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TMI Blog2024 (10) TMI 1654X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and circumstances of the case. The notice issued under section 263 was without jurisdiction and without authority of law, hence the order passed deserves to be set side. 2. That the learned Principal Commissioner of Income Tax, Udaipur passed the order dated 20/03/2024 under Section 263 of the L.T. Act, erred in remanding the ground of revision to the Assessing Officer passed by the ld. Assessing Officer on the issue relating to Non- Deduction of TDS on Rs.23,09,26,264/- being bank interest paid outside India. The interest was paid on foreign currency loan taken from Foreign Branches of Indian Banks which were Domestic Companies. Hence TDS was neither required to be deducted under Section 194A nor under Section 195, hence the order passed under Section 263 deserves to be set aside on this issue. 3. That the learned Principal Commissioner of Income Tax, Udaipur vide order dated 20/03/2024 passed under Section 263 of the LT. Act, erred in remanding the ground of revision to the Assessing Officer passed by the ld. Assessing Officer on the issue relating to treatment of dividend received from Foreign Joint Venture as Dividend Income. The income was purely in the nature of divide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted by the assessee, ld. AO concluded that explanation offered by the assessee was satisfactory and no adverse inference was drawn. Ld. AO also noted that assessee on 24.02.2021 filed the revised computation of income and offered the GST provision of Rs. 16,30,91,496 for taxation purpose which was added back to the total income of the assessee. Accordingly, against the returned of income of Rs. 5,93,12,42,630/- assessed income was determined at Rs. 6,09,43,34,126/- vide order dated 19.04.2021. 4. On culmination of the assessment proceedings, the ld. PCIT called for the assessment records as per power vested upon her in terms of provision of section 263 of the Act. Upon examination of records ld. PCIT noted that; a) The assessee company claimed an expenditure of Rs.5,92,10,074/- related to Education-Cess for the A.Y. 2009-10 on the basis of order passed by High Court of Rajasthan on 31.07.2018. This expenditure was not allowable in view of explanation 3 to section 40(a)(ii) inserted by Finance Act 2022 w.e.f. 01.04.2005. Further, the Hon'ble Supreme Court, vide its order dated 14.012.2022 in SLP(c) No. 7329/2019, has decided this issue in favour of Revenue for the A.Y. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, the AO/NaFAC didn't consider the same while passing the assessment order on 19.04.2021 further rectified u/s 154 on 21.05.2021. Chambal Fertilizers and Chemicals Ltd vs. PCIT Thus, ld. PCIT noted that the FAO didn't examine the issue of expenditure of Rs.5,92,10,074/- related to Education-Cess of A.Y. 2009-10 (supra), on the basis of order passed by High Court of Rajasthan on 31.07.2018. The AO/NaFAC didn't disallow this expenditure in view of explanation 3 to section 40(a)(ii) inserted by Finance Act 2022 w.e.f. 01.04.2005, accordingly as such, the income has been under computed/assessed by this amount of Rs.5,92,10,074/- 4.1 Since the AO didn't apply/consider correct appreciation of fact as well as law w.r.t. chargeability of tax rate on the income derived by CFCL from business activities of the Joint Venture with JV IMACID of Kingdom of Morocco in view of the provisions of Article 9 (Associated enterprises) of the Convention between the Republic of India and the Kingdom of Morocco for the Avoidance of Double Taxation and the prevention of fiscal evasion with respect to taxes on income (Notification no. GSR 245E, dated 15.03.2000 where: (a)and enterprise of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled reply of the queries raised by ld. PCIT and the discussion recorded in the order of ld. PCIT, she hold that the assessment order passed by the FAO in the case of the assessee is set aside (partly) to AO on the two issue i.e. The issue of Non-Deduction of TDS on Interest paid outside India or paid in India to a non-resident other than a company or a foreign company (Rs.23,09,26,264/-) and The issue of Dividend (as per section 115BBD) vs. Business Income (Rs. 9,82,58,313/-) to complete the assessment u/s 263/143(3)/142(1) of the Act, considering the observations made in para 6[B] & 6[C] in her order. Thereafter, based on outcome of such enquiries and verification, necessary additions, wherever required, may be made to the total income of the assessee as per law by modifying the assessment order u/s 143(3) of the Act dated 19.04.2021. Therefore, she holds that assessment order passed is liable to revision under clause (a) & (b) of the explanation 2 of section 263 of the Act and thereby the assessment order was set aside as per provisions of section 263 of the Act. 5. Feeling aggrieved from the above order of PCIT, the assessee has challenged the finding of ld. PCIT on three gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20.03.24: * Issue I - Interest paid outside India was Rs. 25,56,23,509/- whereas TDS was deducted on a sum of Rs. 13,92,83,709/- only and hence the differential amount of Rs. 11,33,39,800/- is to be disallowed. * Issue II - Dividend income of Rs 9,82,58,313/- earned from the assessee company's JV in Morocco was to be taxed as business profit subject to 30% tax instead of dividend income subject to 15% tax u/s 115BBD. Pointers For Arguments: A. The Notice dated 20.09.2023 issued by the L.D. PCIT under Section 263 and consequential Order is not valid: 1. For, a Notice issued under section 263 will be a valid notice only if both the conditions mentioned under the said section are duly complied, they are: i). The original order must be erroneous in law; and ii). The order should be prejudicial to the interest of the revenue. 2. The assessee through its submissions and replies dated: * . 20.10.2023 (Page No. 7-9 of Order of PCIT dated 20-03-2024), * . 04.01.2024(Page No. 22-23 and 24-25 of Order of PCIT dated 20-03- 2024) (Personal Hearing) and * . 13.03.2024(Page No. 31-32 of Order of PCIT dated 20-03-2024) (Personal Hearing), has duly established that fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on it. Further, an amount of Rs. 38,41,373 was paid as a Royalty on which TDS was also deducted. Similarly, an amount of Rs. 2,39,757 was paid for other services and on this also TDS was deducted. It is to be noted that out of Rs. 13,92,83,709/- the amount of foreign interest on which TDS was deducted was only Rs. 1,81,97,163. Further for more clarification concerning the query of Interest Expenses kindly refer the Page No. 186 of the Supplementary Paper Book filed on 17.09.2024. 7. Further as far as the break up on the amount of Rs. 25,56,23,509/- reported as interest paid by Assessee Company, is concerned, the same is as follows: * . Interest paid to Indian Banking Companies amounting Rs. 23,09,26,264: With respect to this payment of interest amounting 23,09,26,264 made to Indian Banks, no TDS was deducted on account of specific exclusion contained in Section 194A(3)(iii) which enumerates the exemptions from deduction of TDS from interest payments. The payment of Interest was made to the foreign branches of the following Indian Banks: * " State Bank of India: Exemption to deduct TDS on the payment of interest made to this bank, under provisions of Section 194A(3)(iii)(a) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an income tax liability in accordance with provisions of related tax treaty. * . "Commissioner of Income-tax (TDS)-1 v. State Bank of Patiala [2017] 80 taxmann.com 254 (Punjab & Haryana)": According to section 194A(3)(iii)(p), the provisions of tax deducted at source are not applicable to income credited or paid to any institution, association of body or class by institutions, associations or bodies where the Central Government after recording the reasons in writing notifies them in the Official Gazette. The Notification No. S.O. 3489 [No. 170 F. No. 12/164/68-ITCC/ITJ], dated 22-10-1970 issued by the Central Government under section 194A(3)(iii)(f) inter alia any undertaking or body, including a society registered under the Societies Registration Act, 1860 financed wholly by the Government. * . "Commissioner of Income-tax (TDS)-1, Chandigarh v. Canara Bank [2017] 79 taxmann.com 342 (Punjab & Haryana)": Section 194A of the Income-tax Act, 1961 - Deduction of tax at source - Interest other than interest on securities - Assessment year 2012-13 - If organisation to which assessee paid interest was exempted from payment of tax, there was no need for deduction of tax at source ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lassified as a "Non-current Investment" and was accordingly shown in the annual accounts of the assessee, hence the income of the assessee will be in the form of "dividend" only. 13. Ld. PCIT contends that the dividend income earned by the assessee from its JV in Morocco was to be taxed as business profit subject to 30% tax instead of dividend income subject to 15% tax u/s 115BBD. The said contention is against the law and plain reading of provision of Section 115BD read with Section 90(2) of the Act. The Ld. PCIT has wrongly taken adverse view based on the Article 9 of the convention between India and Morocco dated 15.03.2000 (Page No. 4 of Order of PCIT dated 20-03-2024), which Article is not applicable at all. The said article no where states that the said understated profits would be taxable as 'Business Profits' only chargeable at the tax rate of 30% prescribed under the Income Tax Act, 1961. 14. In this context, the Appellant places its reliance on following judicial precedent, by which the case of the Appellant is squarely covered: * "Santhosh Maize & Industries Limited Vs. The State of Tamil Nadu & Anr CIVIL APPEAL NO. 5731 OF 2009" (SC): Law is well settled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order being erroneous. In the same category falls orders passed without applying the principles of natural justice or without application of mind. [Para 6] The phrase 'prejudicial to the interests of revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of the order of the Assessing Officer cannot be treated as prejudicial to the interests of revenue. For example, if the Assessing Officer has adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Assessing officer has taken one view with which the Commissioner does not agree, it cannot be treated as prejudicial to the interests of the revenue, unless the view taken by the Assessing Officer is unsustainable in law. Where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer without application of mind as such will be erroneous and prejudicial to the interests of the revenue." [Para 9] 1-4 Enquiry conducted by Ld. AO, thus, No 263 2. Commissioner to Income-tax v. Gabriel India Ltd. [1993] 71 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment cannot be taken into consideration by him. Moreover, in view of the clear words used in clause (b) of the explanation to Section 263(1), it has to he held that while calling for and examining the record of any proceeding under Section 263(1) it is and it was open to the Commissioner not only consider the record of that proceeding but also the record relating to that proceeding available to him at the time of examination. [Para 14] 11-17 Finding is Compulsory for exercising jurisdiction u/s 263 of the Act 4. Income-tax Officer v. D.G. Housing Projects Ltd. [2012] 343 ITR 329 (Delhi) [01.03.2012] The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under section 263. In such matters, to remand the matter/issue to the Assessing Officer would imply and mean the Commissioner has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question. [Para16] 18-26 5. J.P. Srivastava & Sons (Kanpur) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and we have no doubt that the Authority have been established by the 1976 Act and it is clearly covered by the Notification dated 22.10.1970. It is further relevant to note that composition of the Authority is statutorily provided by Section 3 of 1976 Act itself, hence, there is no denying that Authority has been constituted by Act itself. [Para 31] 51-63 Special rate of tax will prevail over general tax rate 10. Esthuri Aswathiah Vs. Commissioner of Income Tax, Mysore, Civil Appeal No. 402 of 1962 The rate of tax is fixed by the Finance Act every year. By s. 3, the tax is levied at that rate for an assessment year in respect of the income of the previous year. [Para 11] 64-67 11. Santhosh Maize & Industries Limited Vs. The State of Tamil Nadu & Anr CIVIL APPEAL NO. 5731 OF 2009 Law is well settled that if in any statutory rule or statutory notification two expressions are used - one in general words and the other in special terms - under the rules of interpretation, it has to be understood that the special terms were not meant to be included in the general expression; alternatively, it can be said that where a statute contains both a general provision as well as a specifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the PCIT with that of the facts of the case and whether the issue raised makes the order of the ld. AO erroneous and prejudicial to the interest of the revenue or not, that chart is reproduced here in below : Issue Ld. PCIT Summary of Grounds Judgments Paper Book Reference Ground No. 1 of Form 36 (Section 263) a. Facts are not verified by the AO during the assessment proceeding a. Twin conditions not satisfied by Ld. PCIT. Remanded back for mere verification without giving any reasoning with respect to the order of AO being erroneous and prejudicial, hence, no finding by Ld. PCIT. b. Sufficient enquiry by the Ld. AO + detailed submissions made. c. Assessment is under Faceless Assessment Scheme having multiple teams, thus, proper verification done at assessment level. a. Landmark (Twin Cond. + Prejudicial + Two Views): Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 (SC). b. Enquiry by Ld. AO, thus, No 263: Gabriel India Ltd. [1993] 71 Taxman 585 (Bom.) [15.04.1993]. c. PCIT should check submissions placed on record: Shri Manjunatheshwar Packing Products & Camphor Works [1998] 96 taxman 1 (SC). d. Finding Compulsory by PCIT: i). D.G. Housing Projects Ltd. [2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 115BBD is applicable and all conditions being fulfilled. c. It requires, holding of minimum 26% in equity, whereas, the Apppellant is holding 33.33% in foreign company d. Dividend income is supported by documents evidence produced on record, which are not faulted. e. FA, 2011 came with specific provision to provide lower tax rate (special tax rate). f. Section 56 requires dividend income to be charged under IFOS Head. g. Even otherwise, Section 90(2) of the Act is applicable. h. Action of Ld. PCIT is not in accordance with intent on law. i. Nothing prejudicial established. j. AO passed order in accordance with law as applicable. Specifical Rate would prevail a. FA 2011 Memorandum* b. Esthuri Aswathiah Vs. Commissioner of Income Tax, Mysore Civil Appeal No. 402 of 1962. c. Santhosh Maize & Industries Limited Vs. The State of Tamil Nadu & Anr. CIVIL APPEAL NO. 5731 OF 2009 d. Commissioner of Income-tax (Central)-I, New Delhi Vs. Vatika Township (P.) Ltd [2014] 49 taxmann.com 249 (SC). a. Minutes of meeting of Shareholding meeting: 154- 157 b. Dividend Certificate PB No. 158, 176 c. Annual performance Report submitted to RBI, 159-164 d. Shareholders agreement: 83- 153 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce issued by IMACID 165-167 Yes Dividend issue 21. Copy of English translation of Document at S No 17 168-175 Dividend Issue 22. Copy of English translation of Document at S No 18 176 Dividend Issue 9. The ld. AR of the assessee in addition to the written submission, case laws and paper book so filed argued that the assessee as per schedule 22 of profit and loss account debited interest of Rs. 8719.49 lakhs. Whereas at Sr. No. 43(i) of ITR-6 filed by the assessee the figure of interest paid outside India or paid in India to a non-resident other than a company or a foreign company reported for an amount of Rs. 25,56,23,509/ -. Ld. PCIT picked up that figure and compared the figure of Rs. 13,92,83,709/- as reported in Form No. 3CD as per provision of section 195 of the Act, taken a view that the assessee has not deducted TDS for an amount of Rs. 11,33,39,800/- (25,56,23,509/- - 13,92,83,709/-) under the provisions of section 195 viz a viz 194A of the Act. During the proceedings u/s 263 of the Act, a detailed explanation as well as breakup of the amount paid was furnished by the assessee reconciling this figure with that of the figur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equired tax along with the interest and the ld. PCIT was satisfied on that aspect of the matter based on the explanation furnished by the assessee. 9.4 Since, on two issues there is no pinpoint of any error which was prejudicial to the interest of revenue and the ld. PCIT failed to prove that order of the assessing officer sought to be revised is erroneous and is prejudicial to the interests of the revenue. If one of them is absent the order of the assessing officer cannot be subjected to the revision as per provision of section 263 of the Act. The ld. AR of the assessee in support of the merits of the case and judicial precedent relied on the submission filed. 10. Per contra, the ld. DR relied upon the finding recorded at para 6B and 6C from Page No. 40 to 46 her order. She further stated that the ld. PCIT has considered all the arguments placed on record and thereafter passed reasoned order. 11. We have considered the submissions advanced by learned counsel for the parties and have also perused the material on record. Ground no. 4, raised in this appeal being general and there is no grievance of the assessee so the same being general in nature does not required any adjudicatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that they have deposited the requisite tax along with the tax. After considering the reply filed by the assessee, ld. PCIT noted that the assessee reasonable explained this issue and she was satisfied on that issue. Now we would deal with left out two issues for which the ld. PCIT invoked the provision of section 263 of the Act. The first one is on the contention that the assessee has reported at ITR column no. 43(i) under the head interest paid outside India or Paid in India to a non resident other than a company or a foreign company for an amount of Rs. 25,56,23,509/ -. While the Tax deducted as reported in form no. 3CD assessee reported to have deducted tax for an amount of Rs. 13,92,83,709/-. Thus, ld. PCIT was of the view that the assessee has not deducted TDS on Rs. 11,33,39,800/- [ Rs, 25,56,23,509/- less Rs.13,92,83,709/- ] under the provision of section 195 vis a vis 194A of the Act. During the proceeding before ld. PCIT assessee filed a detailed reply with supporting evidence. The assessee submitted a detailed breakup for an amount of Rs. 13,92,83,709/- being the amount of TDS made as per provision of section 195 of the Act as reported at clause 34a of the Tax audit r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not entail any pay out question of deducting TDS does not arise. Not only that the ld. AR of the assessee demonstrated that the issue of deductibility of interest expenses has been verified by the ld. AO and the assessee filed the details at point no. 9 of the submission dated 02.03.2021 filed with the ld. AO. Thus, the issue raised by ld. PCIT has already been verified by the ld. AO and the PCIT cannot in the proceeding u/s. 263 direct the way the enquiry should have been done by the ld. AO. We note that based on the details placed on record the ld. AO taken a plausible view which even the after the details placed on record revenue failed to established that the view taken by the ld. AO is erroneous or prejudicial to the interest of the revenue. Thus, here we note that the issue first of all verified by the ld. AO, not only that based on the explanation before ld. PCIT neither she hold that the explanation or based on the details placed on record the order is erroneous nor prejudicial to the interest of revenue. Even the ld. PCIT did not controvert the detailed submission and evidences placed on record. She simply stated that; " The reply of the assessee on the issue of non de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, these foreign branches are not foreign entity but foreign branch of Indian Bank. Therefore, foreign Branch of this Indian Bank cannot be considered as non-resident. Accordingly provisions of section 195 do not apply to payment made by Indian company to foreign branch of Indian Bank. Hence there is no requirement on deduction of tax at source. Even otherwise these banks are Indian resident and incomes of their branches are taxable in the hands of this Indian Bank in their return of income to be filed in India. Because of these reason that global income of resident of Indian would be chargeable to tax in India, if any tax is deducted at source of income of foreign branch of this resident bank, once again be granted the credit of taxes in the hands of this Indian Bank. Even otherwise deduction of at source, u/s 194A(3) on payment made to an Indian Bank is out of purview of TDS. In view of the provisions of section 194(A)(3)(iii)(f) of the Act under this clause all banks covered under the bank nationalization given the exemption for withholding of tax under section 194A of the Act. In view of this aspect also we do not find that the tax is required to be deducted on the above paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial rate. Ld. PCIT was aware about the fact that the issue was raised by the revenue in A. Y. 2012-13 which was challenged before our High Court of Rajasthan in DBCWP no. 5144/2022 wherein the high court has allowed the appeal of the assessee and was decided on the jurisdiction issue and not on the merits of the disputes. Thus, that aspect of the matter being not decided ld. PCIT hold that ld. AO has under incorrect assumption of facts and incorrect application of law as well as inadequate inquiry hold the order of the ld. AO erroneous and prejudicial to the interest of the revenue. As we note from the facts of the case available on record that assessee has received the dividend income after deducting the withholding of tax and is supported by the dividend certificate (APB-176). The income is supported by the various records placed on record stating that the income is on account of declaration of dividend declared by the joint venture company where the assessee hold 33.33 % shares which is more than 26 % prescribed under the provision of section 115BBD of the Act and thus the income received from the JV was to be treated as dividend income only. The assessee offer this income reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the Twin conditions needs to be satisfied before exercising revision jurisdiction under section 263 by the Commissioner. The twin conditions are that the order of the Assessing Officer must be erroneous and so far as prejudicial to the interest of the revenue. In the following circumstances, the order of the Assessing Officer can be held to be erroneous order, that is (i) if the Assessing Officer's order was passed on incorrect assumption of fact; or (ii) incorrect application of law; or (iii) Assessing Officer's order is in violation of the principle of natural justice; or (iv) if the order is passed by the Assessing Officer without application of mind; (v) if the Assessing Officer has not investigated the issue before him; then the order passed by the Assessing Officer can be termed as erroneous order. Coming next to the second limb, which is required to be examined as to whether the actions of the Assessing Officer can be termed as prejudicial to the interest of the revenue. This phrase, i.e., prejudicial to the interest of the revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer. It has to be remembered that every loss of the r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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