Think and Learn Private Limited Vs PCIT (ITAT Bangalore)
Conclusion: An assessment order passed by an Assessing Officer, deciding on an issue pending before the AAR, in contravention of the mandate laid down in Section 245R(2)(i) of the Income Tax Act, 1961, would not make the entire assessment order void.
Held: PCIT, under section 263 was of the view that the action of the AO in passing the order dated 24.12.2019 under section 143(3) for Assessment Year 2017-18 was erroneous and prejudicial to the interest of the Revenue because as per the provisions of section 245R(a)(i), the AO shall not consider the application where the question raised in the application was already pending before any income tax authorities. Since the AO failed to make enquiry with regard to pendency of application before AAR on the question of TDS under section 40(a)(i) of the Act in respect of payments made to More Ideas, UAE, the order was erroneous and prejudicial to the interest of the Revenue and liable to be set aside to the file of the AO to pass fresh Order of Assessment after taking into account the order of the AAR. It was held that in so far as the payments made to More Ideas, UAE, was concerned, the AO had already disallowed the payment and added the same to the total income of the assessee and assessee was in appeal before the CIT(A). In these circumstances, it could not be said that the Order passed by the AO was prejudicial to the interest of the Revenue. The fact that in the proceedings before the first appellate, the addition would be attacked on the ground that the addition had been made contrary to the provisions of section 245R(2)(i) and therefore void, could not be the basis to say that the interest of the Revenue was prejudiced, at this stage. Since the payments made to More Indeas, UAE had already been added by the AO in the order of Assessment, there was no prejudice to the interest of the Revenue. PCIT fell into an error in passing the impugned order. The impugned order was therefore liable to be quashed.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This is an appeal by the assessee against the order dated 31.03.2022 of the Principal CIT – 3 (PCIT), passed under section 263 of the Income Tax Act, 1962 (hereinafter called ‘the Act’) in relation to Assessment Year 2017-18.
2. The assessee is a company engaged in the business of providing online learning platform in the name of “BYJU” for kindergarten to 12th standard students and other related services. The assessee filed return of income for Assessment Year 2017-18 declaring total income of Rs.62,18,53,627/-. The AO passed an Order of Assessment U/S.143(3) of the Act, dated 24.10.2019 making the following additions to the total income of the assessee:
1. Disallowance u/s 14A of Rs.3,26,95,348/-
(b) Addition of share premium u/s 56(2)(vii)(b) of Rs.1,24,43,868/-
(c) Capitalisation of expenses of Rs.2,97,03,171/-
(d) Disallowance of commission paid to non-resident u/s 40(a)(i) of Rs.30,48,95,804/-
(e) Disallowance of pact made to Facebook, Ireland Limited u/s 40(a)(i) of Rs.3,18,65,271/-
3. It may be seen from the above additions made that a sum of Rs.30,48,95,804/- being commission paid to non-resident was disallowed under section 40(a)(i) of the Act. The breakup of sum of Rs.30,48,95,804/-is as follows:
