Case Law Details
RSD Natural Resources Private Ltd. Vs DCIT (ITAT Kolkata)
Introduction: In a notable ruling, the ITAT Kolkata addressed the case of RSD Natural Resources Pvt. Ltd. vs DCIT, focusing on the applicability of Section 194C and the subsequent disallowance under Section 40(a)(ia) of the Income Tax Act. This case highlights crucial aspects of tax compliance and jurisdictional authority in the Indian tax system, offering significant insights for taxpayers and professionals alike.
Detailed Analysis
Background of the Case: RSD Natural Resources Pvt. Ltd. filed its return of income for the assessment year 2015-16, declaring a total income of Rs. 42,66,457/-. The case was selected for scrutiny, and the Assessing Officer (AO) issued a notice under Section 143(2). The AO concluded that the assessee had paid clearing charges without deducting TDS under Section 194C, leading to a disallowance of Rs. 52,86,164/- under Section 40(a)(ia).
Assessee’s Appeal: The assessee challenged this disallowance before the CIT(A), Patna, who upheld the AO’s decision. Consequently, the assessee appealed to the ITAT Kolkata, raising several grounds, including the jurisdiction of CIT(A) Patna and the appropriateness of the disallowance under Section 40(a)(ia).
Key Grounds of Appeal:
1. Jurisdictional Challenge: The assessee argued that the appeal should have been handled by the jurisdictional CIT(A) in Kolkata, as the original return was filed with the DCIT, Circle-9(2), Kolkata.
2. Disallowance Under Section 40(a)(ia): The main contention was that the AO failed to substantiate how Section 194C applied to the payments made. The assessee contended that the disallowance was arbitrary, as there was no determination of charge.
3. Additional Evidence: The assessee sought to introduce additional evidence, arguing that the recipients of the payments were regular taxpayers who included these receipts in their taxable income, thus nullifying the need for TDS deduction by the assessee.
ITAT Kolkata’s Findings: The Tribunal found that the assessment order by the AO was non-speaking, meaning it lacked detailed reasoning and justification for the disallowance under Section 40(a)(ia). The AO did not determine how Section 194C was applicable to the payments made by the assessee.
Admission of Additional Evidence: The ITAT allowed the assessee to submit additional evidence, highlighting that the recipients of the payments had included them in their taxable income. The Tribunal emphasized that for a just decision, such evidence should be considered, and the AO should have the opportunity to rebut this evidence.
Jurisdictional Issue: On the matter of jurisdiction, the ITAT noted the lack of clarity on how CIT(A) Patna handled the appeal when the jurisdiction lay with Kolkata. Although the Tribunal did not resolve this issue, it pointed out that jurisdiction should align with the geographical location of the AO.
Remand to AO: Given these findings, the ITAT set aside both the assessment and the CIT(A)’s order, remanding the case back to the AO for fresh adjudication. The AO was instructed to consider the additional evidence and provide a detailed, reasoned order.
Conclusion
The ITAT Kolkata’s decision in the case of RSD Natural Resources Pvt. Ltd. vs DCIT underscores the importance of detailed and reasoned assessment orders, especially when disallowances under specific sections of the Income Tax Act are involved. It also highlights the need for jurisdictional clarity in handling appeals. For taxpayers and professionals, this ruling reinforces the significance of proper documentation and the right to present additional evidence to ensure a fair adjudication process. This case sets a precedent for addressing similar disputes, ensuring that tax assessments are conducted with due diligence and adherence to legal standards.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
The assessee is in appeal before the Tribunal against the order of ld. Commissioner of Income Tax (Appeals), Patna-3 dated 31st May, 2023 passed for A.Y. 2015-16.
2. The assessee has raised five grounds of appeal, out of which Ground No. 5 is a general ground, which does not call for recording of any finding.
3. Grounds No. 1 to 3 are inter-connected with each other. In these grounds, the grievance of the assessee is that ld. CIT(Appeals) has erred in confirming the addition of Rs.52,86,164/-, which has been added by the ld. Assessing Officer with the aid of section 40(a)(ia) of the Income Tax Act. In other words, ld. Assessing Officer was of the opinion that the assessee has paid clearing charges to various entities and on such charges, it has not deducted TDS under section 194C of the Income Tax Act, therefore, disallowance under section 40(a)(ia) is required to be made.
4. In Ground No. 4, the assessee has challenged the jurisdiction of ld. CIT(Appeals) for passing the impugned order. The assessee has pleaded that the return was filed with jurisdictional Assessing Officer at Kolkata, i.e. DCIT, Circle-9(2), Kolkata. The notice under section 143(2) was served upon by this ld. Assessing Officer and ultimately assessment order was framed by DCIT, Kolkata. It is not understandable as to how this appeal is being decided by ld. CIT(Appeals), Patna.
5. The ld. Counsel for the assessee, at the very outset, submitted that the assessee prayed for permission to adduce additional evidence and, therefore, it has filed an application under Rule 29 of the Income Tax Appellate Tribunal Rules, 1963. The application of the assessee reads as under:-
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6. Brief facts of the case are that the assessee has filed its return of income on 29.09.2015 declaring total income of Rs.42,66,457/-. The case of the assessee was selected for scrutiny assessment and a notice under section 143(2) was issued on 08.04.2016. The ld. Assessing Officer has passed an assessment order under section 143(3) of the Income Tax Act on 29.12.2017. A perusal of the assessment order would reveal that it is a very brief assessment order running into three pages and on page no. 2, ld. Assessing Officer has reproduced the details from P&L Account, which exhibits the payments made or credited to the respective accounts of the payee by the assessee. Thereafter without considering any details, he immediately jumped to the conclusion that disallowance under section 40(a)(ia) is required to be made because the assessee did not deduct TDS as per Section 194C on these payments. The ld. Assessing Officer has accordingly made an addition of Rs.52,86,164/-.
7. Appeal to the ld. CIT(Appeals) did not bring any relief to the assessee.
8. The ld. Counsel for the assessee has filed a written note in support of the assessee’s case and we deem it appropriate to take note of this written submission, which reads as under:-
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9. With the assistance of ld. Representatives, we have gone through the record carefully. A perusal of the assessment order would suggest that it is totally a non-speaking assessment order. The ld. Assessing Officer has nowhere determined as to how Section 194C is applicable on the payments made by the assessee. Unless a charge is being determined, disallowance under section 40(a)(ia) cannot be made. The ld. Assessing Officer has itself assumed that such payments called for deduction of TDS. Therefore, we deem it appropriate that for just decision of the dispute involved in the appeal, the additional evidence sought to be placed on record is admitted. It is pertinent to observe that the moment additional evidence is taken on record, then, an opportunity is to be given to the ld. Assessing Officer for rebutting such evidence. The evidence sought to be produced by the assessee is of this nature, which goes to the root of the dispute. In brief, it is based on the premises that –
(a) the recipients are tax payer entity, they are filing regular returns of income and these receipts must have been included in their taxable income. Therefore, in the hands of the payer, disallowance is not to be made under section 40(a)(ia). The assessee has made reference a large number of decisions on this point, which are noticed by the ld. CIT(Appeals), but without recording any finding, as to how they are distinguishable on facts. The ld. CIT(Appeals) has just ignored the proposition laid down in those case laws.
(b) The ld. Assessing Officer has not adjudicated as to how TDS was required to be deducted by the assessee under section 194C. Therefore, the evidence is taken on the record.
10. Apart from the above, as far as Ground No. 4 is concerned, complete material is not discernable as to how ld. CIT(Appeals), Patna got jurisdiction to decide the appeal of the assessee. The Hon’ble Supreme Court has held that jurisdiction over an assessee would lie from the geographical location of the ld. Assessing Officer. In other words, the jurisdiction of the ld. 1st Appellate Authority will be of that area, where DCIT, Circle-9(2), Kolkata is situated. At this stage, we are not resolving this aspect, otherwise the impugned order is to be set aside and matter will be relegated to the ld. CIT(Appeals), who has jurisdiction over the assessee for re-adjudication, but we are not possessing complete facts in this regard and, therefore, we are not adjudicating this ground simply for the reason that we are setting aside the assessment order itself and remitting the issue back to the file of ld. Assessing Officer for re-adjudication after taking into consideration the additional evidence submitted before the Tribunal. The assessee will be at liberty to file additional evidence submitted before us or any other material which deems fit for explaining its case. Such exercise be carried out before the ld. Assessing Officer.
11. In view of the above, both the orders are set aside. The dispute is remitted back to the file of ld. Assessing Officer for fresh adjudication.
12. In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open Court on 02/04/2024.
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