Assessment order not void despite the same being pending before the AAR: ITAT
Assessment order not void despite the same being pending before the AAR: ITAT
The bench maintained the Principal Commissioner of Income Tax had erred
The Bangalore Bench of the Income Tax Appellate Tribunal (ITAT) has ruled that an assessment order passed by an assessing officer (AO), deciding on an issue pending before the Authority for Advance Ruling (AAR), would not make the entire order void. This was in contravention of the mandate laid down under the Income Tax Act, 1961.
The bench of N. V. Vasudevan (vice president) and Chandra Poojari (accountant member) held that merely because the additions made by the AO were challengeable by the assessee before the appellate authorities, it could not be a ground to hold that the interest of the revenue department was prejudiced to exercise revisionary powers under the IT Act.
The assessee, 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 AAR, Mumbai, seeking a ruling that the payment made by the assessee to the non-resident More Ideas General Trading Company, UAE, was not chargeable to tax. Therefore, the assessee was not required to deduct tax at source.
During the assessment proceedings, the AO passed an assessment order making certain additions to the assessee's income. He also made a disallowance under the IT Act on the commission paid by the assessee to the non-resident for non-deduction of tax at source.
Thereafter, the application pending before the AAR was dismissed on the ground that the issue raised was already pending for consideration before the AO.
The Principal Commissioner of Income Tax (PCIT), in the exercise of its revisionary powers, set aside the order passed by the AO. He directed the AO to pass a fresh assessment order. The PCIT maintained that the AO failed to enquire on the application pending before the AAR regarding the liability of the assessee.
The PCIT held that the AO was expected to complete the assessment only after the order was passed by the AAR. As per the provisions of the IT 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 department and liable to be set aside.
Aggrieved by it, the assessee filed an appeal before ITAT.
The assessee submitted before the ITAT that against the order passed by the AO making disallowance to the payments, the assessee had appealed before the Commissioner of Income Tax (Appeals). The assessee added that since the issue was the subject matter of an appeal before the CIT(A), the PCIT could not exercise its revisionary jurisdiction.
The assessee added that the order passed by the AO was void since it was contrary to the mandate. The PCIT, in the exercise of its revisionary powers, could not set aside a void assessment order and direct the AO to pass a fresh order.
The tribunal observed that as per the provisions of the IT Act, the question raised in an application before the AAR, which was pending for consideration, could not be decided by an income tax authority.
ITAT held, "The assessment order will not become void as argued by the parties. It relates to the payments made to More Ideas, UAE. The AO should not have decided the issue. For this reason, the entire order cannot be void."
The bench said that the PCIT had erred in passing the order and allowed the appeal. It quashed the order passed by the PCIT.
