2023 (8) TMI 1191 - AT - Income Tax

Validity of order u/s 201(1) and 201(1A) - period of limitation - HELD THAT - Having regard to this passing of orders under section 201(1) and 201(1A) on a piece meal basis, we are of the considered opinion that the public policy demands that such orders must pass within reasonable time and cannot be extended to limitless period of time. Section 201(3) of the Act was introduced by Finance Act, 2009 w.e.f. 01/04/2010 setting time limit to pass an order under section 201(1) of the Act as four years from the end of the financial year in which the payment was made or credit was given. And later on, it was extended to seven years, by amendment by insertion of a new section by Finance Act, 2014. The order passed u/s 201(1) and 201(1A) of the Act in this case was beyond even the period of seven years. When the Revenue had an opportunity to verify the record on the occasion of the first order dated 06/07/2010, it would be quite unreasonable to accept the order passed four years later, because the order under challenge is passed clearly beyond seven years. In the case of CIT vs. Acer India Pvt. Ltd. 2022 (2) TMI 235 - KARNATAKA HIGH COURT for the assessment year 2009-10, the Hon ble Karnataka High Court held that at relevant point of time, limitation of two years was existing but it was subsequently substituted by Finance Act, 2014. However, a right was accrued to the assessee prior to the Finance Act, 2014 and, therefore, the subsequent amendment will be reviving the period of limitation and take away the vested right accrued to the assessee. We hold that the impugned order u/s 201(1) and 201(1A) of the Act is barred by limitation. Decided in favour of assessee.

Summary

Issues involved:
The issues involved in this case are related to the applicability of Tax Deducted at Source (TDS) under section 195 of the Income Tax Act, 1961, concerning a payment made as reimbursement for architectural fees without TDS, the time limit for initiating proceedings under section 201(1) and 201(1A) of the Act, and the validity of the order passed by the Assessing Officer.

Applicability of TDS on Reimbursement:
The case involved a Special Purpose Vehicle (SPV) company collaborating with a parent company to develop a township. The Assessing Officer found an amount shown as 'Architectural Fee' without TDS under section 195 of the Act. The company argued that the payment was a reimbursement and hence not subject to TDS. However, the Assessing Officer held the company liable for tax and interest due to the absence of evidence supporting the reimbursement claim.

Time Limit for Proceedings under Section 201(1) and 201(1A) of the Act:
The Assessing Officer passed an order beyond seven years from the relevant financial year, raising concerns about the validity of the order. The company contended that the order was barred by limitation as it exceeded the time frame allowed for initiating proceedings under section 201(1) and 201(1A) of the Act. The company relied on precedents and argued that the order was invalid and bad under law due to the time limit constraints.

Validity of the Order:
The Revenue challenged the order of the Commissioner of Income Tax (Appeals) stating that certain sections of the Act prescribing time limits were not applicable to non-resident assessees. The company argued that the order was passed well beyond the permissible time frame, emphasizing the need for timely completion of proceedings. The Tribunal examined the timeline of events and concluded that the order was indeed passed beyond the stipulated time frame, rendering it invalid.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the decision of the Commissioner of Income Tax (Appeals) that the order under section 201(1) and 201(1A) of the Act was barred by limitation. The Tribunal emphasized the importance of adhering to statutory time limits for passing such orders, citing relevant legal precedents to support their decision.