TMI Blog2018 (2) TMI 1356X X X X Extracts X X X X X X X X Extracts X X X X ..... ered outside India. AO has made due enquiries with regard to non taxability of receipts by the assessee for services rendered outside India and applicability of Article 15 of DTAA. The CIT in the impugned order was of the view that the AO ought to have called for the copy of the contract between the assessee and the person to whom the assessee rendered services from USA and also to verify where payments were made to the related parties and also examine the nature of services. In our view this is nothing but a fishing and roving enquiry which is not permitted in exercise of jurisdiction u/s 263 of the Act. The exercise of jurisdiction u/s 263 of the Act in this regard is therefore held to be not sustainable. Services rendered in India, it is not disputed that this was offered to tax by the assessee and brought to tax by the AO. Therefore there cannot be any loss of revenue in this regard. We therefore hold that the exercise of jurisdiction in respect of receipts for services rendered in India and the direction of CIT as given in Paragraph 3.6(ii) of his order to examine the contract of the parties is not sustainable and is hereby quashed. International transaction between t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... side India are not chargeable to tax in the Notes on computation of income as follows : The partnership firm being a resident of USA, had allocated its income sourced from India in two distinct categories, irrespective of the fact of how the recipient of such services had withheld the taxes. Brief notes on the two categories are given in the table below for your understanding : Category Type of services Taxability Tax rate A Professional services with respect to US GAAP, restatement of financial accounts to US accounting standards, assisting Indian companies in listing ADR, GDR and other securities, certification and compilation of relevant form in computation to the above. This service is in continuation from the earlier years and some portion of the work has been rendered form India, thereby creating a Service PE. Hence, entire income from such projects in Indi has been offered for taxation. Further, no deduction for expense has been claimed and tax has been offered on gross income. 30.90% on gross invoice (including cess) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... copy of which is at Page-95 of the Assessee s paper book. The Assessee also gave the details of invoices in respect of the income which was offered to tax in the return of income. The details of such invoices are at page 95 of the assessee s paper book. In respect of receipts for the services rendered outside India the assessee gave details like invoice no., date of invoice, nature of payment. These details are at pages 96 to 108 of the assessee s paper book. The audit report u/s 44AB of the Act was also filed along with the return of income which is placed at pages 109 to 161 of the assessee s paper book. The assessee claims that it had also filed details of international transaction which the assessee had with the associated enterprises (AE) in Form 3CEB as is required in terms of Rule 10E of the I.T.Rules 1962(Rules) r.w.sec.92 92C of the Act. These details in Form 3CEB along with the report of an accountant are at pages 162 to 168 of the assessee s paper book. 4. The AO issued a notice u/s 143(2) of the Act dated 07.09.2012. Another notice u/s 142(1) of the Act dated 16.10.2012 was issued by the AO. In the said notice the AO called upon the assessee to produce the followin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t verify the claim of the assessee that the payments shown as non taxable was indeed related to services rendered outside India and not connected to any P.E.in India. iii)that the A.O also did not collect any evidence to test assessee's claim for relief under Article- 15 of the Indo US DTAA. iv)And that although the AO had asked for details of International Transaction and Form No.3CEB vide notice u/s.142(1) dated 16.10.2012, but the assessee did not give any reply in this regard, nor did the AO pursue the matter further. The CIT was of the view that there was complete lack of enquiry/verification by the AO during scrutiny proceedings and therefore the order passed u/s. 143(3) of the I.T.Act vide order dated 19.03.2013 was considered erroneous in so far as it is prejudicial to the interests of revenue. The CIT accordingly issued show cause notice dated 22.1.2015 u/s.263 of the Act on the above lines and called for reply from the Assessee. 7. The assessee submitted a reply in response to the aforesaid notice and brought to the notice of the CIT the various documents that were filed in the course of assessment proceedings before the AO. The assessee pointed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that in the return of income filed the assessee had claimed credit of such TDS and refund of TDS. According to CIT therefore it was the duty of the AO to have verified whether the sum in question was taxable in India. He was of the view that the AO ought to have examined the contract between the assessee and the persons resident in India to find out the nature of services rendered and persons who rendered the services and the place at which the services were rendered. Since the AO did not do any such verification, the CIT was of the view that the order of AO was erroneous and prejudicial to the interest of the revenue.. 9. Though in the show cause notice issued u/s.263 of the Act, the CIT did not cite non furnishing of Audit Report of International transactions between the Assessee and its Associated Enterprises in Form 3CEB as one instance of lack of proper enquiry by the AO, the CIT cited the non availability of Form 3CEB in the assessment records and drew a presumption that such report had not been filed by the Assessee. Thereafter the CIT discussed the legal position with regard to exercise of jurisdiction u/s 263 of the Act. The main conclusion of the CIT is based on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ile this form either with the return or during the scrutiny proceeding. However, it is also seen from the TDS reconciliation statement submitted during assessment proceedings vide letter dated 06.032013 that some of the deductors are named as M/s. Price Water House, M/s. Pricewaterhouse Coopers Pvt. Ltd., M/s. Price Waterhouse and Co., M/s. Price Waterhouse etc. The AO should also examine these payments, their relation with the assessee and the nature of services rendered by the assessee to these enterprises. 10. Aggrieved by the order of CIT the assessee has filed the present appeal before the Tribunal. 11. The ld. Counsel for the assessee brought to our notice the enquiries made by the AO before completing the Assessment to demonstrate that the AO did make adequate and necessary enquiry before completing the Assessment. Our attention was drawn to notice u/s 143(2) of the Act dated 07.09.2012 and another notice u/s142(1) dated 16.10.2012 issued by the AO. He pointed out that in reply to the aforesaid notices filed all the details before the AO. In particular the ld. Counsel brought to our notice a letter dated 06.09.2013 filed by the assessee before the AO in which the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e dated 16.10.2012 u/s 142(1) of the Act the AO specifically called for Form 3CEB and the assessee duly furnished the same. If the Form 3CEB filed by the assessee is not in the record of assessment, the assessee cannot be held responsible for the same. He also brought to our notice that a copy of Form 3CEB was also filed before CIT in the proceedings u/s 263 of the Act and he did not find any necessity to make any reference to the Transfer Pricing Officer (TPO) u/s 92C of the Act except to record purely on a surmise that there could be more than one Associated Enterprise of the Assessee and it cannot be believed that there was only one AE of the Assesssee in India. According to him there was no impact on income due to the international transaction with the associated enterprises. 13. The ld. Counsel drew our attention to the decision of the Hon ble Delhi High Court in the case of Gee Vee Enterprises vs ACIT 99 ITR 375(Delhi). He brought to our notice that this decision is the basis on which the CIT passed the order u/s 263 of the Act. In the aforesaid order the Hon ble Delhi High Court took the view that failure to make enquiry which the AO in the given facts and circumstances o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... substitute the manner in which the enquiry should be made. The approach of AO and that of the CIT could be different. If AO has conducted enquiries which in his view were warranted under the circumstances of a given case, the CIT cannot say that that was not the proper approach. The AO exercises his individual judgment on how to proceed to make an Assessment, what enquiries he has to make and how to frame the order of Assessment. On a mere disagreement on such individual judgment, the CIT is not entitled to exercise jurisdiction u/s.263 of the Act. 15. The ld. Counsel drew our attention to the decision of the Hon ble Calcutta High Court in the case of CIT vs J.L.Morrison India Ltd. 366 ITR 593 (Cal). It was a case where order of the tribunal quashing the order u/s 263 was challenged before the Hon ble Calcutta High Court. Order u/s 263 of the Act was passed on the ground that the AO did not make due enquiry before completing the assessment. The Hon ble High Court made a reference to section 114 (e) of the Evidence Act, 1872 which lays down that there shall be a presumption that judicial and official acts have been regularly performed. The Hon ble court held that this presumptio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the interest of the revenue for lack of enquiry having been made before completing the assessment. 18. The ld. Counsel drew our attention to the decision of the Hon ble Bombay High Court in the case of Gabriel India 203 ITR 108(Bom) wherein the Hon ble Bombay High Court held that the CIT cannot make an order u/s 263 of the Act unless the twin conditions viz. order being erroneous and prejudicial to the interest of the revenue exists. The Court further held that an order cannot be termed as erroneous unless it is not in accordance with law. The following observations were brought to our notice: If an Income-tax Officer acting in accordance with law makes certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualize a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order, unless the decision is held to be erroneous. Cases may be visualized where the Income- tax Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the AO followed the decision of the higher authorities in an earlier assessment year while making an assessment and the Commissioner revised such order u/s 263 of the Act. The Hon ble Calcutta High Court in a writ petition against the order u/s 263 of the Act observed as follows :- The Income-tax Officer has merely followed the decision of the Tribunal. No error has been pointed out in the said decision of the Income-tax Officer. It has not been pointed out that there were materials for the Income-tax Officer not to follow the decision of the Tribunal. As a matter of fact whenever there is a decision of the higher appellate authority, the subordinate authorities are bound to follow the said decision if judicial discipline is to be maintained. Reliance may be placed in this connection on the observations of the Supreme Court in. the case of East India Commercial Co. Ltd. v. Collector of Customs AIR 1962 SC 1893 at page 1905 of the report. In the aforesaid view of the matter I must hold that the conditions for exercise of the power under section 263 of the Act, namely, that there must be material for the Commissioner to consider that the order passed by the Income-tax Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... invoice no., invoice date, gross fees and tax both in US$ and Indian rupee. In all there were 93 payments. These details are available at pages 96 to 108 of the assessee s paper book. These documents had been filed by the assessee along with the computation of total income. It is not in dispute that these documents was available before the AO when he completed the assessment. The AO in the notice u/s 142(1) of the Act dated 16.10.2012 has also called for Audited accounts and balance sheet as on 31.10.2010, report of audit u/s 44AB of the Act. As we have already observed in a letter dated 21.06.2012 the assessee has clearly taken a stand regarding non taxability of fees received for services rendered outside India. We have also made a reference to the stand of the Assessee in this regard in the earlier part of this order. The AO in the order of assessment dated 19.03.2013 has duly taken cognizance of all the details and has come to a conclusion that the income earned from services rendered in India has been offered to tax whereas income arising from services rendered outside India has not been offered to tax. Thus it is clear that the AO has made due enquiries with regard to non tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s.142(1) of the Act and the same was duly furnished by the Assessee, there is not material on record to suggest that the Assessee had filed the said report. The finding of the CIT in this regard that such report was not filed by the Assessee before the AO is therefore correct. The said report was filed before the CIT in the proceedings u/s.263 of the Act. In the order passed u/s.263 of the Act, the CIT has not prima facie found any impact on income of the Assessee by reason of international transaction with AE in terms of Sec.92 of the Act. He however found on a perusal of TDS reconciliation statement that there were payees reflected in the TDS certificate by name M/s Price Water House, M/s Pricewaterhouse Coopers Pvt. Ltd.,. M/s. Price Waterhouse.and Co., M/s Price Waterhouse etc. The CIT therefore surmised that there could be some more international transactions with AE and the report disclosing only one international transaction may not be correct. In our view the CIT on perusal of Form 3CEB has not drawn any adverse inference. He however directed the AO to examine certain other payments to parties having similar name as that of the assessee. We fail to see as to how such vague ..... X X X X Extracts X X X X X X X X Extracts X X X X
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