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2015 (11) TMI 1131 - ITAT BANGALORE

2015 (11) TMI 1131 - ITAT BANGALORE - TMI - Revision u/s 263 - Non deduction of TDS - applicability of section 40(a)(i) on data link charges and insurance charges - Held that:- In the period under consideration as per the details in 17f of the Form 3CD Report, the assessee has debited an amount on account of data link charges and insurance charges paid/payable to parties outside India, which it has claimed as not chargeable to tax in India based on the decision of Wipro Ltd., Vs. ITO (2004 (12) .....

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order of assessment, then the higher forum can go through the show cause notice, if any, issued to the assessee and the reply thereto which would indicate that though the order of assessment is silent on the issue, it must have been discussed during the assessment proceedings. No such material is available before us, even in the assessee’s reply to the show cause notice issued by the learned CIT in revisionary proceedings u/s 263. The Hon’ble Apex Court in the case of Malabar Industries Co. Vs .....

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/Bang/2013 - Dated:- 7-10-2015 - SHRI VIJAYPAL RAO, JUDICIAL MEMBER AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER For The Appellant by : None For The Respondent by : Shri Anurag Sahay, CIT ORDER PER SHRI JASON P BOAZ, ACCOUNTANT MEMBER : This appeal by the assessee is directed against the order of the Commissioner of Income-tax (Appeal) - III, Bangalore passed u/s 263 of the Income-tax Act, 1961 (hereinafter referred to as the Act ) vide order dated 27/3/2013 for asst. year 2006-07. Since the learned .....

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order passed u/s 263 is bad in law and liable to be quashed. 1.2 The learned CIT, B lore III, B lore has erred in assuming jurisdiction u/s 263 of the IT Act, 1961 and in passing the revisional order without appreciating that for the year under consideration, the appellant had filed objections before the Hon ble Dispute Resolution Panel and the AO has passed the order in conformity with the directions of the Hon ble Panel in accordance with provisions of sec. 144C. The order of the AO having bee .....

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reciating that whether payment towards data link charges is liable to withholding tax is a debatable issue and order of the AO cannot be termed as erroneous on this count. 1.5 The learned CIT, B lore III, B lore s presumption that the non-resident payee s may have substantial presence in India based on contact information available on the website/internet is a only surmise or conjecture on the basis of which it cannot be concluded that the order of the AO is erroneous in nature or prejudicial to .....

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2010. 3. The facts of the case, briefly, are as under:- 3.1 The assessee, a company in the business of software development services, filed its return of income for asst. year 2006- 07 on 29/11/2006, declaring loss of ₹ 9,79,37,638/-. The return was processed and the case was taken up for scrutiny. The assessment was concluded by order passed u/s 143(3) rws 144C of the Act dated 18/10/2010 wherein the income of the assessee was determined at ₹ 2,71,30,061/- as against declared loss o .....

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y it is only ₹ 6,51,91,941/- On a closer verification it is found that, what the assessee has returned is loss as per the profit and loss account and not adjusted total loss which is arrived at after the required addition and allowances to the book loss as without in the computation of income statement submitted by the assessee during the course of assessment proceedings. Accordingly, the loss claimed in the return of income is ignored hereby as incorrect and the net loss of ₹ 6,51,1 .....

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ated 12.12.2008, with a view to examine the international transaction of the assessee and suggest any adjustment in respect of arms length price u/s 92CA. The Jt. Director (Transfer Pricing)-II, B lore vide order u/s 92CA dated 20.10.2009 determined the arms length price in respect of the software service at ₹ 21,49,71,327/- as against ₹ 12,08,02,549/- shown by the taxpayer. The difference of ₹ 9,41,68,778/- was determined as an adjustment u/s 92CA. In this regard a communicati .....

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in by the assessee company with its associated enterprises to the tune of ₹ 9,41,68,778/- as suggested by the TPO in his report u/s 92CA as discussed above. In accordance with the provisions of sec. 144C of the Income-tax Act 1961 the assessee was asked to file it s acceptance to variation of income determined consequent to the adjustment in Arms length price and to file its objection before the Dispute Resolution Panel on the above issues and any other eligible issues in the said order w .....

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ference on account of Arms length price suggested by the TPO and subsequently reworked out in accordance with the directions of the Dispute Resolution Panel in its direction dated 27.09.2010. Rs,9,41,68,778 Total Taxable Income Rs.2,89,76,837 Assessed Income ₹ 18,46,776 Rs.2,71,30,061 3.2 The learned CIT on an analysis of the records of assessment for asst. year 2006-07 observed from Point No.17f of the report filed in Form No.3CD that the assessee has debited an amount of ₹ 3,41,52, .....

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the provisions of sec. 40(a)(i) of the Act were attracted or not for deduction of tax at source. 3.2 In this view of the matter, the learned CIT issued a show cause notice requiring the assessee to show cause why proceedings u/s 263 of the Act should not be initiated in its case and calling upon the assessee to file objections if any to these proposed proceedings us/ 263 of the Act. In response thereto, the assessee filed written submissions in the course of hearings on 26/3/2012, 4/6/2012 and .....

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ing to ₹ 3,41,92,524/- being data link charges and issuance charges paid/payable outside India to 4 parties, namely MCI World Com Communication Inc (USA), Novatel (USA), Verizon Communication Inc (USA) and Singapore, Telecommunications (Singapore) were liable for TDS thereon as the incomes were chargeable to tax in India; whether or not, these Non Residents to whom payments have been made had permanent establishment in India (PE); the applicability of provisions of Articles 5,7 etc. of the .....

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then at para 13 of the impugned order directed the Assessing Officer to make a denovo order of assessment after examining and verifying the issue and considering the disallowance of the payments made by the assessee company for data link charges and issuance charges paid/payable to the parties outside India without making TDS thereon, after affording the assessee adequate opportunity of being heard in the matter. 4.1 We have heard the learned DR in the matter and perused and carefully considere .....

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ded the following broader tests: (i) The CIT must record satisfaction that the order of the AO is erroneous and prejudicial to the interest of the Revenue. Both the conditions must fulfilled. (ii) Sec. 263 cannot be invoked to correct each and every type of mistake or error committed by the AO and it was only when an order is erroneous that the sec. will be attracted. (iii) An incorrect assumption of facts or an incorrect application of law will suffice the requirement of order being erroneous. .....

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assessment, the AO examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determine the income, the CIT, while exercising his power u/s 263 is not permitted to substitute his estimate of income in place of the income estimated by the AO. (vii) The AO exercises quasi-judicial power vested in his and if he exercises such power in accordance with law and arrive at a conclusion, such conclusion cannot be termed to be erroneous simply because the CIT .....

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he does not make an elaborate discussion in that regard. 4.2 Apart from the above principles, we deem it appropriate to make reference to the decision of the Hon ble Delhi High Court in the case of CIT Vs. Sun Beam Auto reported in 227 CTR 113 wherein the Hon ble High Court has propounded a distinction between lack of inquiry and inadequate inquiry. If there is a lack of enquiry, then the assessment order can be branded as erroneous. The following observations of the Hon ble Delhi High Court ar .....

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cates on the assessment order which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the AO had not applied his mind on the issue. There are judgments galore laying down the principle that the AO in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was applic .....

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would be open. 4.3 The Hon ble Delhi High Court in the case of Gee Vee Enterprise Vs. Addl. CIT & Ors. (1975) 99 ITR 375 (Del.) has propounded the role required to be played by the AO. The reason is obvious. The position and function of the Income-tax Officer is very different from that of a civil court. The statements made in a pleading proved by the minimum amount of evidence may be accepted by a civil court in the absence of any rebuttal. The civil court in neutral. It simply gives decisi .....

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ITO to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word erroneous in sec. 263 includes the failure to make such an inquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct. 4.4 In the light of the above proposition, if we peruse and consider the material on record, it would reveal that in the .....

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