2019 (11) TMI 989 - HC - Income Tax

Court sets aside orders for breach of natural justice, directs reevaluation of tax notice.

TLG India Pvt. Ltd. Versus Deputy Commissioner of Income Tax (TDS) -2 (3) and Ors.

TLG India Pvt. Ltd. Versus Deputy Commissioner of Income Tax (TDS) -2 (3) and Ors. - [2020] 421 ITR 418 (Bom) Issues Involved:1. Breach of principles of natural justice.2. Determination of appropriate section for tax deduction at source (TDS) under the Income Tax Act, 1961.3. Alleged colorable exercise of jurisdiction by the Income Tax Officer.4. Disallowance of expenses under Section 40(a)(ia) of the Income Tax Act, 1961.Issue-wise Detailed Analysis:1. Breach of Principles of Natural Justice:The petitioner challenged three orders dated 9th September 2019, passed by the Income Tax Officer under Sections 201(1) and 201(1A) of the Income Tax Act, 1961, on the grounds of breach of principles of natural justice. The petitioner argued that their submissions, including binding decisions of courts and the Income Tax Appellate Tribunal, were not considered, rendering the orders non-speaking and in breach of natural justice. The court acknowledged this argument, noting that the orders did not address the petitioner’s contentions, including the Supreme Court decision in Bharati Cellular Ltd. and the consequent CBDT Circular No.5/11, which were not even adverted to, much less considered.2. Determination of Appropriate Section for TDS:The petitioner contended that payments made to media owners for advertisements should be subject to TDS under Section 194C, not Section 194J, as the services provided were not technical services. The petitioner relied on CBDT Circular No. 715/1995 and Circular No.720/1995, which clarified that TDS under Section 194C applies to payments made by advertising agencies to media owners. The court found that the impugned orders failed to consider this argument and the supporting evidence, including a technical expert’s opinion and the decision in CIT v/s. UTV Entertainment, which held that Section 194C is more specific and applicable.3. Alleged Colorable Exercise of Jurisdiction:The petitioner alleged that the impugned orders were passed with the objective of scuttling their application for nil tax deduction certificates under Section 197 of the Act, indicating a colorable exercise of jurisdiction. The court observed undue haste in passing the orders on the same day the petitioner filed their representation, suggesting that the orders were aimed at depriving the petitioner of their right to obtain nil tax deduction certificates. The court noted that the undue haste and lack of consideration of the petitioner’s submissions indicated a flaw in the decision-making process.4. Disallowance of Expenses under Section 40(a)(ia):The petitioner argued that the disallowance of expenses under Section 40(a)(ia) was unjustified as it pertained to provisions for expenses, which were reversed in the next year. The court noted that this issue was not suffering from a breach of natural justice but was part of the broader context of undue haste and insufficient consideration of the petitioner’s submissions. The court decided not to split the impugned orders and relegate the petitioner to file an appeal for this specific issue, instead setting aside the entire orders for fresh disposal.Conclusion:The court set aside the three impugned orders dated 9th September 2019 and restored the matter to the respondent Income Tax Officer for fresh disposal of the show-cause notice dated 24th May 2019, ensuring due consideration of the petitioner’s submissions by a speaking order. The petition was allowed in these terms.