the Assessing Officer (AO) did not examine this issue during the assessment proceedings for the assessment year 2007-08, rendering the order prejudicial to the interests of the Revenue. The assessee contended that the application of section 194H was debatable, and no disallowance was necessary. However, the tribunal found that the AO did not examine or inquire into this issue, thus failing to apply one of the two possible views.

2. Disallowance of Roaming Charges Paid:
The CIT noted that the assessee paid roaming charges to other telecom operators without deducting TDS under section 194J, classifying the payments as fees for technical services. The AO did not examine or inquire into this issue during the assessment year 2007-08. The assessee argued that roaming charges were similar to interconnection charges, on which TDS was deducted, and thus section 194J was not applicable. However, the tribunal found that the AO did not discuss or inquire into this issue, and the failure to deduct TDS was prejudicial to the Revenue.

Conclusion:
The tribunal upheld the CIT's order under section 263, setting aside the AO's assessment order dated November 30, 2009, and directing the AO to re-examine the case, considering the issues of free airtime and roaming charges, and to make a speaking order after giving the assessee a proper opportunity to present their case. The tribunal emphasized that the AO's failure to make necessary inquiries or investigations rendered the assessment order erroneous and prejudicial to the interests of the Revenue. The appeal filed by the assessee was dismissed.