2025 (4) TMI 477 - AT - Income Tax

Revision u/s 263 - DRP has violated the provisions of law by not-complying with the directions of this tribunal on the issue of revision order passed by the PCIT u/s. 263 - HELD THAT - DRP had observed that tribunal had not quashed the impugned order u/s 263 and actually had ordered deletion of additions which actually were not made in the impugned order u/s 263. We find force in the said observations of the DRP. The directions of PCIT in his order u/s 263 dated 06.01.2023 extracted herein above to the AO were to examine the taxability of certain receipts. No directions qua any additions were given. We have also noted that the impugned order of this tribunal does not quashes the 263 proceedings in so many words. Consequently we are of the considered that there is no case for assailing the order of Ld DRP on this. Addition as fees for included services u/s 9(1)(vii) of the act r.w. article 12(4) of India USA DTAA - HELD THAT - Accordingly in respectful compliance to the decision in assessee s own case for AY-2014-15 to 2017-18 2024 (9) TMI 1506 - ITAT CHENNAI as also for the purposes of consistency we hold that amount received cannot be treated as taxable within the meanings of section 9(1)(vii) as they do not constitute technical services. Accordingly we set aside the order of lower authorities and direct the AO to delete the impugned addition. Addition made by AO for want of requisite evidences provided by the assessee - It is the case of the assessee that the said expenses do not relate to the year under consideration - HELD THAT - We are of the view that interest of justice would be met if the matter is remitted back to the AO for limited verification of the issue at hand. AO is therefore directed to decide the issue after giving proper opportunity of being heard to the assessee. Accordingly the ground of appeal no.4 raised by the assessee is allowed for statistical purposes.

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

Whether the Dispute Resolution Panel (DRP) erred in not complying with the order of the Tribunal regarding the revision order passed by the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act.
Whether the addition of Rs. 30,26,13,530/- as fees for included services under Section 9(1)(vii) of the Income Tax Act, read with Article 12(4) of the India-USA Double Taxation Avoidance Agreement (DTAA), is maintainable.
Whether the addition of Rs. 5,17,95,146/- made by the Assessing Officer (AO) is permissible given that the receipts do not relate to the assessment year under consideration.
Whether the charging of interest under Sections 234A and 234B of the Income Tax Act is justified.

ISSUE-WISE DETAILED ANALYSIS

Non-compliance with Tribunal's Order on Section 263

Relevant Legal Framework and Precedents: The issue revolves around the interpretation of Section 263 of the Income Tax Act, which empowers the PCIT to revise orders that are erroneous and prejudicial to the interests of the revenue.
Court's Interpretation and Reasoning: The Tribunal noted that the DRP did not comply with its previous order, which had set aside the revisionary order under Section 263. The DRP argued that the Tribunal's order did not quash the Section 263 proceedings but merely ordered the deletion of additions.
Key Evidence and Findings: The Tribunal's previous order had deemed the Section 263 order for AY 2015-16 non-maintainable by adopting a consistent view with AY 2014-15.
Application of Law to Facts: The Tribunal found that the DRP's interpretation was incorrect and that the Tribunal had indeed quashed the Section 263 proceedings.
Treatment of Competing Arguments: The Tribunal rejected the DRP's interpretation and concluded that the assessment order dated 26.09.2024 was void ab initio.
Conclusions: The grounds of appeal concerning non-compliance with the Tribunal's order were dismissed, affirming the Tribunal's previous decision.

Addition as Fees for Included Services

Relevant Legal Framework and Precedents: The issue pertains to the interpretation of "fees for included services" under Article 12(4) of the India-USA DTAA and Section 9(1)(vii) of the Income Tax Act.
Court's Interpretation and Reasoning: The Tribunal relied on its previous decision for AYs 2014-15 to 2017-18, where it was held that the services provided did not make available technical knowledge, expertise, skill, know-how, or processes.
Key Evidence and Findings: The Tribunal found that the services rendered did not satisfy the "make available" clause, as the recipient could not independently apply the technical knowledge.
Application of Law to Facts: The Tribunal concluded that the services did not constitute "fees for included services" and were not taxable in India.
Treatment of Competing Arguments: The Tribunal dismissed the Revenue's arguments and upheld the assessee's position based on consistent application of the law.
Conclusions: The Tribunal set aside the lower authorities' order and directed the AO to delete the addition.

Addition of Rs. 5,17,95,146/-

Relevant Legal Framework and Precedents: The issue involves the correct assessment year for the addition.
Court's Interpretation and Reasoning: The Tribunal found that the addition was made in the wrong year and required verification.
Key Evidence and Findings: The Tribunal noted the lack of requisite evidence provided by the assessee.
Application of Law to Facts: The Tribunal remitted the matter back to the AO for verification.
Conclusions: The ground of appeal was allowed for statistical purposes, directing the AO to verify the issue.

Charging of Interest under Sections 234A and 234B

Relevant Legal Framework and Precedents: Interest under Sections 234A and 234B is consequential to the assessment order.
Court's Interpretation and Reasoning: The Tribunal deemed the charging of interest as consequential.
Conclusions: The ground of appeal was dismissed.

SIGNIFICANT HOLDINGS

The Tribunal affirmed its previous decision that quashed the Section 263 proceedings, rendering the subsequent assessment order void ab initio.
The Tribunal upheld the principle that services must "make available" technical knowledge to be classified as "fees for included services" under the India-USA DTAA.
The Tribunal directed the AO to verify the correct assessment year for the addition of Rs. 5,17,95,146/-.
The charging of interest under Sections 234A and 234B was deemed consequential and dismissed.

In conclusion, the appeal was partly allowed, with significant relief granted to the assessee on the primary issues of non-compliance with the Tribunal's order and the classification of services under the India-USA DTAA.

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