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TMI Blog2019 (1) TMI 1063X X X X Extracts X X X X X X X X Extracts X X X X ..... ice, Pr. CIT could not have treated any further item or part of the assessment order as being erroneous and prejudicial to the interests of the Revenue without giving the assessee an opportunity of being heard; and that, therefore, what the Commissioner himself could not have done, could not be permitted to be done by the Assessing Officer while giving effect to the order under section 263 - Tribunal was right in holding that in the fresh assessment order passed in pursuance of the consolidated order under section 263 of the Act, the Assessing Officer was entitled to consider only two items which had been considered by the Commissioner and was not entitled to consider any other item afresh for making addition. The orders passed by the ld. CIT(A) for both the years are, thus, reversed, except:- (i) the ld. CIT(A)’s action in directing the Assessing Officer, for assessment year 2010-11, to verify whether M/s Pool Services has disclosed the contract job work charges of 1,66,700/- in its profit (ii) the action of the ld. CIT(A) in confirming the addition of 45,725/- made under section 14A of the Act, for assessment year 2011-12, as this issue does arise from the order issued under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anpur-208010 Sub; Show cause notice u/s 263(1) of the I.T. Act 1961 in the case of M/s Model Tanners (India) Pvt. Ltd., C/o Sultan Tanners, Jajmau, Kanpur for A. Y. 2010-11 - Regarding On perusal of assessment record relating to the Assessment Year 2010-11 in your case has been examined. On examination of assessment record, it is found that assessment order dated 31.03.2013 for the Assessment Year 2010-11 passed by the Asstt. Commissioner of Income Tax, Central Circle-2, Kanpur under section 143(3) of the Income Tax Act,1961 on total income of ₹ 1,21,56,043/- is erroneous and prejudicial to the interests of revenue for the following facts and reasons: Applicability of Section 195 of the Income Tax Act, 1961 on Commission paid to foreign agents (sales commission) The assessee company has paid a sum of ₹ 91,31,915/- (Rs.38,58,862/- from Unit -1 & ₹ 52,73,053/- from Unit -2) to the Overseas entities and debited in the Profit & Loss Account under head sales promotion without deduction of income tax at source u/s 195 of the I.T. Act. As per. provisions of section 195 of the Income Tax, 1961 read with section 9(1) (vii), it is mandatory to deduct tax at sour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xplanation- For the removal of doubts, it is hereby declared that for the purposes of this section, income of a non-resident shall be deemed to accrue or arise in India under clause (v) or clause (vi) or clause (vii) of sub-section (1) and shall be included in the total income of the nonresident, whether or not,- (iii) The non-resident has a residence or place of business or business connection in India; or (iv) The non-resident has rendered services in India A perusal of these statutory provisions makes it clear that these classify and cover all income as accruing and arising in India which partake the character of payment on account of "fee for technical services" which is very preciously defined in Explanation (2) to include any payment for rendering of any managerial or consultancy services rendered by the Non-Resident agent. In the case of the assesses since he was not able to sell his goods on his own to the foreign buyers, he had to avail the managerial acumen and the expertise of the non-resident m Ueu,of the consideration debited by the assesses in his book of accounts as Commission.. It makes it clear that the payment by the assesses in connection with hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion in the prescribed from to the [Assessing] Officer for the grant of a certificate authorizing him to receive such tax interest or other sum without deduction of tax under sub -section , and where any such certificate is granted .every person responsible for paying such interest or other sum to the person to -whom such certificate is granted shall, so long as the, certificate is in force, make payment of such interest or than sum without deduction tax thereon under sub-section (1). From the above facts , which have been brought on record that there was mandatory, liability on your part under section 195 of the Income Tax act 1961 read with section 9(1) (vii) thereof to deduct income tax at source from the sum of ₹ 91,31l,915/-which you have debited in Profit & Loss Account as Sales promotion. Therefore, there was a clear cut liability to deduct tax at source and having failed in deducting the same amount was liable to be disallowed as per provisions of section 40(a)(i) of the Income Tax ,1961 .The A.O. while passing the order u/s 143(3) of foe Act in this case has not examined the above facts , Accordingly the assessment order on this point is erroneous as well as prejud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave not been included in the total income as well as enquiries which should have been made by the A.O., have not been made. The order, due to this reason, has resulted in determination of incorrect total income at a lower figure and, therefore, prejudicial to the interests of Revenue. You are, therefore, required to furnish show cause why the amounts not be modified as provided in section 263 of the IT Act 1961. You are, accordingly given an opportunity of being heard and to furnish objection, if any, by 12.11.2013 at 11.30 A.M before the undersigned, either in person of through your authorized representative duly authorized by you, failing which it shall be presumed that you do not have to say anything in this regard and the matter shall be decided on the basis-of records, facts of the case as per law, Sd/- (Davendra Shanker} Commissioner of Income Tax, (Central), Kanpur" 4. Vide order dated 30/3/2015, the assessment order framed under section 153C of the Act was set aside by the ld. Pr. CIT, under section 263 of the Act. The Assessing Officer was given specific directions, as contained in the ultimate paragraph of the order. These directions are now the subject matt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act makes it evidently clear that the Pr. CIT held that the Assessing Officer had not carried out any enquiry to verify the purchase of raw material by the assessee from the parties and also whether the parties were genuine and that the submissions made by the assessee had been accepted by the Assessing Officer without verification, disallowing only a partial amount of ₹ 1.25 lakhs. It was also held that no enquiry had been made with regard to the generation of cash of ₹ 2 crores found in the possession of the Directors of the company. It was with regard to these issues only that the assessment order was set aside and the assessment was directed to be framed afresh. In fact, the relevant portions of the order passed under section 263 of the Act, when juxtaposed with each other, would read as follows:- "…………..It can be seen that the reply of the assessee centres around the fact that the details are produced before the A.O. and that he had examined it. A perusal of the records indicate that the A.O. has not carried out any enquiry what so ever to verify the purchases of raw material from the parties and also whether the parties are genuine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e authorized officer as a result of search and seizure operation carried out. In normal course any prudent person would have made enquiry about the fact of generation of cash which was found in the possession of the partners of the firm as indicated earlier. It is also seen that the order u/s 153C of the A.O, has been passed after obtaining approval from the Joint Commissioner of Income Tax, Central Range, Kanpur in terms of provisions of section…………In view of the above factual position and legal precedents and after having considered all the facts, arguments of the assessee, it is an unescapable conclusion that the order passed by the AO is erroneous as indicated above as well as prejudicial to the interest of the Revenue since the Assessing Officer did not verify several issues' and facts and did not carry out necessary investigations to come to a conclusion before passing the assessment order. Therefore, the assessment orders for A.Y. 2010-11 passed by the AO is hereby set aside under section 263 of the I.T. Act, 1961 to be framed afresh after taking into account the points made above on the merits of the case as well as the documents submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ob work charges, which addition was deleted by the ld. CIT(A). 13. The Assessing Officer made the following disallowances/additions:- i) Disallowance under section 80-IB of the Act : Rs.26,24,573/- ii) Interest on TDS : Rs.1,699/- iii) Addition under section 14A of the Act : Rs.36,310/- 14. The ld. CIT(A) confirmed these three additions/disallowances. The grievance of the assessee is that the ld. CIT(A) has erred in confirming these three additions made by the Assessing Officer over and above subject matter of the order passed under section 263 of the Act. 15. The ld. CIT(A), in para 5.1 (page 4) of his order, has observed as under:- "The view of the appellant that, as the order under appeal does not stem out from order u/s 263 hence the order itself is invalid and bad in law, cannot be accepted because order u/s 263 clearly mentions in the concluding paragraph that the order passed by the AO BS set aside to be framed afresh after taking into account all the documents and. the information found during the course of search proceeding and after verifying issues and facts and carrying out necessary investigations after giving the assessee the due opportunity of being hear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereof. The assessee has raised an additional ground in this regard, contending that this addition has wrongly been confirmed, as it does not come out of the revisional order. This ground is rejected.
19. In view of the above, the grievance of the assessee for both the years is partly accepted. The orders passed by the ld. CIT(A) for both the years are, thus, reversed, except:-
(i) the ld. CIT(A)'s action in directing the Assessing Officer, for assessment year 2010-11, to verify whether M/s Pool Services has disclosed the contract job work charges of ₹ 1,66,700/- in its profit & loss account and paid the income tax thereon, on the fulfillment of such verification, the addition would stand deleted;
(ii) the action of the ld. CIT(A) in confirming the addition of ₹ 45,725/- made under section 14A of the Act, for assessment year 2011-12, as this issue does arise from the order issued under section 263 and was correctly made the subject matter of assessment pursuant to the revisional order.
20. No other argument was raised.
21. In the result, both the appeals are partly allowed.
Order pronounced in the open Court on 18/01/2019. X X X X Extracts X X X X X X X X Extracts X X X X
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