Addition Made By AO Despite Issue Pending Before AAR; Assessment Order Not Void: ITAT

The Bangalore Bench of the Income Tax Appellate Tribunal (ITAT) has ruled that 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. The Bench of N. V. Vasudevan (Vice President) and Chandra Poojari (Accountant Member) held that merely because the additions made by the Assessing Officer were challengeable by the assessee before the appellate authorities, for being in contravention to the provisions of Section 245R(2)(i), it cannot be a ground to hold that the interest of the Revenue was prejudiced in order to exercise revisionary powers under Section 263 of the Income Tax Act. The assessee- M/s. Think and Learn Private Limited, is engaged in the business of providing an online learning platform in the name of "BYJU". The assessee filed an application before the Authority for Advance Ruling (AAR), Mumbai, seeking a ruling that the payment made by the assessee to the non-resident- M/s. More Ideas General Trading Company LLC, UAE, was not chargeable to tax and therefore, the assessee was not required to deduct tax at source. During the assessment proceedings, the Assessing Officer (AO) passed an assessment order making certain additions to the assessee's income. The AO also made a disallowance under Section 40(a)(i) of the Income Tax Act with respect to the commission paid by the assessee to the non-resident- M/s. More Ideas, for non-deduction of tax at source. Subsequently, the application pending before the AAR was dismissed on the ground that the issue raised before the AAR was already pending for consideration before the AO. The Principal Commissioner of Income Tax (PCIT), in exercise of its revisionary powers under Section 263, set aside the order passed by the AO and directed the AO to pass a fresh assessment order. The PCIT opined that the AO had failed to make an enquiry with respect to the application pending before the AAR regarding the liability of the assessee to deduct tax at source on the payments made to M/s. More Ideas. The PCIT held that the AO was required to complete the assessment only after the order was passed by the AAR and that as per the provisions of Section 245R(2)(i) of the Income Tax Act, the AO was required to not consider an application where the question raised in the application was already pending before any income tax authority. Hence, the PCIT ruled that the order passed by the AO was erroneous and prejudicial to the interest of the Revenue and thus, it was liable to be set aside. Against the order passed by the PCIT, the assessee filed an appeal before the ITAT. The assessee- M/s. Think and Learn Private Limited, submitted before the ITAT that against the order passed by the AO making disallowance with respect to the payments made to M/s. More Ideas, the assessee had filed an appeal before the Commissioner of Income Tax (Appeals) (CIT(A)). The assessee added that since the said issue was the subject matter of an appeal before the CIT(A), the PCIT could not exercise its revisionary jurisdiction under Section 263. The assessee added that the order passed by the AO was void since it was contrary to the mandate laid down in Section 245R(2)(i). Thus, the assessee contended that the PCIT, in exercise of its revisionary powers, cannot set aside a void assessment order and direct the AO to pass a fresh assessment order. The ITAT observed that as per the provisions of Section 245R(2)(i) of the Income Tax Act, only the question raised in an application before the AAR, which is pending for consideration, cannot be decided by an income tax authority. The ITAT noted that in view of Clause (ix) of Explanation 1 to Section 153, the period commencing from the date on which the application is made before the AAR and ending with a date on which such a ruling is received by the PCIT or CIT, shall not be counted for the purpose of computing limitation for the purpose of passing an assessment order. Thus, the ITAT ruled that in view of the provisions of Section 245R(2)(i) and Clause (ix) of Explanation 1 to Section 153, the assessment order would not become void. The Tribunal held that though the AO should not have decided the issue with respect to the payments made to M/s. More Ideas, UAE, the entire assessment order passed by the AO cannot be said to be void. "It is thus clear from a combined reading of the provisions of section 245R(2)(i) and the provisions of section 153 explanation 1 (ix) that the Order of Assessment will not become void as argued by the parties before us. To the extent that it relates to the payments made to More Ideas, UAE, the AO should not have decided the issue at all. For this reason, the entire Order of Assessment cannot be said to be void." Noting that the AO had made additions...

Addition Made By AO Despite Issue Pending Before AAR; Assessment Order Not Void: ITAT

Parina Katyal

Tags