CLP Wind Farms (India) Pvt. Ltd., Ahmedabad V. The Asst. Commissioner of Income Tax (OSD), Ahmedabad

ITA 998/AHD/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 0648 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-08-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 22-08-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 21-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K KHANDALWAL
• Keywords: Transfer pricing; Double taxation relief; Permanent establishment; Corroborative evidences; Assessment record
• Section: 143(3); 14A; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD I BENCH (BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER & SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER) ITA. NO: 730 & 998/AHD/2016 (ASSESSMENT YEAR: 2010-11) CLP INDIA PVT. LTD. 6 TH FLOOR, CHANAKYA BUILDING, OFF: ASHRAM ROAD, AHMEDABAD-380009 PAN NO. AAACG7999P CLP WIND FARMS (INDIA) PVT. LTD. . 6 TH FLOOR, CHANAKYA BUILDING, OFF: ASHRAM ROAD, AHMEDABAD-380009 PAN NO. AADCC4393G V/S V/S DCIT (OSD) RANGE-1, AHMEDABAD ASST. CIT (OSD) RANGE-1, AHMEDABAD (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VARTIK CHOKSHI, AR RESPONDENT BY : SHRI A.K. KHANDALWAL, SR. D. R. ( )/ ORDER DATE OF HEARING : 22 -08-201 6 DATE OF PRONOUNCEMENT : 29 -08-2016 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: ITA NO. 730 & 998/AHD/2016 . A.Y.2010-11 2 1. WITH THIS APPEAL, THE ASSESSEE HAS CHALLENGED THE O RDER OF THE LD. PRINCIPAL COMMISSIONER OF INCOME TAX-1, AHMEDABAD D ATED 03-03- 2016. THE ASSESSEE HAS STRONGLY CONTENDED THAT THE NOTICE ISSUED BY THE LD. PRINCIPAL COMMISSIONER U/S. 263 OF THE ACT AND THE CONSEQUENT ORDER PASSED BY HIM IS VOID AND DESERVES TO BE CANC ELLED FOR THE REASONS THAT IT HAS BEEN PASSED WITHOUT JURISDICTIO N. 2. RIVAL CONTENTIONS HAVE BEEN HEARD AT LENGTH. HAVING HEARD THE RIVAL SUBMISSIONS, WE HAVE CAREFULLY PERUSED THE ORDER OF THE LD. PRINCIPAL COMMISSIONER QUA THE ASSESSMENT ORDER QUA THE QUERI ES RAISED DURING THE ASSESSMENT PROCEEDINGS. 3. IN THIS CASE, THE ASSESSMENT ORDER WAS PASSED U/S. 143(3) OF THE ACT R.W.S. 144C DETERMINING THE TOTAL INCOME AT RS. 247 .74 CRORE. ASSUMING THE JURISDICTION CAST UPON HIM, THE LD. PR INCIPAL COMMISSIONER ON PERUSAL OF THE ASSESSMENT RECORD FO UND THAT THE ASSESSEE COMPANY HAS PAID RS. 108.47 LAKHS FOR SAP SERVICE CHARGES TO CLP ASIA SERVICES, BRITISH VIRGIN ISLAND AND INT EREST OF RS. 170.13 LAKHS TO KREDITANSTALLT FUR WIEDERAUFBAU (KFW), GER MANY ON WHICH NO TAX WAS DEDUCTED AT SOURCE. THE LD. PRINCIPAL CIT W AS OF THE FIRM BELIEF THAT TDS WAS DEDUCTIBLE U/S. 195(1) OF THE ACT AND SINCE NO TDS WAS MADE, THE ABOVE EXPENDITURE WAS LIABLE TO BE DISALL OWED U/S. 40(A)(IA) OF THE ACT. SINCE, THE A.O. HAS APPARENTLY FAILED T O INVOKE THIS PROVISION WHICH HAS LED TO UNDER ASSESSMENT OF TOTA L INCOME. THE LD. PRINCIPAL CIT WAS OF THE OPINION THAT THE ASSESSMEN T ORDER PASSED BY THE A.O. IS ERRONEOUS AND PREJUDICIAL TO THE INTERE ST OF THE REVENUE. ITA NO. 730 & 998/AHD/2016 . A.Y.2010-11 3 4. ACCORDINGLY, A SHOW CAUSE NOTICE WAS ISSUED AND SER VED UPON THE ASSESSEE TO SHOW CAUSE WHY THE ASSESSMENT ORDER SHO ULD NOT BE REVISED INVOKING THE PROVISIONS OF SECTION 263 OF T HE ACT. 5. IN RESPONSE TO THE SHOW CAUSE NOTICE, THE ASSESSEE FILED A DETAILED REPLY STATING THAT THE ASSESSEE HAS ALREADY DEDUCTE D TAX AT SOURCE ON THE PAYMENTS MADE TO CLP ASIA SERVICES. SUPPORTING EVIDENCES WERE ALSO FILED AND THE LD. PRINCIPAL COMMISSIONER WAS R EQUESTED TO DROP THE PROCEEDINGS. IT WAS FURTHER EXPLAINED THAT INSOFAR AS PAYMENTS TO KFW, GERMANY IS CONCERNED, THE SAID INTEREST PAYMEN T WAS NOT LIABLE FOR TDS AND, THEREFORE, NO TAX WAS DEDUCTED AT SOUR CE. IN SUPPORT, THE ASSESSEE RELIED UPON THE DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIAN AND GERMANY. 6. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS, TH E LD. PRINCIPAL CIT HELD THAT ALL THE RELEVANT ASPECTS OF THE CASE PERT AINING TO THE AFOREMENTIONED TWO ISSUES WERE NOT PROPERLY INQUIRE D BY THE A.O. VIS- -VIS SECTION 40(A)(IA) AS WELL AS TDS. THE ASSESSM ENT ORDER WAS CANCELLED/SET ASIDE WITH A DIRECTION TO THE A.O. TO RE-FRAME THE ASSESSMENT DE NOVO. 7. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. 8. THE FIRST THING WHICH HAS TO BE CONSIDERED IS WHETH ER THE LEARNED COMMISSIONER HAS RIGHTLY ASSUMED THE POWER UNDER SE CTION 263 OF THE ACT. THE HONBLE SUPREME COURT IN MALABAR INDUSTRIA L CO. LTD. 243 ITR 83 HAS LAID DOWN THE FOLLOWING RATIO:- 'A BARE READING OF SECTION 263 OF THE INCOME-TAX AC T, 1961, MAKES IT CLEAR THAT THE PREREQUISITE FOR THE EXERCISE OF JURISDICTION B Y THE COMMISSIONER SUO MOTU UNDER IT, IS THAT THE ORDER OF THE INCOME-TAX OFFIC ER IS ERRONEOUS IN SO FAR AS IT IS ITA NO. 730 & 998/AHD/2016 . A.Y.2010-11 4 PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE CO MMISSIONER HAS TO BE SATISFIED OF TWIN CONDITIONS, NAMELY, (I) THE ORDER OF THE AS SESSING OFFICER SOUGHT TO BE REVISED IS ERRONEOUS; AND (II) IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. IF ONE OF THEM IS ABSENTIF THE ORDER OF THE INCOME-TA X OFFICER IS ERRONEOUS BUT IS NOT PREJUDICIAL TO THE REVENUE OR IF IT IS NOT ERRO NEOUS BUT IS PREJUDICIAL TO THE REVENUE RECOURSE CANNOT BE HAD TO SECTION 263(1) O F THE ACT. THE PROVISION CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE ASSESSING OFFICER; IT IS ONLY WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WILL BE ATTRACTED. AN INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT APPLICATION OF LAW WILL SATISFY THE REQUIREMENT OF THE ORDER BEING ERRONEOUS. 9. NOW, LET US SEE IN THE LIGHT OF THE ABOVE RATIO WHETHER THE ASSESSMENT HAS BEEN MADE ON AN INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT APPLICATION OF LAW. THE FIRST OBSERVATION OF THE LD. CIT IS THAT THE ASSESSEE HAS FAILED TO DEDUCT TAX AT SOURCE ON THE PAYMENTS MADE TO CLP ASIA SERVICES, BRITISH VIRGIN ISLAND AMOUNTI NG TO RS. 108.47 LACS ON ACCOUNT OF SAP SERVICE CHARGES. A PERUSAL OF THE SHOW CAUSE NOTICE ISSUED BY THE DCIT (OSD)-RANGE-1,AHMEDABAD DATED 05 /03/2014, INTERALIA, SHOW THE FOLLOWING QUERY RAISED DURING T HE COURSE OF THE ASSESSMENT PROCEEDINGS:- 3. PLEASE FURNISH THE DETAILS OF DEBITED NOT RAISED ALONGWITH PROOF FOR TDS MADE ON SUCH PAYMENTS IN RESPECT OF THE FOLLOWING REIMBU RSEMENT EXPENSES. CLP HOLDING RS. 2,86,659/- JPL RS. 7,14,06,301/- CLP RS. 22,68,555/- 10. THE SAME WAS REPLIED VIDE REPLY DATED 07/03/2014, I NTERALIA, AS FOLLOWS:- 3. DETAILS OF TDS ON REIMBURSEMENT OF EXPENSES ITA NO. 730 & 998/AHD/2016 . A.Y.2010-11 5 3.1. VIDE POINT 3, THE ASSESSES COMPANY HAS BEEN AS KED TO PROVIDE DETAILS OF TDS . ON REIMBURSEMENT OF EXPENSES TO CLP HOLDING, JPL AND CLP. IT IS SUBMITTED BEFORE YOUR GOOD SELF THAT IN CASE OF CLP HOLDING, THE EXPENSES HAVE BEEN RECOVERED FROM THE SAID ASSOCIATED ENTERPRISE AND T HERE WAS AN INADVERTENT MISTAKE IN ANNUAL REPORT OF THE ASSESSEE COMPANY. T HE ASSESSEE COMPANY LIKES SUBMIT THE COPY OF DEBIT NOTE RAISED BY THE ASSESSE E COMPANY ON THE AFORESAID PARTY WHICH WILL MAKE IT CLEAR THAT THE ASSESSEE CO MPANY HAS NOT REIMBURSED EXPENSE, BUT THE SAME HAS BEEN RECOVERED AND HENCE THE IDS REQUIREMENTS ARE NOT APPLICABLE TO THE ASSESSEE COMPANY. THE COPY OF THE DEBIT NOTE HAS BEEN ATTACHED HEREWITH VIDE ANNEXURE - 8. 3.2. IN CASE OF JPL, THE ASSESSEE COMPANY WOULD LIK E TO DRAW YOUR GOOD SELF'S ATTENTION TO THE FACT THAT THE AMOUNT MENTIONED BY YOUR HONOUR IS NOT REIMBURSEMENT OF EXPENSES, BUT IT IS ACTUALLY INTER EST RECOVERED BY THE ASSESSEE COMPANY FROM JPL. ATTENTION IS ALSO INVITED TO RELA TED PARTY DISCLOSURE IN ITS ANNUAL REPORT WHEREIN THE SAID AMOUNT IS REPORTED A S INTEREST RECOVERY BY THE ASSESSEE COMPANY. HENCE, THE SAID POINT DOES NOT BE COME APPLICABLE HERE. 3.3. AGAIN, IN CASE OF CLP, THE ASSESSEE COMPANY HA S BEEN ASKED TO PROVIDE DETAILS ON REIMBURSEMENT OF RS. 22,68,555/-. HOWEVE R, THE ASSESSEE COMPANY SUBMITS THAT IT IS NOT ABLE TO DETECT ANY SUCH FIGU RE IN ITS BOOKS OF ACCOUNTS. HENCE, IT IS REQUESTED TO YOUR GOOD SELF, TO KINDLY CHECK WITH THE AMOUNT ASKED FOR AND PROVIDE THE BASE SO THAT THE ASSESSEE COMPANY C AN PROVIDE APPROPRIATE REPLY. 11. THUS, IT CAN BE SEEN, TO A SPECIFIC QUERY RAISED DU RING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE HAS GIVEN A SP ECIFIC REPLY WHICH WAS ACCEPTED BY THE A.O. THE HONBLE BOMBAY HIGH CO URT IN THE CASE OF GABRIAL [INDIA] LTD. 203 ITR 108 HAS HELD THAT I F THE ASSESSING OFFICER HAS RAISED QUERIES AND THE ASSESSEE HAS FIL ED WRITTEN SUBMISSIONS/EXPLANATION, MERELY BECAUSE THERE IS NO DISCUSSION IN THE ASSESSMENT ORDER ON THE RELEVANT ISSUE, IT CANNOT B E SAID THAT SUCH ITA NO. 730 & 998/AHD/2016 . A.Y.2010-11 6 ORDER BECOMES ERRONEOUS. SIMILAR VIEW HAS BEEN TAKE N BY THE RAJASTHAN HIGH COURT IN THE CASE OF GANPAT RAM BISH NOI 296 ITR 292. 12. WE FIND THAT THE PRINCIPAL CIT HAS LAID EMPHASIS ON THE AMENDED PROVISIONS OF SECTION 263 WHEREIN THE EXPLANATION H AS BEEN INSERTED. THE SAME WAS EMPHASIZED BY THE LD. D.R. DURING THE COURSE OF HIS ARGUMENTS. THE HONBLE HIGH COURT OF DELHI IN THE C ASE OF ANIL KUMAR SHARMA 335 ITR 83 HAS EXPLAINED THAT THERE IS A DISTINCTION BETWEEN LACK OF INQUIRY AND INADEQUATE INQUIRY. IF THER E WAS ANY INQUIRY, EVEN INADEQUATE THAT WOULD NOT BY ITSELF GIVE OCCAS ION TO THE COMMISSIONER TO PASS ORDERS UNDER SECTION 263 OF TH E ACT, MERELY BECAUSE HE HAS A DIFFERENT OPINION IN THE MATTER. 13. FURTHER, THE ASSESSMENT ORDER REVEALS THAT ON VERIF ICATION OF SUBMISSION MADE BY THE ASSESSEE, THE A.O. HAS MADE ADDITION OF RS. 3,43,700/- U/S. 40(A)(IA) OF THE ACT. THEREFORE, IT CANNOT BE SAID THAT THE ASSESSING OFFICER OVERLOOKED THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT AS ALLEGED BY THE LD. PRINCIPAL COMMISSIONE R IN HIS ORDER MADE U/S. 263 OF THE ACT. 14. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS ALO NG WITH THE RELATED EVIDENCES AS MENTIONED HEREINABOVE, IN OUR CONSIDERED OPINION, THE LD. PRINCIPAL CIT HAD NO OCCASION TO I NVOKE THE PROVISIONS OF SECTION 263 OF THE ACT INSOFAR AS PAYMENTS TO CL P ASIA IS CONCERNED. 15. THE SECOND ISSUE WHICH PROMPTED THE LD. PRINCIPAL C IT TO ASSUME THE JURISDICTION RELATES TO THE PAYMENT OF INTEREST OF RS. 170.13 LACS TO KFW, GERMANY. WE FIND THAT VIDE SHOW CAUSE NOTICE D ATED ITA NO. 730 & 998/AHD/2016 . A.Y.2010-11 7 05.03.2014, INTERALIA, FOLLOWING QUERY WAS RAISED D URING THE COURSE OF THE ASSESSMENT PROCEEDINGS:- 4. ON VERIFICATION OF SUBMISSION IT IS SEEN THAT YO U HAVE MADE INTEREST AND FINANCIAL CHARGED PAYMENT OF RS. 42,36,29,374/-. PL EASE FURNISH THE PROOF FOR TDS DEDUCTED AND PAID TO GOVT. A/C. OR ELSE EXPLAIN AS TO WHY THE SAME SHOULD NOT BE DISALLOWED U/S. 40(A)(IA). 16. THE ASSESSEE VIDE REPLY DATED 07.03.2014, INTERALIA , REPLIED TO THE QUERY RAISED AS UNDER:- 1.4. INTEREST PAID ON FOREIGN CURRENCY LOAN 1.4.1. YOUR HONOUR HAS OBSERVED THAT THE ASSESSEE COMPANY HAS NOT DEDUCTED TDS ON PAYMENT OF INTEREST ON FOREIGN CURRENCY LOAN S. THE ASSESSEE COMPANY SUBMITS THAT SUCH FOREIGN CURRENCY LOANS WERE OBTAI NED FROM TWO NON - RESIDENT BANKS, NAMELY BAYERISCHE LANDESBANK AND KREDITANSTA LLT FUR WIEDERAUFBAU WHILE ONE SUCH LOAN WAS OBTAINED FROM FINANCIAL INS TITUTION IN INDIA NAMELY INDUSTRIAL FINANCE CORPORATION OF INDIA (- BHF LINE OF CREDIT), TDS LIABILITY IS NOT ATTRACTED U/S 195 OF THE ACT ON PAYMENT OF INTE REST MADE TO NON - RESIDENT BANKS FOR A SIMPLE REASON THAT THE INCOME OF SUCH F OREIGN BANKS ARE EXEMPT FROM TAX IN INDIA UNDER INCOME TAX ACT OR THE TAX TREATI ES. SECTION 195 OF THE INCOME TAX ACT REQUIRES DEDUCTION OF TAX AT SOURCE FROM PA YMENTS MADE TO NON -RESIDENTS ONLY IN CASE THE PAYMENTS MADE TO NON - RESIDENTS A RE CHARGEABLE FOR TAX IN INDIA WHICH IS NOT THE CASE HERE. FURTHER TAX IS NOT REQU IRED TO BE DEDUCTED AT SOURCE U/S 194 OF THE ACT ON PAYMENT OF INTEREST TO BANKS AND FINANCIAL INSTITUTIONS. THE ASSESSEE COMPANY WOULD LIKE TO SUBMIT THE REASON OF SUCH EXEMPTION AVAILABLE FROM DEDUCTION OF TDS FROM INTEREST PAYMENTS TO EAC H SUCH BANK AS UNDER: 17. THE RELEVANT REPLY READS AS UNDER:- ITA NO. 730 & 998/AHD/2016 . A.Y.2010-11 8 1.4.4 KREDITANSTAT FUR WIEDERAUFBAU (KFW) OF GERMAN Y IS ANOTHER FINANCIAL INSTITUTION FROM WHICH THE ASSESSEE COMPANY HAD BOR ROWED FOREIGN CURRENCY LOAN FOR THE PURPOSES OF ITS PROJECT. PAYMENT OF INTERES T ON THIS LOAN IS EXEMPT UNDER THE SPECIFIC PROVISION OF ARTICLE 11 OF THE DTAA BE TWEEN INDIA AND GERMANY. THE ASSESSEE COMPANY SHALL ALSO TAKE THE OPPORTUNITY TO SUBMIT THAT PARA 5 OF ARTICLE 11 OF DTAA BETWEEN INDIA AND GERMANY SHALL NOT COME INTO PLAY. THIS IS BECAUSE ONLY IF THE DEBT CLAIM (I.E. THE LOAN FROM KFW BOR ROWED BY THE ASSESSEE COMPANY) IN RESPECT OF WHICH THE ASSESSEE COMPANY H AD PAID INTEREST WAS EFFECTIVELY CONNECTED WITH THE PERMANENT ESTABLISHMENT OR FIXED BASE OF KFW, PARA 5 WOULD HAVE BEEN APPLICABLE. IT IS ALSO SUBMI TTED THAT KFW HAS OFFICES IN MUMBAI AND DELHI, BUT IN NO WAY IT CAN BE FOLLOWED THAT THE PAYMENT OF INTEREST MADE BY THE ASSESSEE COMPANY TO KFW WAS EFFECTIVELY CONNECTED WITH SUCH PERMANENT ESTABLISHMENT OR FIXED BASE OF KFW. THE FACT REMAINS THAT THE ASSESSEE COMPANY HAD BORROWED FOREIGN CURRENCY LOAN FROM KFW GERMANY AND THAT EVER SINCE THAT BORROWING WAS MADE IN THE EARL Y NINETIES, INTEREST IS BEING REMITTED BY THE ASSESSEE COMPANY DIRECTLY TO KFW IN GERMANY WITHOUT ANY OF ITS OFFICES IN INDIA HAVING ANY EFFECTIVE CONNECTION TH EREWITH. WITHOUT PREJUDICE TO THE ABOVE, IT IS SUBMITTED THA T SINCE THE INTEREST PAYABLE TO KFW ON THE ABOVE LOANS ARE EXEMPT U/S. 10(15)(IV)(F ), THE ASSESSEE COMPANY HAS BEEN PAYING THE SAME TO THE LENDER WITHOUT DEDU CTING TDS EVER SINCE THE LOANS WERE BORROWED IN THE YEAR 1994. IT WAS THUS T HAT THE CURRENT YEAR'S PAYMENTS TOO WERE MADE WITHOUT DEDUCTING TAX AT S OURCE. FOR RECORD PURPOSES, THE ASSESSEE COMPANY ATTACHES HEREWITH (AT ANNEXURE - 4) A XEROX COPY OF THE ABOVE REFERRED LETTER DATED 5.12.1994 RECEIVED FROM THE GOVERNMENT OF INDIA GRANTING ITS APPROVAL FOR THE PURPOSES OF SECTION 1 0(15)(IV)(F). 18. ONCE AGAIN, WE FIND THAT, TO A SPECIFIC QUERY, A SP ECIFIC REPLY WAS FILED BY THE ASSESSEE ALONG WITH SUPPORTING EVIDENC ES. FOR THE DETAILED REASONS MENTIONED HEREINABOVE, WE FIND THAT INSOFAR AS THIS ISSUE IS CONCERNED, ONCE AGAIN THE LD. PRINCIPAL CIT ERRED I N ASSUMING THE JURISDICTION BY INVOKING THE PROVISIONS OF SECTION 263 OF THE ACT. ITA NO. 730 & 998/AHD/2016 . A.Y.2010-11 9 CONSIDERING THE FACTS IN TOTALITY AS DISCUSSED HERE INABOVE, IN OUR CONSIDERED OPINION, THE ASSUMPTION OF JURISDICTION U/S. 263 OF THE ACT IS UNCALLED FOR. WE, ACCORDINGLY, QUASH THE ORDER O F THE LD. PRINCIPAL CIT MADE U/S. 263 OF THE ACT. 19. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ITA NO. 998/AHD/2016 FOR A.Y. 2010-11 20. WITH THIS APPEAL, THE ASSESSEE HAS CHALLENGED THE O RDER OF THE PRINCIPAL COMMISSIONER OF INCOME TAX-1, AHMEDABAD D ATED 03-03- 2016. THE ASSESSEE HAS STRONGLY CONTENDED THAT THE NOTICE ISSUED BY THE LD. PRINCIPAL COMMISSIONER U/S. 263 OF THE ACT AND THE CONSEQUENT ORDER PASSED BY HIM IS VOID AND DESERVES TO BE CANC ELLED FOR THE REASONS THAT IT HAS BEEN PASSED WITHOUT JURISDICTIO N. 21. RIVAL CONTENTIONS HAVE BEEN HEARD AT LENGTH. HAVING HEARD THE RIVAL SUBMISSIONS, WE HAVE CAREFULLY PERUSED THE OR DER OF THE LD. PRINCIPAL COMMISSIONER QUA THE ASSESSMENT ORDER QUA THE QUERIES RAISED DURING THE ASSESSMENT PROCEEDINGS. 22. IN THIS CASE, THE ASSESSMENT WAS MADE U/S. 143(3) O F THE ACT R.W.S. 144C VIDE ORDER DATED 27.02.2015 DETERMINING LOSS AT RS. 16,54,49,715/- BY THE DCIT, CIRCLE-1(1)(2), AHMEDAB AD. ON PERUSAL OF THE ASSESSMENT ORDER, THE LD. PRINCIPAL CIT-1, AHME DABAD FOUND THAT THE ASSESSEE HAS PAID RS. 23,89,429/- FOR SAP IMPLE MENTATION CHARGES TO M/S. CLP ASIA SERVICES LTD., HONGKONG ON WHICH NO TAX WAS DEDUCTED AT SOURCE U/S. 195 OF THE ACT. THE LD. PRI NCIPAL CIT WAS OF THE ITA NO. 730 & 998/AHD/2016 . A.Y.2010-11 10 OPINION THAT NON DEDUCTION OF TAX WOULD MAKE THE PR OVISIONS OF SECTION 40(A)(IA) APPLICABLE AND, THEREFORE, IT HAS RESULTE D INTO UNDER ASSESSMENT AND CONSEQUENT SHORT LEVY OF TAX. THE LD . PRINCIPAL CIT FURTHER NOTICED THAT THE ASSESSEE HAS PAID REGISTRA TION FEE OF RS. 38,81,467/- TO M/S. INDIAN RENEWABLE ENERGY DEVELOP MENT AGENCY LTD. (IREDA), ON WHICH PROVISIONS OF SECTION 194J S QUARELY APPLY. SINCE, THE ASSESSEE HAS FAILED TO DEDUCT TAX AT SOU RCE ONCE AGAIN SUCH PAYMENT HAS RESULTED INTO UNDER ASSESSMENT AND SHOR T LEVY OF TAX. 23. ACCORDINGLY, NOTICE U/S. 263 OF THE ACT WAS ISSUED AND SERVED UPON THE ASSESSEE. 24. IN RESPONSE TO THE NOTICE, THE ASSESSEE EXPLAINED T HAT IT HAS ALREADY DEDUCTED TAX AT SOURCE ON PAYMENTS MADE TO CLP ASIA SERVICES AND ACCORDINGLY HAS DULY COMPLIED WITH THE PROVISIONS OF SECTION 195 OF THE ACT. FURTHER, IT WAS EXPLAINED T HAT PAYMENT OF REGISTRATION FEES TO IREDA WAS FOR GENERATION BASED INCENTIVE WHICH WAS INTRODUCED BY THE GOVERNMENT FOR WIND POWER PRO JECT. IT WAS EXPLAINED THAT THE PAYMENT OF REGISTRATION FEES DOE S NOT ATTRACT THE PROVISIONS OF SECTION 194J OF THE ACT. SINCE, THE S AME CANNOT BE CONSTRUED AS PROFESSIONAL FEES. 25. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS AND THE RELATED DOCUMENTARY EVIDENCES, THE LD. PRINCIPAL CIT WAS OF THE OPINION THAT THE ASSESSEE SHOULD HAVE DEDUCTED TAX @ 20% AND SIN CE IT HAS DEDUCTED TAX @ 10%, THE ASSESSMENT ORDER IS FOUND T O BE ERRONEOUS AND PRE-JUDICIAL TO THE INTEREST OF THE REVENUE WIT HIN THE MEANING OF SECTION 263 OF THE ACT. THE LD. PRINCIPAL CIT FURTH ER HELD THAT EVEN THE REGISTRATION FEE PAID TO IREDA ATTRACTS THE PROVISI ONS OF SECTION 194J OF ITA NO. 730 & 998/AHD/2016 . A.Y.2010-11 11 THE ACT AND SINCE NO TAX WAS DEDUCTED AT SOURCE, TH E ASSESSMENT ORDER BECOMES ERRONEOUS AND PRE JUDICIAL TO THE INT EREST OF THE REVENUE. ACCORDINGLY, THE ASSESSMENT ORDER WAS CANC ELLED/SET ASIDE ON THESE ISSUES WITH A DIRECTION TO THE A.O. TO RE-FRA ME THE ASSESSMENT DE NOVO. 26. THE FIRST THING WHICH HAS TO BE CONSIDERED IS WHETH ER THE LEARNED COMMISSIONER HAS RIGHTLY ASSUMED THE POWER UNDER SECTION 263 OF THE ACT. THE HONBLE SUPREME COURT IN MALABA R INDUSTRIAL CO. LTD. 243 ITR 83 HAS LAID DOWN THE FOLLOWING RATIO:- 'A BARE READING OF SECTION 263 OF THE INCOME-TAX AC T, 1961, MAKES IT CLEAR THAT THE PREREQUISITE FOR THE EXERCISE OF JURISDICTION B Y THE COMMISSIONER SUO MOTU UNDER IT, IS THAT THE ORDER OF THE INCOME-TAX OFFIC ER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE CO MMISSIONER HAS TO BE SATISFIED OF TWIN CONDITIONS, NAMELY, (I) THE ORDER OF THE AS SESSING OFFICER SOUGHT TO BE REVISED IS ERRONEOUS; AND (II) IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. IF ONE OF THEM IS ABSENTIF THE ORDER OF THE INCOME-TA X OFFICER IS ERRONEOUS BUT IS NOT PREJUDICIAL TO THE REVENUE OR IF IT IS NOT ERRO NEOUS BUT IS PREJUDICIAL TO THE REVENUE RECOURSE CANNOT BE HAD TO SECTION 263(1) O F THE ACT. THE PROVISION CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE ASSESSING OFFICER; IT IS ONLY WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WILL BE ATTRACTED. AN INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT APPLICATION OF LAW WILL SATISFY THE REQUIREMENT OF THE ORDER BEING ERRONEOUS. 27. NOW, LET US SEE IN THE LIGHT OF THE ABOVE RATIO WHE THER THE ASSESSMENT HAS BEEN MADE ON AN INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT APPLICATION OF LAW. THE FIRST OBSERVATION OF THE LD. CIT RELATES TO THE LOWER DEDUCTION OF TAX AT SOURCE MADE BY THE ASSESSEE ON PAYMENTS MADE TO M/S. CLP ASIA SERVICES. IN OUR CON SIDERED OPINION, WE DO NOT FIND ANY MERIT IN THE OBSERVATIONS OF THE PRINCIPAL CIT, THE ITA NO. 730 & 998/AHD/2016 . A.Y.2010-11 12 APPLICABILITY OF A PARTICULAR RATE ON A PARTICULAR PAYMENT IS ALWAYS A DEBATABLE ISSUE AND A HIGHLY DEBATABLE ISSUE CANNOT BE A GROUND FOR ASSUMING JURISDICTION U/S. 263 OF THE ACT. THE HON BLE HIGH COURT OF DELHI IN THE CASE OF DLF LTD., 350 ITR 555 HAS HELD THAT IN THESE CIRCUMSTANCES, WHETHER THE DEDUCTION UNDE R SECTION 14A WAS WARRANTED, WAS A DEBATABLE FACT. IN ANY EVENT, EVEN IF IT WERE NOT DEBATABLE, THE ERROR BY THE ASSESSING OFFICER WAS NOT UNSUSTAINAB LE. POSSIBLY HE COULD HAVE TAKEN ANOTHER VIEW; YET, THAT HE DID NOT DO SO, WOU LD NOT RENDER HIS OPINION AN UNSUSTAINABLE ONE, WARRANTING EXERCISE OF SECTION 2 63. 28. WE FIND THAT THE LD. PRINCIPAL CIT HAS LAID EMPHAS IS ON THE AMENDED PROVISIONS OF SECTION 263 WHEREIN THE EXPLA NATION HAS BEEN INSERTED. THE SAME WAS EMPHASIZED BY THE LD. D.R. D URING THE COURSE OF HIS ARGUMENTS. THE HONBLE HIGH COURT OF DELHI I N THE CASE OF ANIL KUMAR SHARMA 335 ITR 83 HAS EXPLAINED THAT THERE IS A DISTINCTION BETWEEN LACK OF INQUIRY AND INADEQUATE INQUIRY. IF THERE WAS ANY INQUIRY, EVEN INADEQUATE THAT WOULD NOT BY ITSELF G IVE OCCASION TO THE COMMISSIONER TO PASS ORDERS UNDER SECTION 263 OF TH E ACT, MERELY BECAUSE HE HAS A DIFFERENT OPINION IN THE MATTER. 29. CONSIDERING THE TOTALITY OF THE FACTS, IN OUR CONSI DERED OPINION, THE LD. PRINCIPAL CIT HAS WRONGLY ASSUMED THE JURIS DICTION U/S. 263 INSOFAR AS THE ALLEGED LOWER DEDUCTION OF TAX AT SO URCE ON PAYMENTS MADE TO M/S. CLP ASIA SERVICES LTD. 30. THE SECOND PAYMENT CONSIDERED BY THE LD. PRINCIPAL CIT RELATES TO THE REGISTRATION FEES TO IREDA. THE LD. PRINCIPA L CIT WAS OF THE FIRM BELIEF THAT THE SAID PAYMENT ATTRACTS PROVISIONS OF SECTION 194J OF THE ACT. THE PROVISIONS OF SECTION 194J OF THE ACT READ AS UNDER:- ITA NO. 730 & 998/AHD/2016 . A.Y.2010-11 13 194J. (1) ANY PERSON, NOT BEING AN INDIVIDUAL OR A HINDU UNDIVIDED FAMILY, WHO IS RESPONSIBLE FOR PAYING TO A RESIDENT ANY SUM BY WAY OF (A) FEES FOR PROFESSIONAL SERVICES, OR (B) FEES FOR TECHNICAL SERVICES, OR (BA) ANY REMUNERATION OR FEES OR COMMISSION BY WHAT EVER NAME CALLED, OTHER THAN THOSE ON WHICH TAX IS DEDUCTIBLE UNDER SECTIO N 192, TO A DIRECTOR OF A COMPANY, OR (C) ROYALTY, OR (D) ANY SUM REFERRED TO IN CLAUSE (VA) OF SECTION 28, SHALL, AT THE TIME OF CREDIT OF SUCH SUM TO THE ACC OUNT OF THE PAYEE OR AT THE TIME OF PAYMENT THEREOF IN CASH OR BY ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, DEDUCT AN AMOUNT EQUAL TO TEN PER CENT OF SUCH SUM AS INCOME- TAX ON INCOME COMPRISED THEREIN : 31. A PERUSAL OF THE AFOREMENTIONED SECTION SHOWS THAT THE LIABILITY ARISES ONLY IF THE PAYMENTS ARE MADE FOR PROFESSION AL FEES, FEES FOR TECHNICAL SERVICES OR ROYALTY. FURTHER, THE EXPLANA TION TO SECTION 194J DEFINES PROFESSIONAL SERVICES, FEES FOR TECHNICAL S ERVICES AND ROYALTY AS UNDER:- EXPLANATION.FOR THE PURPOSES OF THIS SECTION (SECT ION 194J )- (A) 'PROFESSIONAL SERVICES' MEANS SERVICES RENDERED BY A PERSON IN THE COURSE OF CARRYING ON LEGAL, MEDICAL, ENGINEERING OR ARCHITECTURAL PROFESSION OR THE PROFESSION OF ACCOUNTANCY OR TECH NICAL CONSULTANCY OR INTERIOR DECORATION OR ADVERTISING O R SUCH OTHER PROFESSION AS IS NOTIFIED BY THE BOARD FOR THE PURPOSES OF SECTIO N 44AA OR OF THIS SECTION; (B) FEES FOR TECHNICAL SERVICES SHALL HAVE THE SAME M EANING AS IN EXPLANATION 2 TO CLAUSE (VII) OF SUB-SECTION (1) OF SECTION 9; (BA) ROYALTY SHALL HAVE THE SAME MEANING AS IN EXPLAN ATION 2 TO CLAUSE (VI) OF SUB- SECTION (1) OF SECTION 9; ITA NO. 730 & 998/AHD/2016 . A.Y.2010-11 14 32. THUS, EVEN IF THE EXPLANATION IS CONSIDERED, THE PA YMENT OF REGISTRATION FEES BY ANY STRETCH OF IMAGINATION CAN NOT BE CONSTRUED AS PROFESSIONAL FEES OR FTS. 33. IN OUR CONSIDERED OPINION, THE LD. PRINCIPAL CIT HA S WRONGLY ASSUMED THE APPLICABILITY OF SECTION 194J OF THE AC T ON THE IMPUGNED PAYMENT OF REGISTRATION FEES. THEREFORE, THE ASSUMP TION OF POWER VESTED UPON HIM U/S. 263 OF THE ACT IS UNCALLED FOR AND UNWARRANTED ON THE FACTS OF THIS ISSUE. 34. CONSIDERING THE FACTUAL MATRIX AS DISCUSSED HEREINA BOVE, IN THE LIGHT OF OUR DETAILED DISCUSSION, IN OUR HUMBLE OPI NION, THE ORDER OF THE LD. PRINCIPAL CIT MADE U/S. 263 OF THE ACT IS WITHO UT JURISDICTION AND DESERVES TO BE QUASHED. WE ORDER ACCORDINGLY. 35. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 29 - 08- 2016. SD/- SD/- (R.P. TOLANI) (N. K. BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD