International Specialty Products (India) Private Limited Vs DCIT (ITAT Mumbai)
Summary: The Mumbai ITAT restored the assessee’s appeal concerning a ₹2.36 crore disallowance under Section 40(a)(i) to the CIT(A), holding that it should be decided together with, or after, the pending appeal concerning the foundational Sections 201(1), 201(1A) and 195 proceedings. The assessee had paid ₹2,35,72,409 to Ashland Singapore Pte. Ltd. towards consulting and professional services without deducting tax at source. An order under Sections 201(1) and 201(1A) read with Section 195 held that tax should have been deducted on the remittance. Relying substantially upon that order, the AO reopened the assessment under Section 147 and disallowed the entire payment under Section 40(a)(i). The assessee challenged both the reassessment and the disallowance before the CIT(A), pointing out that the Section 201 order forming the foundation of the reassessment was itself under appeal. The CIT(A) confirmed the disallowance on the ground that the Section 201 order continued to remain operative during the pendency of the appeal, without independently deciding the assessee’s various legal and factual contentions. The Tribunal observed that the central question in both proceedings was whether the remittance to the Singapore company was chargeable to tax in India and, consequently, whether the assessee was required to deduct tax under Section 195. It held that the outcome of the Section 201 appeal would have a direct and material bearing on the sustainability of the Section 40(a)(i) disallowance and that deciding the interconnected proceedings separately could result in incongruous or inconsistent conclusions. The Tribunal therefore set aside the CIT(A)’s order and restored the entire appeal to the CIT(A) with a direction to decide it afresh after adjudication of the assessee’s appeal against the order under Sections 201(1) and 201(1A) read with Section 195, or simultaneously therewith. The CIT(A) was also directed to adjudicate all legal and factual grounds, including those challenging the validity of the reassessment proceedings, after affording a reasonable opportunity of being heard to the assessee. The Tribunal expressed no opinion on the merits of any of the issues and left all contentions open. The assessee’s appeal was allowed for statistical purposes.
Section 40(a)(i) Disallowance Cannot Be Decided in Isolation While Foundational Section 201 Appeal Is Pending: Mumbai ITAT Remands ₹2.36 Crore Dispute
The Mumbai ITAT restored the assessee’s appeal concerning a ₹2.36 crore disallowance under Section 40(a)(i) to the CIT(A), holding that it should be decided together with, or after, the pending appeal concerning the foundational Sections 201(1), 201(1A) and 195 proceedings.
The assessee paid ₹2,35,72,409 to Ashland Singapore Pte. Ltd. towards consulting and professional services without deducting tax at source. An order under Sections 201(1) and 201(1A) read with Section 195 held that tax should have been deducted on the remittance.
Relying substantially upon that order, the AO reopened the assessment under Section 147 and disallowed the entire payment under Section 40(a)(i). The assessee challenged both the reassessment and the disallowance before the CIT(A), pointing out that the Section 201 order forming the very foundation of the reassessment was itself under appeal.
The CIT(A), however, confirmed the disallowance on the ground that the Section 201 order continued to remain operative during the pendency of the appeal, without independently deciding the assessee’s various legal and factual contentions.
The Tribunal observed that the central question in both proceedings was whether the remittance to the Singapore company was chargeable to tax in India and, consequently, whether the assessee was required to deduct tax under Section 195. The outcome of the Section 201 appeal would therefore have a direct and material bearing on the sustainability of the Section 40(a)(i) disallowance.
The Tribunal held that deciding the two interconnected proceedings separately could result in incongruous or inconsistent conclusions. It accordingly set aside the CIT(A)’s order and directed him to decide the appeal afresh after deciding, or simultaneously with, the Section 201 appeal.
The CIT(A) was also directed to adjudicate all legal and factual grounds, including the challenge to the validity of the reassessment proceedings, after providing the assessee a reasonable opportunity of hearing. The Tribunal expressed no opinion on the merits, leaving all contentions open.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The aforesaid appeal has been filed by the assessee against the order dated 17.07.2025 passed by the National
Faceless Appeal Centre, Delhi [“CIT(A)”], arising from the reassessment order passed under section 147 of the Income-tax Act, 1961 (“the Act”) for the assessment year 2019–20.
2. The principal grievance of the assessee on merits relates to the disallowance of ₹2,35,72,409 made under section 40(a)(i) of the Act. The reassessment proceedings were initiated on the basis of an order passed under sections 201(1) and 201(1A), read with section 195 of the Act, wherein it was held that the assessee had made payment of ₹2,35,72,409 to M/s Ashland Singapore Pte. Ltd., a Singapore-based company, towards consulting and professional services without deduction of tax at source. Relying substantially upon the conclusion recorded in the said order, the Assessing Officer reopened the assessment and disallowed the entire payment under section 40(a)(i).
3. Before the learned CIT(A), the assessee challenged both the validity of the reassessment proceedings and the disallowance made on merits. It was specifically pointed out that the order passed under sections 201(1) and 201(1A), read with section 195, which constituted the very foundation of the reassessment as well as the consequential disallowance, was under challenge before the First Appellate Authority and the said appeal remained pending. The learned CIT(A) duly noticed this position; nevertheless, observing that the conclusion drawn in the order under sections 201(1) and 201(1A) continued to subsist during the pendency of that appeal, he confirmed the disallowance of ₹2,35,72,409 without independently adjudicating the various legal and factual grounds raised by the assessee.
4. Before us, the learned counsel submitted that the liability to deduct tax under section 195 is the foundational issue upon which the entire disallowance under section 40(a)(i) rests. Since the appeal arising from the order under sections 201(1) and 201(1A) is still pending before the First Appellate Authority, the present appeal ought to be restored to the learned CIT(A) so that the interconnected issues may be adjudicated in a harmonious and consistent manner. The learned DR fairly agreed that, in the peculiar circumstances of the case, the matter may be restored to the learned CIT(A) for adjudication after deciding, or simultaneously with, the appeal arising from the order passed under sections 201(1) and 201(1A).
5. We have heard the parties and carefully perused the material placed on record. It is manifest that the reopening of the assessment and the consequential disallowance under section 40(a)(i) have been founded substantially upon the conclusion recorded in the order passed under sections 201(1) and 201(1A), read with section 195. Whether the impugned remittance made to M/s Ashland Singapore Pte. Ltd. was chargeable to tax in India and, consequently, whether the assessee was obliged to deduct tax at source under section 195 are matters which lie at the root of both proceedings. The outcome of the appeal against the order under sections 201(1) and 201(1A) would, therefore, have a direct and material bearing upon the sustainability of the disallowance made under section 40(a)(i).
6. In these circumstances, adjudicating the present dispute independently, while the foundational proceedings remain pending before the same appellate forum, may lead to incongruous or inconsistent conclusions. We, therefore, set aside the impugned order and restore the entire appeal to the file of the learned CIT(A), with a direction to decide it afresh after adjudication of the assessee’s appeal against the order passed under sections 201(1) and 201(1A), read with section 195, or simultaneously therewith. The learned CIT(A) shall adjudicate all the legal and factual grounds raised by the assessee, including those challenging the validity of the reassessment proceedings, on their own merits and in accordance with law, after affording a reasonable opportunity of being heard to the assessee. We have not expressed any opinion on the merits of any of the issues raised in the present appeal, and all contentions of both sides are left open.
7. In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced on 25th August, 2026.
