Eurofins Peenya Resources Private Limited (Formerly Known As Eurofins Advinus Limited) Vs DCIT (ITAT Bangalore)
Foreign Remittances Were Examined Once; AO Could Not Reopen on the Same Material
The Assessing Officer asked for details of foreign remittances during a scrutiny assessment. The company supplied transaction-wise particulars, including the nature of services and tax deducted at source. After examining the material, the AO completed the assessment without disallowing those payments. Could the assessment later be reopened because another tax officer took a different view of the same remittances? The Bangalore Tribunal held that such reopening amounted to a change of opinion and quashed the reassessment.
How the ₹16.92 crore disallowance arose
Eurofins Peenya Resources Private Limited carried on contract research and preclinical development work for pharmaceutical and related industries. It had made payments to non-resident vendors for items described as maintenance, legal and professional services, membership and subscriptions, and testing services.
In the original scrutiny assessment completed on 12 December 2018, the AO made an adjustment relating to provident fund and ESI contributions but made no disallowance of the foreign payments. Subsequently, the International Taxation Officer reported that payments of about ₹16.92 crore had been made without deduction of tax at source. Treating them as fees for technical services, the AO issued a notice under section 148 on 31 March 2021 and proposed disallowance under section 40(a)(i).
The company maintained that the payments were not chargeable to tax in India under the Act and the applicable tax treaties, and hence section 195 did not require withholding. The AO rejected that explanation and disallowed ₹16,92,52,509 in the reassessment order dated 29 March 2022. The CIT(A) confirmed the disallowance.
Before the Tribunal, the company challenged both the power to reopen and the taxability of the individual payments. The Tribunal decided the appeal principally on the former issue.
An existing section 201 appeal did not bar reassessment
The company first argued that an order under section 201, concerning its failure to deduct tax on the foreign payments, was already under appeal before the CIT(A). It invoked the third proviso to the erstwhile section 147, which restricted reassessment of income involving a matter that was the subject of an appeal, reference or revision.
The Tribunal rejected this ground. A section 201 proceeding deals with the payer’s status as an assessee in default and recovery of tax that ought to have been deducted. A section 40(a)(i) disallowance deals with computation of the payer’s income. Although both arise from the foreign payments, the Tribunal held that they concern different subject matters. The pending section 201 appeal therefore did not, by itself, prevent reassessment.
That distinction is important because the company succeeded on a different jurisdictional ground: the AO had already examined the foreign remittance issue in the original assessment.
The original AO had asked specific questions
The Tribunal examined the original scrutiny record rather than relying solely on the brevity of the assessment order. In a notice under section 142(1), the AO had specifically sought details of remittances to non-residents and foreign companies, notes on the transactions and services received, and particulars of tax deducted. He had also sought related reconciliations and Forms 15CA.
The company responded with detailed information identifying the recipients, their countries, the nature and amounts of the payments, and the tax deducted, where applicable. The Tribunal noted that the AO had requested and received the relevant material and then completed the section 143(3) assessment without making a disallowance on this issue. The assessment order’s silence did not mean the issue had escaped examination.
The later recorded reasons relied on information from the International Taxation Officer about the same payments. The reassessment AO did not identify a new fact or demonstrate that the original disclosure was inaccurate or incomplete. In the Tribunal’s view, the later conclusion that TDS ought to have been deducted was simply a different opinion on material already considered.
Following the principle against reassessment on a mere change of opinion, the Tribunal quashed the reassessment order. It observed that section 147 could not be used to review the original assessment merely because the Department subsequently disagreed with the view taken there.
No ruling on whether the foreign payments were taxable
The company had advanced detailed treaty arguments. It said that some payments concerned imported spares or consumables, while others related to software support, professional services, event participation and outsourced studies. It argued, among other things, that certain recipients had no permanent establishment in India and that services covered by relevant treaty provisions did not “make available” technical knowledge. It also raised computational errors, including payments on which TDS had allegedly been deducted and entries said to represent expense reversals.
The Tribunal did not give a transaction-wise ruling accepting those positions. With the reassessment quashed, the section 40(a)(i) dispute in that order no longer required decision. The separate section 201 appeal remained pending, and the Tribunal avoided deciding issues that could affect that proceeding.
The company also disputed the loss carried forward, contending that the reassessment computation reflected only ₹10.22 crore instead of ₹57.79 crore. The Tribunal directed the AO to verify the records and determine the correct eligible carry-forward loss. The appeal was consequently partly allowed.
Author’s comments
This decision turns on the assessment trail. The company could point to a specific scrutiny query, a detailed reply about foreign remittances and TDS, and completion of the original assessment without a disallowance. That record enabled the Tribunal to infer an opinion even though the assessment order did not discuss every remittance.
The ruling should therefore be cited for change of opinion where the same issue was actually examined, rather than as a decision that all the foreign payments were exempt from Indian tax or outside section 195. It also draws a useful boundary: an appeal against a section 201 order and a disallowance under section 40(a)(i) are distinct proceedings, but that distinction does not authorise reopening an assessment on facts the AO had already considered.
Cases Discussed
- Deputy Commissioner of Income Tax v. Financial Software and Systems Private Limited, 447 ITR 370 (SC) — relied upon for the proposition that where specific queries were raised in the original assessment, answered by the assessee and considered before completion of assessment, reopening the same issue amounts to a change of opinion.
- Commissioner of Income Tax v. Canara Bank, 460 ITR 6 (SC) — relied upon in support of the challenge to reopening where the relevant material had already been verified during the original assessment.
- Surely and Some of (Private) Ltd. v. Assistant Commissioner of Income Tax, (2023) 152 taxmann.com 447 (Karnataka) — relied upon for the principle that specific scrutiny queries followed by consideration of the assessee’s details and completion of assessment without addition may demonstrate formation of an opinion.
- ITO v. Techspan India Private Limited, (2018) 92 taxmann.com 361 (SC); 404 ITR 10; 302 CTR 74; 255 Taxman 152 — considered on determining whether an original assessment, expressly or by necessary implication, reflected an opinion on the issue subsequently sought to be reopened.
- EIT Services India Private Limited v. Deputy Commissioner of Income Tax, 159 taxmann.com 424; 460 ITR 774 — distinguished; that case concerned reassessment of an issue already pending in revision proceedings under section 263 and therefore attracted the third proviso to section 147.
- CIT v. De Beers India Minerals Private Limited, 346 ITR 467 (Karnataka); [2012] 208 Taxman 406 — cited by the assessee on the “make available” requirement in relation to fees for technical services; the Tribunal ultimately did not adjudicate the transaction-wise taxability of the foreign payments.
- CIT v. ISRO Satellite Centre, 35 taxmann.com 350 (Karnataka) — cited by the assessee on taxability of the foreign payments; merits were not finally adjudicated after reassessment was quashed.
- Deputy Director of Income Tax (International Taxation) v. Sun Microsystems India Ltd., 306 ITR 63 — cited by the assessee on the merits of withholding from foreign payments; merits were not finally adjudicated.
- Raymond Ltd. v. Deputy Commissioner of Income Tax, (2003) 86 ITD 791 (Mumbai) — cited for the “make available” test; the Tribunal did not decide the foreign-payment dispute transaction by transaction.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
01. Eurofins Peenya Resources Private Limited, formerly known as Eurofins Advinus Limited (the assessee/appellant), filed this appeal against the Appellate order of the National Faceless Appeal Centre (NFAC), Delhi (the learned CIT(A)), for assessment year 2016–17. The learned CIT(A) dismissed the assessee’s appeal against the assessment order dated 29 March 2022, passed by the National Faceless Assessment Centre, Delhi (the learned AO), under section 144 read with section 147 of the Income-tax Act, 1961 (the Act). The assessee has raised the following grounds of appeal:
1. General Ground
1.1 The order passed by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi (hereinafter referred to as CIT(A), NFAC) under section 250 of the Act and the order passed by the Deputy Commissioner of Income Tax, Circle 2(1)(1), Bangalore (hereinafter referred to as learned AO) under section 147 rws 144B of the Act are bad in law and liable to be quashed.
2. Grounds relating to notice issued under section 148 and proceedings under section 147.
2.1 The learned assessing officer has erred by not appreciating the fact that the disallowance of payments to foreign vendors for non-deduction of TDS, is a subject matter of appeal before the Commissioner of Income Tax (Appeals) filed by the Appellant against the order us 201 issued for the same assessment year. The learned assessing officer has thus erred in reassessing income under section 147 involving a matter which is already a subject matter of appeal, in violation of third proviso to erstwhile section 147.
2.2 The learned assessing officer has erred in not appreciating the fact that the procedure for re-assessment is a procedural law and hence has to be read as it exists on the date on which such procedure is being carried out and not the date on which the proceedings were initiated.
2.3 The learned assessing officer has erred in not appreciating that in absence of any legislative intent expressed either under the Finance Act, 2021 or under the Act, to preserve any part of the pre-existing Act, the reassessment proceedings pursuant to a notice issued under the erstwhile provisions before 01.04.2021 cannot be continued on or after 01.04.2021.
2.4 The learned assessing officer has failed to appreciate that the foreign payments made in respect of AMC and Maintenance charges, legal and professional charges, membership & subscription charges and testing charges were a subject matter of the scrutiny assessment under section 143(3) of the Act. The learned assessing officer has erred in reopening assessment under section 147 on mere change of opinion, which is bad in law and liable to be quashed.
2.5 On facts and circumstances of the case and law applicable, notice under section 148 dated 31.3.2021, consequential proceedings and the assessment order passed under section 144B read with section 147 are invalid, bad in law and liable to be quashed.
3. Grounds relating to principles of natural justice.
3.1 The CIT(A), NFAC has erred in not providing any cogent reasons in its order under section 250 of the Act, for treating the payments to foreign vendors for AMC and maintenance charges, Legal & Professional charges and Membership & Subscription charges and testing charges as taxable as Fees for technical services.
3.2 The CIT(A), NFAC has erred in not differentiating the payments made to foreign vendors towards Testing charges, Legal & Professional charges and Membership & Subscription charges from the payments made for AMC and maintenance charges and has erred in not analyzing the nature of the payment and their taxability separately.
3.3 Based on facts and circumstances of the case, the CIT(A), NFAC and the learned assessing office have erred in not passing a speaking order.
3.4 The CIT(A), NFAC has erred in stating that no supporting documents have been provided by the Appellant in support of its claims, without considering the data submitted under the 147 proceedings and proceedings before the CIT(A), NFAC.
3.5 The CIT(A), NFAC has erred in passing a mechanical order without considering the submissions of the Appellant and without application of mind.
3.6 On facts and circumstances of the case and law applicable, the order passed by the CIT(A), NFAC under section 250 of the Act being against the principles of natural justice, is invalid, bad in law and liable to be quashed.
4. Grounds relating to treating AMC and maintenance charges as taxable
4.1 The learned assessing officer and the CIT(A), NFAC have erred in treating the payments for AMC and Maintenance charges of Rs. 1,04,37,320 as fees for technical services under section 9(1)(vii) of the Act.
4.2 The learned assessing officer and the CIT(A), NFAC have erred in not appreciating that certain payments classified as AMC and maintenance charges were in the nature of purchase of spares and other maintenance equipment and will thus not be taxable in India in the absence of permanent establishments of such foreign vendors in India.
4.3 Without prejudice to the above, the learned assessing officer and the CIT(A), NFAC have erred in not adopting the beneficial provisions under the Double Tax Avoidance Agreements.
4.4 The learned AO and the CIT(A), NFAC have erred in not appreciating that payments for annual maintenance contracts shall not constitute fees for technical services under relevant articles of the relevant Double Tax Avoidance Agreement as the make available condition is not satisfied.
4.5 Based on the facts and circumstances of the case and law, payments for AMC and maintenance charges were not chargeable to tax as technical services as per the provisions of the Act and DTAA.
5. Grounds relating to treating legal and professional charges as taxable
5.1 The learned assessing officer and the CIT(A), NFAC have erred in treating the payments for legal and professional charges of Rs. 7,97,400 as fees for technical services under section 9(1)(vii) of the Act.
5.2 Without prejudice to the above, the learned assessing officer and the CIT(A), NFAC have erred in not adopting the beneficial provisions under the Double Tax Avoidance Agreements.
5.3 The learned AO and the CIT(A), NFAC have erred in not appreciating that payments for legal and professional charges shall not constitute fees for technical services under relevant articles of the relevant Double Tax Avoidance Agreement as the make available condition is not satisfied.
5.4 Based on the facts and circumstances of the case and law, payments for legal and professional charges were not chargeable to tax as technical services as per the provisions of the Act and DTAA
6. Grounds relating to treating membership and subscription charges as taxable
6.1 The learned assessing officer and the CIT(A), NFAC have erred in treating the payments for membership and subscription charges of Rs. 65,18,302 as fees for technical services under section 9(1)(vii) of the Act.
6.2 Without prejudice to the above, the learned assessing officer and the CIT(A), NFAC have erred in not adopting the beneficial provisions under the Double Tax Avoidance Agreements.
6.3 The learned AO and the CIT(A), NFAC have erred in not appreciating that payments for membership and subscription charges shall not constitute fees for technical services under relevant articles of the relevant Double Tax Avoidance Agreement as the make available condition is not satisfied.
6.4 Based on the facts and circumstances of the case and law, payments for membership and subscription charges were not chargeable to tax as technical services as per the provisions of the Act and DTAA.
7. Grounds relating to treating testing charges as taxable
7.1 The learned assessing officer and the CIT(A), NFAC have erred in treating the payments for testing charges of Rs. 15,14,99,488 as fees for technical services under section 9(1)(vii) of the Act.
7.2 Without prejudice to the above, the learned assessing officer and the CIT(A), NFAC have erred in not adopting the beneficial provisions under the Double Tax Avoidance Agreements.
7.3 The leaned AO and the CIT(A), NFAC have erred is not appreciating that payments for testing charges shall not constitute fees for technical services under relevant articles of the relevant Double Ties Avoidance Agreement as the make available condition is not satisfied.
7.4 Based on the facts and circumstances of the case and law, payments for testing charges were not chargeable to tax as technical services as per the provisions of the Act and DTAA.
8. Ground relating to deduction of tax at source on payments made to non-residents-Section 195 and disallowance under section 40(a)(i)
8.1 The learned AO and CIT(A), NFAC have erred in not appreciating that payments made to non-residents for AMC and maintenance charges, legal and professional charges, membership & subscription charges and testing charges amounting to Rs. 16,92,52,509 were not chargeable to tax in India under the provisions of the Income tax Act, 1961/ Double Taxation Avoidance Agreements and provisions of section 195 are not applicable.
8.2 The learned assessing officer and the CIT(A), NFAC erred in not considering the judgement of the Apex court in the case of GE India Technology Center Pvt Ltd, which clarified its observation in Transmission Corporation of AP Ltd case relied on by the assessing officer in its order under section 147 of the Act. The learned assessing officer and CIT(A), NFAC failed to appreciate that when the payer is reasonably certain that the payments are not chargeable to tax whether under the provisions of the Act or the DTAA, it shall not be liable to approach the department under section 195(2) or 197 of the Act.”
8.3 The learned AO and CIT(A), NFAC have erred in making disallowance of the payments made to foreign vendors for AMC and maintenance charges, legal and professional charges. membership & subscription charges and testing charges under section 40(a)(i), when the same are not liable to tax deduction under section 195 of the Act.
8.4 On facts and circumstances of the case and law applicable, payments made to non-residents were not chargeable to tax in India under the provisions of the Income tax Act, 1961/ Double Taxation Avoidance Agreements and consequently the disallowance made under section 40(a)(i) of amounting to Rs. 16,92,52,509 should be deleted.
9. Ground relating to loss to be carried forward – section 72
9.1 Without prejudice to the grounds above, the learned assessing officer has erred in carrying forward loss of only Rs. 10,22,56,902 in the computation sheet annexed with reassessment order under section 147 as against the carry forward of loss of Rs. 57,79,78,539 actually available to the appellant, even after assuming but without accepting the adjustments made under the assessment order under section 147.
9.2 On facts and circumstances of the case and law applicable, the loss to be carried forward to next assessment year shall be rectified.
02. The assessee is a limited company engaged in contract research for global pharmaceutical, biotechnology, and other industries. It provides an end-to-end preclinical development platform for pharmaceutical and group products under development, together with capabilities in other areas of chemical development. Its services include process development, drug metabolism and pharmacokinetics, clinical pharmacology, and safety assessment, enabling clients to improve cost efficiency.
03. For the assessment year under consideration, the assessee filed its return of income on 30 November 2016, declaring a loss of ₹223,387,440. It filed a revised return on 31 March 2017, declaring a loss of ₹750,837,277. The case was selected for scrutiny following a notice issued under section 143(2) of the Income-tax Act, after which the assessment was completed.
04. During the course of the assessment proceedings, the learned assessing officer disallowed a sum of ₹ 3,606,228 on account of provident fund and employee state insurance act contributions, which were paid late, beyond the due dates prescribed under the respective act, resulting in the assessment of a total loss of the assessee at ₹ 747,231,049, against the returned loss of ₹ 750,837,277.
05. Aggrieved by the assessment order passed by the Assistant Commissioner of Income Tax, Circle 2(1)(2), Bangalore (the learned AO), the assessee appealed to the learned CIT(A). By order dated 7 May 2019, the learned CIT(A) disposed of the appeal in the assessee’s favour.
06. Subsequently, the assessment was reopened through a notice issued under section 148 of the Act. The resulting reassessment order added ₹169,252,409 to the assessee’s total income for failure to deduct tax at source from payments made to non-residents.
07. The recorded reasons for reopening state that the International Taxation Officer reported payments of ₹169,252,509 by the assessee during the assessment year to non-resident service providers or vendors for annual maintenance contracts and related maintenance services, without deduction of tax at source. As the payments were considered fees for technical services, section 40(a)(i) was regarded as applicable. After correlating this information with the assessee’s records, the Assessing Officer formed the belief that the assessee had deliberately omitted tax deduction at source to reduce its taxable income and that income of ₹169,252,509 had therefore escaped assessment within the meaning of section 147 of the Income-tax Act.
08. Accordingly, a notice under section 148 of the Act was issued to the assessee on 31 March 2021. The assessee was also asked to explain why the entire payment made to non-residents for annual maintenance contracts and maintenance charges should not be disallowed under section 40(a)(i) for failure to deduct tax at source.
09. The assessee submitted that.
a. the payments were made outside India for annual maintenance contracts and related services and were not taxable in India; therefore, no tax was required to be deducted at source.
b. Obligation to deduct tax under section 195 arises only when the income is chargeable to tax under section 90 of the Income-tax Act read with the applicable Double Taxation Avoidance Agreement.
c. Under section 9(1)(i), income arising directly or indirectly through a business connection in India is taxable in India. As the payees had no business connection in India, the payments made to them were not taxable in India.
d. The assessee also referred to article 13(4)(c) of the applicable treaty, under which fees for technical services include consideration for technical or consultancy services that “make available” technical knowledge, experience, skill, know-how, or processes, or involve the development and transfer of a technical plan or design.
e. Relying on the coordinate bench’s decision in Raymond Ltd. v. Deputy Commissioner of Income Tax, the assessee argued that merely rendering a service does not satisfy this test unless the recipient can independently apply the technical knowledge for its own business or benefit without further assistance from the service provider. Thus, the service provider must transmit technical knowledge, experience, or skill to the recipient.
10. The learned Assessing Officer rejected the assessee’s contention. Based on the nature and description of the services, he concluded that the assessee had obtained technical expertise from the non-resident service providers and that the services constituted fees for technical or consultancy services under both the Income-tax Act and the applicable Double Taxation Avoidance Agreement. He further observed that the assessee used these services for business development and to achieve its business objectives; therefore, they could not be regarded as non-technical. Accordingly, he held that the payments made to the non-resident service providers during financial year 2013–14 were taxable as fees for technical services under the Act and the relevant treaty. As the assessee had failed to deduct tax at source, he concluded that the payments were disallowable under section 40(a)(i) of the Act.
11. At the video-conference hearing, the assessee’s learned authorised representative submitted that the vendors had no permanent establishment in India and that the services did not satisfy the “make available” test because the assessee did not acquire the underlying technical knowledge. The services were therefore not taxable in India, and no tax was required to be deducted at source. The representative further argued that the scrutiny assessment under section 143(3) had already been completed without any addition, rendering the reopening invalid. It was also submitted that the assessee had duly furnished the tax residency certificates and no-permanent-establishment declarations to the Assessing Officer.
12. The learned Assessing Officer rejected the assessee’s contention, holding that it had failed to deduct tax at source under section 195 of the Income-tax Act on payments to non-resident vendors for annual maintenance contracts, maintenance services, legal and professional services, and testing services. Accordingly, he disallowed ₹169,252,509 and, on 29 March 2022, passed the assessment order under section 143 read with sections 147 and 144B of the Act.
13. In the appeal before the learned CIT(A), the assessee filed written submissions and was afforded a hearing by videoconference. The learned CIT(A) noted that the assessee reiterated the contentions raised during the assessment proceedings but did not substantiate them with supporting documents, either in its written submissions or at the hearing. He therefore held that the company’s payments to foreign vendors constituted fees for technical services and, despite being made outside India, were subject to tax deduction at source. Accordingly, he applied section 40(a)(i) of the Act and confirmed the disallowance of ₹169,252,509.
14. The assessee is aggrieved with the same and is in appeal before us.
15. During the hearing before the Bench on 13 February 2024, the assessee applied for admission of the following additional grounds of appeal:
i. The learned Assessing Officer erred in carrying forward certain errors from the order under section 201(1) of the Act into the reassessment order passed under section 147 read with section 144B, without properly considering them during the assessment proceedings.
ii. The learned Assessing Officer erred in failing to appreciate that, of the total disallowance of ₹6,518,302 relating to membership and subscription charges, the assessee had deducted and paid tax on payments amounting to ₹5,896,266. The Assessing Officer further erred in treating tax as not having been deducted on these payments and disallowing them under section 40(a)(i) of the Act.
iii. The learned Assessing Officer erred in treating ₹136,716 as membership and subscription charges on which tax had not been deducted at source, without appreciating that the amount represented a reversal of expenses in the appellant’s books and was therefore not liable to tax.
iv. The learned Assessing Officer erred in including ₹8,024,515 as testing charges on which tax had not been deducted at source, without appreciating that the amount represented a reversal of expenses in the appellant’s books and was therefore not liable to tax.
Based on the above, the appellant prays that the disallowance of ₹ 169,252,509 as per the order passed under section 147 read with section 144B of the act is incorrect.
16. The learned authorised representative, Shri Padam Chand Khincha, CA, submitted that all these grounds concern arithmetical errors or mistakes apparent from the record and therefore deserve to be admitted. Figures are required to be corrected because otherwise it amounts to double disallowance of the same expenses.
17. Ms. Dr. Divya K J, ld. CIT-DR vehemently opposed admission of the grounds, submitting that they had neither been raised before the learned Assessing Officer nor the ld. CIT (A) nor made the subject of a rectification application by the assessee.
18. We find that additional grounds should be admitted because they merely identify possible arithmetical errors in calculating the disallowance in the assessment order. As the Act does not permit the same expenditure to be disallowed twice, the Assessing Officer must examine the assessee’s records and correct any such error. Accordingly, we admit and decide the additional grounds. The Assessee is directed to place before the ld. AO the errors, and he may verify and, if satisfied, may correct the same.
19. The learned authorised representative took us to ground No. 2.1 of the appeal, wherein it is stated that the above disallowances arise on account of the order passed by the learned assessing officer under section 201 of the Income Tax Act, and that the appeal against the same [ Order u/s 201] is pending before the learned CIT – A. Therefore, the reopening of the assessment on the basis of the above sum is not correct.
20. He referred to the third proviso to section 147 of the Income Tax Act, stating that the learned assessing officer is authorised only to assess or reassess such income, other than income involving matters that are the subject matter of any appeal, reference or revision, which is chargeable to tax and has escaped assessment. Therefore, according to him, the third proviso to section 147 of the Income Tax Act prohibits the assessing officer from assessing such income which is the subject matter of any appeal. Accordingly, when the provisions of section 201 were invoked by the learned assessing officer, resulting in the assessee being held to be an assessee in default, and that finding is pending before the learned CIT – (A) as the subject matter of appeal, the learned assessing officer could not have invoked the provisions of section 147 of the Income Tax Act in this case.
21. He further referred to ground No. 2.4 of the appeal and submitted that the learned Assessing Officer failed to appreciate that the foreign payments considered in the reassessment had already been examined in the scrutiny assessment under section 143(3) of the Act. He therefore argued that reopening the assessment amounted to a mere change of opinion and was invalid in law.
22. Referring to the assessment order dated 12 December 2018, passed under section 143(3) of the Income-tax Act, he submitted that the learned Assessing Officer had verified all relevant details before completing the assessment. He further noted that the survey was conducted on 15 November 2017 and the order under section 201 was passed on 31 July 2018. Thus, when assessment order u/s 143(3) of the Act was passed on 12 December 2018, the section 201 order was already in existence and known to the Income Tax Department.
23. He further submitted that pages 209–211, 228, 232, and 260 of the paper book show that the learned Assessing Officer examined the assessee’s tax-deduction-at-source details during the original assessment proceedings. Referring to paragraph 25 at page 227, being a notice u/s 42(1) of the Act, he stated that the assessee had been asked to furnish details of remittances to non-residents, together with notes on the transactions and services received and particulars of tax deducted at source.
24. The assessee responded by providing complete transaction-wise details, including the services received and the tax deducted. He also referred to Annexure 17, placed at page 260 onwards, which contains details of remittances to non-residents, the recipient entities, the nature of each transaction and service, and the corresponding tax deducted at source.
25. He referred to the statement and stated that the assessee gave information about the beneficiary, whether the payment was made to a related party or associated enterprises, the amount of remittance in foreign currency, the amount of remittance in Indian rupees, the permanent account No. of the non-resident entities, if available, the nature of remittance, the applicable tax deduction at source rates as per the Income Tax Act, the tax deduction rate as per the double taxation avoidance agreement, the country of the recipient, and the amount of tax deduction at source, if any, made therein. He submitted that wherever a tax deduction was to be made, the assessee has also shown such amount. He referred to more than 200 entries of individual payments made to the non-resident on a foreign entity, already submitted during the course of the assessment proceedings.
26. He then referred to paragraph 4 of the assessment order dated 12 December 2018, which shows that, after examining the details furnished, the learned Assessing Officer disallowed only the provident-fund and ESI expenses. He therefore submitted that the Assessing Officer had applied his mind to the information provided and, after verification, chose to disallow only matters unrelated to the present appeal.
27. To support the contention that reopening on the same facts amounted to a mere change of opinion by the Assessing Officer, he relied on the Supreme Court’s decision in Deputy Commissioner of Income Tax v. Financial Software and Systems Private Limited, [447 ITR 370]. The Court held that, where the Assessing Officer had raised specific queries during the original assessment under section 143 of the Income-tax Act, the assessee had duly responded, and the assessment order was thereafter passed, the Revenue could not reopen the assessment on the same issue. The reassessment proceedings, having been initiated solely on a change of opinion, were therefore set aside.
28. He also relied on the Supreme Court’s decision in Commissioner of Income Tax v. Canara Bank, reported in 460 ITR 6, referring to paragraph 15 of the Karnataka High Court’s judgment reported in 155 taxmann.com 289. The recorded reasons stated that, upon verifying the details furnished by the bank, the Assessing Officer found that certain branches reported as being in rural areas were not, in fact, so situated. He submitted that the reasons therefore showed that the Assessing Officer had formed his conclusion after examining the bank’s details. Accordingly, as the Assessing Officer had similarly verified the relevant details during the original assessment proceedings in the present case, the reopening was invalid in law.
29. He further relied on the Karnataka High Court’s decision in Surely and Some of (Private) Ltd. v. Assistant Commissioner of Income Tax, reported in (2023) 152 taxmann.com 447. He submitted that when the Assessing Officer raises repeated and specific queries during the assessment proceedings, examines the transaction in light of the details furnished with the return of income, and then completes the assessment under section 143(3) of the Act without making an addition, the Assessing Officer is presumed to have applied his mind and formed an opinion. In such circumstances, reopening the assessment on the same issue amounts to a mere change of opinion and is invalid.
30. On the merits of the addition, the learned authorised representative submitted a detailed chart setting out each payee, the recipient’s country, the amount and nature of the payment, and the supporting documents. He contended that most payments related to imported spares and consumables and constituted neither royalty nor fees for technical services. Rather, they were business income of the foreign vendors and were not taxable in India because the vendors had no permanent establishment in India. Regarding the payment of ₹242,358 to a Portuguese resident, he submitted that tax had been deducted on the royalty payment at the beneficial treaty rate of 10%. Payments to entities in the United Kingdom, Singapore, and the United States were described as software-support charges that did not constitute technical services; in any event, the services did not satisfy the “make available” condition under the applicable treaties and therefore fell outside article 12. As those entities had no permanent establishment in India, no tax was deductible at source under the Income-tax Act. In relation to the ₹797,400 paid to an Israeli individual for research consultancy services, he submitted that the payment was covered by the independent personal services provision in article 15 of the India–Israel Double Taxation Avoidance Agreement. Because the service provider did not satisfy the prescribed stay condition in India, no withholding tax was required under article 15. As to membership and subscription charges, tax had been deducted at 10.3% under the Income-tax Act in two instances. For the remaining payments, he submitted that the vendors had no permanent establishment in India and were therefore not taxable under article 7 of the India–US Double Taxation Avoidance Agreement; the payments were, in substance, for booth or stall services and sponsorship fees for a trade event in the United States. He stated that the other payments were similar and likewise did not require tax deduction at source. He also referred to a table covering payments for studies and analyses, including screening involving rats, mice, and rabbits. According to him, these were outsourced studies incorporated into the final deliverables to clients and did not satisfy the “make available” condition under the relevant treaties. As the vendors in the respective countries had no permanent establishment in India, the payments were not taxable in India under the business-profits articles of those treaties.
31. He further submitted that ₹6,798,870 was recorded as a negative amount in the ledger but was incorrectly treated as a positive figure when the learned Assessing Officer made the adjustment.
32. Regarding the taxability of the amount, he relied on the Karnataka High Court’s decision in CIT v. De beers India Minerals Private Limited reported in 346 ITR 467 MANU/KA/1698/2012 [2012]208TAXMAN406. He submitted that a service can be classified as fees for technical services only if the “make available” condition is satisfied; otherwise, no tax is required to be deducted at source. He referred extensively to paragraph 22 of that decision and also relied on the Karnataka High Court’s decision in CIT v. Isro Satellite Centre, 35 taxmann.com 350, the decision in Deputy Director of Income Tax (International Taxation) v. Sun Microsystems India Ltd., reported in 306 ITR 63, and the coordinate bench’s decision in Raymond Ltd. v. Deputy Commissioner of Income Tax, reported in (2003) 86 ITD 791 (Mum.).
33. He therefore submitted that the addition made by the learned Assessing Officer for non-deduction of tax was incorrect.
34. The learned Departmental Representative strongly supported the orders of the lower authorities. She submitted that, during the original assessment proceedings, the Assessing Officer had merely verified the foreign remittances and had not formed any opinion on the obligation to deduct tax at source. Neither the applicable Double Taxation Avoidance Agreements nor the provisions governing each service had been examined; therefore, no opinion could be said to have been formed. The use of certain words in the assessment order did not, by itself, establish a change of opinion, particularly as the order did not record any verification of these matters. She further submitted that, in the notice dated 23 October 2018, the Assessing Officer had sought only details of foreign remittances and their treatment in the books of account. Accordingly, the contention that the Assessing Officer had applied his mind to the tax-deduction issue was without merit.
35. Regarding the pending appeal before the learned CIT(A) against the order under section 201 of the Income-tax Act, the learned Departmental Representative submitted that the appeal concerns the assessee’s obligation to deduct tax at source and its treatment as an assessee in default for failing to do so. By contrast, the reassessment concerns the disallowance of expenditure. As the two proceedings involve distinct subject matters, the Assessing Officer validly assumed jurisdiction under section 147 despite the pending appeal against section 201 order.
36. On the merits of the disallowance, the learned Departmental Representative submitted that only narrative arguments, without supporting details, had been presented to the learned Assessing Officer. The statement now produced before the Tribunal therefore requires detailed verification to determine whether the “make available” test is satisfied for each service transaction. A mere assertion that the test is not met is insufficient; the nature of each service and the manner in which it was rendered and received must be examined. As these details were not furnished before the learned Assessing Officer or the learned CIT(A), the matter should be remanded to the learned Assessing Officer for verification.
37. The learned authorised representative also submitted a copy of the coordinate bench’s decision in the assessee’s own case for assessment years 2013–14 and 2014–15, in which the bench, by order dated 13 December 2014, quashed the reopening on identical facts and circumstances.
38. We have carefully considered the rival contentions, reviewed the orders of the lower authorities, and examined the judicial precedents cited by the learned authorised representative in the case-law compilation. We will discuss the relevant authorities, as appropriately, when addressing the challenge to the reopening of the assessment and the merits of the addition.
39. The assessee raises three challenges: the reopening of the assessment, the disallowance of foreign payments on the merits, and arithmetical errors resulting in a double disallowance.
40. The issues must be decided under section 147 of the Income-tax Act as it stood until 31 March 2021, particularly its third proviso and the prohibition against reopening an assessment merely on a change of opinion. It is also necessary to consider section 195, read with section 90 and the applicable Double Taxation Avoidance Agreements with the recipients’ countries, to determine whether the foreign payments were chargeable to tax in India.
41. We first address the reopening of the assessment. Under section 147 of the Income-tax Act, as it then stood, if the Assessing Officer had reason to believe that income chargeable to tax had escaped assessment for the relevant assessment year, the officer could assess or reassess that income and any other escaped income discovered during the reassessment proceedings. However, the third proviso excluded income involving matters already pending in an appeal, reference, or revision. The Assessing Officer was therefore barred from reconsidering, in reassessment proceedings, income that was already under challenge in such proceedings. The provision prevents the same issue from being decided simultaneously through reassessment and appellate, reference, or revision proceedings.
42. The assessee submits that proceedings initiated after the Income Tax Department’s survey culminated in an order under section 201 of the Income-tax Act, holding that it had failed to deduct or pay tax on foreign remittances. The assessee challenged that order before the learned CIT(A), where the appeal remains pending.
43. Based on section 201 order and the survey report, the learned Assessing Officer reopened the assessment under section 147 of the Income-tax Act. Concluding that tax had not been deducted at source from the foreign payments, he invoked section 40(a)(i) and disallowed the amount.
44. The assessee argues that the Assessing Officer could not make this disallowance in reassessment because the section 201 order concerning the same issue is already under challenge before the learned CIT(A).
45. Under section 201, a person who fails to deduct tax as required, or to pay tax after deducting it, is deemed to be an assessee in default for that tax. The provision governs recovery of the tax that should have been deducted or paid, together with the related interest, penalties, and possible prosecution. It does not assess the assessee’s income or form part of the income-computation mechanism. Proceedings under section 201, which fall within Chapter XVII’s tax collection and recovery framework, are therefore independent of the assessee’s assessment proceedings. Consequently, a disallowance of expenditure in computing total income and recovery proceedings under section 201 do not concern the same subject matter.
46. In our view, disallowing expenditure in computing income for failure to deduct tax at source is distinct from proceedings under section 201 to recover tax that should have been deducted. As the two proceedings concern different subject matters, the third proviso to section 147 did not prevent the Assessing Officer from making the disallowance in reassessment.
47. The learned authorized representative relied on the Karnataka High Court’s decision in EIT Services India Private Limited v. Deputy Commissioner of Income Tax, reported in 159 taxmann.com 424 and 460 ITR 774. That case concerned reassessment under section 148 on an issue already pending before a coordinate bench of the Tribunal in revision proceedings under section 263; the third proviso to section 147 therefore applied. The second decision of the Honourable Bombay High Court concerned a deduction under section 80-IB(10) that was already pending before the CIT(A), and reassessment under section 148 could not revisit the same issues relating to approval, ownership of the commencement certificate, and the timing of the project’s commencement. Both decisions are distinguishable on their facts and subject matter and therefore do not assist the assessee.
48. Accordingly, we reject this contention and dismiss ground No. 2.1 of the appeal.
49. We will next consider whether the reassessment reflects a change of opinion. The issue is whether, after examining the same details in the original assessment and making no adjustment, the Assessing Officer could rely on those facts in reassessment to increase the assessee’s total income.
50. As noted above, the Assessing Officer specifically sought details of the foreign remittances during the original assessment. The assessee responded with the recipient’s name and country of residence, the nature and amount of each payment, whether tax had been deducted at source, and the amount deducted. These particulars were drawn from Forms 15CA and 15CB filed by the assessee and certified by an accountant. Because the Assessing Officer requested and received this information, it is presumed that he examined it and concluded that no violation of the Income-tax Act had occurred and that no upward adjustment or disallowance was required.
51. It therefore cannot be said that the Assessing Officer formed no opinion on this information. His decision not to adjust the assessee’s total income necessarily reflects the view that no further adjustment was warranted on this issue.
52. The reassessment proceedings were initiated by a notice issued under section 148 on 31 March 2021. The recorded reasons state that the International Taxation Officer had reported payments of ₹169,252,509 by the assessee to non-resident service providers for annual maintenance contracts and maintenance services, without deduction of tax at source. Treating those payments as fees for technical services to which section 40(a)(i) applied, the Assessing Officer formed the belief that tax should have been deducted at source.
53. These payments had already been examined in the original assessment completed under section 143(3) on 12 December 2018, and no disallowance was made. The Assessing Officer later reopened the assessment solely because the International Taxation Officer forwarded the same information that had been available during the original proceedings. He did not identify any new fact or show that the assessee’s earlier disclosure was inaccurate or incomplete. His later conclusion that tax should have been deducted at source therefore represents a change of opinion on the same material. Permitting reassessment in these circumstances would amount to a review of the original decision, which section 147 does not authorize. The power of revision lies with the higher authority under section 263, subject to the conditions prescribed therein.
54. Before concluding that the reassessment was initiated merely on a change of opinion, we must determine whether the original assessment expressly or by necessary implication reflected an opinion on the issue now sought to be reassessed. An assessment order may be brief or non-speaking. In such cases, the court must examine the record carefully to determine whether the Assessing Officer nevertheless considered the issue, so that reopening it would amount to a change of opinion.
55. The Supreme Court cautioned against such a situation in paragraph 12 of Techspan India Private Limited, reported in (2018) 92 taxmann.com 361, 404 ITR 10, 302 CTR 74, and 255 Taxman 152. As noted above, paragraph 26 of the notice dated 23 October 2018, issued under section 142(1) of the Income-tax Act, specifically sought details of remittances to non-residents and foreign companies, notes on the nature of the transactions and services received, and particulars of tax deducted at source. For payments to related parties, the Assessing Officer also sought reconciliations with Form 3CEB, the audited accounts, and Form 15CA, together with the parties’ ledger accounts and copies of the Form 15CA certificates. The assessee furnished the requested information, as discussed earlier in this order. The assessment order records that the Assessing Officer verified the information provided but made no addition or disallowance on this issue. It is therefore evident that he was aware of the foreign payments, examined the related tax-deduction details, and decided that no disallowance was warranted. Although the assessment order does not expressly discuss the issue, the record shows that the Assessing Officer applied his mind to it.
56. On these facts, we find that the Assessing Officer reopened the assessment on the same information that was available and considered during the original assessment, when no adjustment was made on this issue. The reassessment therefore rests solely on a change of opinion and is impermissible. Accordingly, we quash the assessment order dated 29 March 2022, passed under section 147 read with section 144B of the Income-tax Act, and allow ground No. 2.4 of the appeal.
57. Ground No. 1.1 is general in nature. As no arguments were advanced, it is dismissed.
58. Ground Nos. 2.2 and 2.3 were not argued before us and are therefore dismissed.
59. Ground No. 2.5 is covered by our decision on ground No. 2.4 and requires no separate adjudication because the reassessment order has already been quashed.
60. Ground No. 3 alleges a violation of the principles of natural justice. As no specific instance of such a violation was shown, the ground is dismissed.
61. Ground Nos. 4–7 concern whether tax was required to be deducted at source from the foreign payments. Although the assessee furnished extensive details to show that tax had either been deducted at the applicable treaty rates or was not deductible under the relevant Double Taxation Avoidance Agreements, the appeal against the order under section 201 is still pending before the learned CIT(A). Deciding these issues now could render that appeal infructuous and the related appellate proceedings redundant. We therefore dismiss ground Nos. 4–7 for this reason.
62. Ground No. 8 has become infructuous because we have quashed the reassessment proceedings. We therefore need not examine whether tax was deductible at source from the payments giving rise to the disallowance.
63. Ground No. 9 concerns the amount of loss to be carried forward under section 72 of the Act. The assessee contends that the Assessing Officer carried forward only ₹10.22 crore instead of the correct amount of ₹57.79 crore. As the correct amount requires verification, the assessee shall substantiate its claim before the Assessing Officer, who shall verify the records and determine the loss eligible for carry-forward. Ground No. 9 is allowed to this extent.
64. Ground No. 10 is general and requires no adjudication; it is therefore dismissed.
65. In the result, the assessee’s appeal is partly allowed in the terms stated above.
Order pronounced in the open court on 28th September, 2026.
