S. 201/ 201(iA): The payer is not liable for TDS default if the Dept does not show that the tax could not be recovered from the recipient

(i) A short deduction of tax at source, by itself does not result in a legally sustainable demand u/s 201(1) and u/s 201(1A). As held in Hindustan Coca Cola Beverages vs. CIT 293 ITR 226, taxes cannot be recovered once again from the assessee in a situation in which the recipient of income has paid due taxes on income embedded in the payments from which tax withholding requirements were not fully or partly, complied with. In Jagran Prakashan vs. DCIT 21 TM.com 489 (All) it was held that the deductor cannot be treated an assessee in default till it is found that assessee has also failed to pay such tax directly. Thus, to declare a deductor, who failed to deduct the tax at source as an assessee in default, condition precedent is that the recipient has also failed to pay tax directly;

Circumstances leading to formation of PE and estimation of profit attributable therto under Rule 10 explained. Even foreign assessees are liable for interest u/s 234B

(i) The contract entered between the assessee and Reliance Infocom is a turnkey contract, indivisible contract for supply, installation, testing, commissioning etc. Nortel India has undertaken the responsibility for negotiating and securing the contracts. The contract for installation and commissioning was also undertaken by Nortel India. These arrangements show that assessee is getting its work executed through Nortel India. The assessee is merely a shadow company of Nortel Group and for all practical purposes, all the facilities and services available to the Nortel Group of Companies are equally available to the assessee. The hardware supplied through it is installed by Nortel India. The contracts were pre-negotiated by Nortel India. Thus, Nortel India is a fixed place of the business and dependent agent PE of the assessee. The Liaison Office of Nortel Canada is rendering all kinds of services to all the group companies including the assessee. The LO building pertaining to Nortel Canada constitutes fixed place PE of the assessee. The assesee’s contention that sales were completed overseas and installation was done under a separate contract is not acceptable. The compensation which has been represented as a sale consideration for the equipment represents the payment for works contract where entire installation and customisation has been carried out in India

S. 153A: Addition in a search assessment for a AY which is not pending can be made only if incriminating material is found during search

(i) The language of s. 153A has been structured in such a way so as not to permit the making of addition for the assessment year of which the assessment is not pending as on the date of search, without there being any incriminating material found during the course of search. It is manifest that a duty is cast on the AO to determine the ‘total income’ of the assessee for such six assessment years. ‘Total income’ refers to the sum total of income in respect of which a person is assessable and covers not only the income emanating from declared sources or any material placed before the AO but from all sources including the undeclared ones. However, the second proviso to s. 153A(1) eclipses the afore discussed determination of ‘total income’ by mandating that while pending assessments relating to any assessment year falling within the period of six years shall abate and that completed assessments shall remain intact. The effect of the second proviso in the entire setting of section is that the assessment for any assessment year which is not pending as on the date of search cannot include an item of income for which no incriminating material was found

S. 40(a)(ia): If an amount is made taxable by a retrospective amendment, the payer cannot be held liable to deduct TDS on a payment made earlier and to suffer disallowance u/s 40(a)(ia)

In view of the retrospective insertion of Explanation 6 by the Finance Act, 2012, the payment made by the assessee as “Pay Channel Charges” constitutes “royalty” as defined in clause (i) of Explanation 2 to s. 9(1) of the Act. However, as the decision of the assessee not to deduct TDS was supported by Asia Sat, the assessee cannot be held to be liable to deduct tax at source by relying on the subsequent amendments made in the Act with retrospective effect (Channel Guide 139 ITD 49 (Mum), Sonata Information Technology & Infotech Enterprises followed)

ITAT issues strictures against AO & CIT & fines them for filing a frivolous appeal

The ITO, the Appellant, as well as the CIT, who has authorised the AO to prefer an appeal, did not apply their mind in the correct perspective and in a very lacklustre and routine manner filed the appeal which, in turn, resulted in wastage of time of the court … At this juncture it may be noticed that the power is vested in the CIT and not with the AO because the Legislature, in its wisdom, thought that a superior/ senior officer can take a more balanced decision so as to avoid filing frivolous appeals in routine manner. However, even the CIT has not given his reasons as to why he has authorised the AO to file an appeal on this issue…. we are of the firm view that the AO has raised a soulless ground which deserves to be dismissed in limine. We could have saved a lot of time had the CIT not given his authorisation on such frivolous issues. On the contrary, it is incumbent upon the Commissioner, as a supervisory authority, to admonish the AO for making an addition without basic understanding of legal position…. this is a peculiar case where even the CIT (Admin) who is supposed to supervise the proper functioning of the AO, under his charge, has allowed him to file appeals without properly examining the assessment order and the order of the CIT(A), which results in unnecessary expenditure to the assessee when appeal is filed by the Revenue and the assessee had to undergo the trauma of engaging counsel and paying substantial fees to defend the case when the Revenue has no case at all … Therefore we award a token cost of Rs. 5,000 upon the CIT who has given the authorisation and cost of Rs. 10,000 upon the AO who has filed this appeal… The said payment should be made to the assessee within one month from the date of receipt of this order. Registry is also directed to mark a copy to the Chairman, CBDT so that in future the Income Tax Commissioners, who are responsible for filing appeal before the Tribunal, would take proper care to scrutinise the issues before authorising the AO to file appeals before the Tribunal

S. 271(1)(c): The giving up of a bogus claim for deduction to eschew inquiry by AO/ TPO is not voluntary & bona fide & attracts levy of penalty

(iv) The assessee’s next plea is of a complete disclosure of material facts, made, adverting to the audit report u/s 92E. We are at loss to fathom even the import of the argument. It is only on failing, and abysmally at that, to demonstrate any business purpose of its relevant international transaction that a TP adjustment, valuing the same at nil, was advised by the TPO and came to be made. The disclosure per the audit report u/s 92E is thus both false and misleading. The argument of complete disclosure, unless the same is true, is of little consequence in law and, in fact, itself false. As such, looked at from any angle there has been both concealment as well as furnishing inaccurate particulars of income in the present case (Mak Data 352 ITR 1 (Del) affirmed in 358 ITR 593 (SC) referred)