ITAT orders reasonable hearing opportunity for Toshiba to comply with natural justice

ITAT orders reasonable hearing opportunity for Toshiba to comply with natural justice

Sends files back to the Income Tax department to decide the case on a merit basis

The Chennai bench of the Income Tax Appellate Tribunal has allowed the appeals filed by Toshiba JSW Power Systems Pvt Ltd holding that a reasonable opportunity of being heard has to be first given to the assessee. It added that non-compliance with natural justice principles by the adjudicating authority (AA) in the adjudication process was a serious defect.

The tribunal observed that the assessee filed three appeals against separate but identical orders of the Commissioner of Income Tax (Appeals). Pertaining to the assessment years 2011-2012, 2012-2013 and 2013-2014, these were all dated 16 May 2018.

The assessee had appealed after the assessing officer (AO) passed an order imposing a tax at 10 percent of the gross amount as a fee for technical services under the Income Tax Act

This was done on the payments made by the assessee to a non-resident as reimbursement of salary costs of the seconded employees of Toshiba Corporation, Japan. The AO maintained that it would constitute an income chargeable to tax in India as fees for technical services as per the IT Act and under the Double Taxation Avoidance Agreement (DTAA) with Japan.

The issue was whether the payment made by the assessee to a non-resident would come under the provisions of the IT Act and whether the assessee was entitled to a TDS deduction.

The tribunal held that although the assessee filed the appeals, the CIT(A) dismissed those on technical grounds without discussing the issue on merits. The CIT(A) should have made the effort to find out whether the assessee was liable to deduct TDS on the payments made to a non-resident.

But, on the other hand, it had merely decided because the assessee could not file the necessary evidence to prove there was no such arrangement whereby TDS was payable by the appellate assessee. The assessee had contended that it had specified the details of the TDS deduction and it was reimbursed in the government's accounts.

The assessee further stated that it had arrangements with the non-resident, according to which, the cost of the salary of seconded employees was to be reimbursed without any markup or profit. For this, evidence was furnished before CIT(A). However, CIT(A) ignored those and dismissed the assessees' appeals on technical grounds.

Thus, ITAT ruled that it was clear that CIT(A) disposed of the appeals without observing the principle of natural justice. It did not provide the assessee with a reasonable opportunity for a hearing to justify its case.

The tribunal further stated that the appeals needed to go back to the file of the Ld. CIT(A) to decide the issues involved on a merit basis. Moreover, the assessee has to be provided the opportunity of being heard.