2019 (4) TMI 564 - AT - Income Tax

Assessee in default - proceedings u/s. 201(1) and 201(1A) - period of limitation - Payment to resident in India & payment to non resident - TDS u/s 195 without deduction of tax at source to non-resident/overseas entities - HELD THAT - A bare perusal of sub-section (3) as it was inserted by the Finance Act, 2009 and subsequently amended by the Finance Act, 2014 would show that reference is to the payments made without deduction of tax at source to person resident in India . The sub-section (3) is silent about the limitation period for passing the order u/s. 201 where the payments are made without deduction of tax at source to non-resident/overseas entities. In the present case as is evident from the impugned order, during the assessment years under appeal the payments have been made to the entities based in Canada, USA, UK, Belgium, Sweden, UAE and Hongkong. The provisions of sub-section (3) to section 201 does not get attracted as it relates only to the payments made without deduction of tax to person resident in India. Where the payments are made to the entities/persons other than the persons specified in sub-section (3), the limitation period of one year from the end of financial year in which the proceedings u/s. 201 were initiated, as laid down in MAHINDRA & MAHINDRA LIMITED 2014 (7) TMI 265 - BOMBAY HIGH COURT would apply. In the instant case, since, the order u/s. 201 has been passed much after the elapse of one year period from the end of financial year in which proceedings u/s. 201 were initiated, the order u/s. 201 in the impugned assessment years is void-ab-initio and hence, is liable to be quashed. - decided against revenue.

Issues Involved:
1. Validity of the order passed under section 201(1) and 201(1A) of the Income Tax Act, 1961.
2. Condonation of delay in filing Cross Objections by the assessee.
3. Limitation period for passing the order under section 201(1) and 201(1A).

Detailed Analysis:

1. Validity of the Order Passed Under Section 201(1) and 201(1A):
The core issue revolves around whether the order passed by the Assessing Officer under section 201(1) and 201(1A) of the Income Tax Act, 1961 is void ab initio due to being barred by limitation. The assessee argued that the order dated 06-02-2014 was passed beyond the permissible period of one year from the end of the financial year in which proceedings under section 201 were initiated, making it void. The Tribunal accepted the assessee's argument, referencing the Special Bench decision in Mahindra & Mahindra Ltd. Vs. DCIT and its affirmation by the Hon’ble Bombay High Court, which stipulates a one-year limitation period for passing such orders.

2. Condonation of Delay in Filing Cross Objections by the Assessee:
The assessee's Cross Objections were delayed by 878 days. The Tribunal condoned this delay, noting that the delay was unintentional and bona fide. The Tribunal referenced the Hon’ble Supreme Court’s decision in Ram Nath Sao @ Ram Nath Sahu and Others Vs. Gobardhan Sao and Others, which emphasizes that condonation of delay should be the rule rather than the exception, especially when no negligence or inaction can be attributed to the defaulting party. Consequently, the delay was condoned, and the Cross Objections were taken up for adjudication.

3. Limitation Period for Passing the Order Under Section 201(1) and 201(1A):
The Tribunal examined whether the Assessing Officer adhered to the limitation period prescribed for passing the order under section 201(1) and 201(1A). The Tribunal noted that the show cause notice was issued on 27-01-2012, and the order was passed on 06-02-2014. According to the Special Bench decision in Mahindra & Mahindra Ltd. Vs. DCIT, and its affirmation by the Hon’ble Bombay High Court, the order should have been passed within one year from the end of the financial year in which the proceedings were initiated. The Tribunal concluded that the order was indeed passed beyond the stipulated period, rendering it void ab initio.

The Tribunal also addressed the Department's argument regarding the applicability of sub-section (3) of section 201, which was inserted by the Finance Act, 2009 and amended by the Finance Act, 2014. The Tribunal clarified that sub-section (3) applies only to payments made to persons resident in India, whereas the payments in question were made to foreign entities. Therefore, the limitation period of one year as laid down by the Special Bench and affirmed by the Hon’ble Bombay High Court applied, and the order was consequently void.

Conclusion:
The Tribunal allowed the appeals and Cross Objections filed by the assessee, holding that the order passed under section 201(1) and 201(1A) was void ab initio due to being barred by limitation. Consequently, the grounds raised by the assessee on merits became academic. The appeals filed by the Revenue were dismissed as the subsequent proceedings arising from the void order were vitiated.

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