2022 (9) TMI 549 - AT - Income Tax

Revision u/s 263 by CIT - AO failed to make enquiry with regard to pendency of application before AAR on the question of TDS u/s 40(a)(i) of the Act in respect of payments made to More Ideas, UAE - As argued under the provisions of section 245R(2)(i) it is only the question raised in an application before the AAR that cannot be decided by an income tax authority, when the question is pending for consideration before the AAR - HELD THAT - Under the provisions of section 153 explanation 1, clause ix of the Act, the period commencing from the date on which the application is made before the AAR and ending with a date on which the AAR pronounces its ruling and such ruling is received by the PCIT or CIT shall not be counted for the purpose of computing limitation for the purpose of passing an Order of Assessment. It is thus clear from a combined reading of the provisions of section 245R(2)(i) and the provisions of section 153 explanation 1 (ix) that the Order of Assessment will not become void as argued by the parties before us. To the extent that it relates to the payments made to More Ideas, UAE, the AO should not have decided the issue at all. For this reason, the entire Order of Assessment cannot be said to be void. Payments made to More Ideas, UAE, AO has already disallowed the payment and added the same to the total income of the assessee and the assessee is in appeal before the CIT(A). In these circumstances, it cannot be said that the Order passed by the AO was prejudicial to the interest of the Revenue. The fact that in the proceedings before the first appellate, the addition will be attacked on the ground that the addition has been made contrary to the provisions of section 245R(2)(i) of the Act and therefore void, cannot be the basis to say that the interest of the Revenue is prejudiced, at this stage. Thus twin conditions have to be satisfied for exercising of powers under section 263 of the Act viz., (i) the Order sought to be revised must be erroneous and (ii) prejudicial to the interest of the Revenue. Since the payments made to More Indeas, UAE has already been added by the AO in the order of Assessment, there is no prejudice to the interest of the Revenue. In the facts and circumstances of the present case, we are of the view that PCIT fell into an error in passing the impugned order. The impugned order is therefore liable to be quashed on this ground and is accordingly quashed. Appeal of the assessee is allowed.

Summary

Issues:
Appeal against order under section 263 of the Income Tax Act, 1962 for Assessment Year 2017-18.

Analysis:
1. The assessee, a company providing online learning services, filed a return of income for Assessment Year 2017-18. The Assessing Officer (AO) made several additions to the total income, including disallowances under various sections totaling Rs. 30,48,95,804.
2. The assessee applied to the Authority for Advance Ruling (AAR) regarding a payment to a UAE company, which was dismissed as the issue was pending before the AO. The AO passed an order making the same disallowance, despite knowledge of the AAR application.
3. The Principal Commissioner of Income Tax (PCIT) found the AO's order erroneous and prejudicial to revenue as the AAR's ruling was not considered. The PCIT set aside the order and directed a fresh assessment.
4. The assessee argued that the PCIT's order was unjustified, citing precedents and claiming no prejudice to revenue due to the disallowance already made by the AO.
5. The Tribunal noted that the AO's decision on the UAE company payment was already under appeal, thus not prejudicial to revenue. The PCIT's order was quashed as the twin conditions for invoking section 263 were not met.

This detailed analysis covers the issues involved in the legal judgment, the actions of the parties, and the reasoning behind the Tribunal's decision to allow the assessee's appeal against the PCIT's order under section 263 of the Income Tax Act, 1962 for the Assessment Year 2017-18.