2021 (11) TMI 503 - AT - Income Tax

Foreign Company Prevails in Tax Dispute Over Income Discrepancies

The Tribunal ruled in favor of the assessee, a foreign company, in a tax dispute involving discrepancies in income declared in the return and Form 26AS. ... Invalid return - Denial of refund - mismatch in the figures of income returned and as reported in Form 26AS - Maintainability of appeal against the order u/s 139(9) as appealable u/s 246A - refusal of refund u/s 237 - Treatment of return as invalid u/s 139(9) - difference between the income shown in the return and as shown in Form No. 26AS - whether mismatch in the figures of income returned and as reported in Form 26AS constitutes a defect in the return so as to warrant initiation of proceedings u/s 139(9)? - HELD THAT:- Any order passed under the Act against the assessee, impliedly including an order u/s 139(9) in the circumstances as are obtaining in this case, having the effect of creating liability under the Act which he denies or jeopardizing refund, gets covered within the ambit of clause (a) of section 246A(1). Clause (i) of section 246A(1) of the Act deals with the filing of an appeal before the CIT(A) against an order u/s 237 of the Act. The latter section, in turn, provides that: `If any person satisfies the Assessing Officer that the amount of tax paid by him or on his behalf or treated as paid by him or on his behalf for any assessment year exceeds the amount with which he is properly chargeable under this Act for that year, he shall be entitled to a refund of the excess. Technically speaking, the AO has not passed an order u/s 237 but only u/s 139(9) of the Act. We have noticed above that firstly, the AO could not have treated the return as invalid u/s 139(9) of the Act because of mismatch between the figure of income shown in the return and that in Form 26AS and secondly, if at all he did so on a wrong footing, he ought to have issued notice u/s 142(1)(i) of the Act for enabling the assessee to file its return so that a regular assessment could take place determining the correct amount of income and the consequential tax/refund. Here is a case in which the assessee has been deprived by the DCIT (CPC), Bengaluru of any legal recourse to claim the refund. Considering the intent of section 237 in mind and the unusual circumstances of the case, we hold that the order passed by him is also akin to an order refusing refund u/s 237 making it appealable u/s 246A(1)(i). We, therefore, set aside the impugned order and remit the matter to the file of the ld. CIT(A) for disposing off the appeal on merits as per law after allowing a reasonable opportunity of hearing to the assessee. Appeal is allowed for statistical purposes. Issues Involved:1. Validity of the return of income declared defective under Section 139(9) of the Income-tax Act, 1961.2. Mismatch between the income shown in the return and Form 26AS.3. Appealability of the order under Section 139(9) as per Section 246A.4. Treatment of reimbursement and reversals in income computation.5. Applicability of Section 143(1)(a)(vi) regarding adjustments for income mismatch.6. Legal recourse available to the assessee for claiming a refund.Issue-wise Detailed Analysis:1. Validity of the Return of Income Declared Defective under Section 139(9):The assessee, a foreign company, filed a return declaring total income of Rs. 474.37 crore. The Centralized Processing Centre (CPC), Bengaluru, highlighted a discrepancy between the income shown in the return and Form 26AS, leading to a notice under Explanation (a) to Section 139(9). The assessee responded, explaining the reasons for the discrepancy. However, the DCIT (CPC) rejected the explanation and declared the return invalid. The Tribunal noted that the reasons provided by the assessee, such as different conversion rates, reimbursements, and reversals, were valid and did not constitute a defect under Section 139(9).2. Mismatch Between the Income Shown in the Return and Form 26AS:The Tribunal acknowledged the three reasons provided by the assessee for the mismatch: conversion rates, reimbursements, and reversals. Rule 115 of the Income Tax Rules, 1962, mandates the use of the SBI TT Buying Rate for converting foreign currency into INR. The Tribunal found that the assessee's method of conversion was correct and the discrepancy arose due to different rates used by Indian entities. The Tribunal also accepted the explanations regarding reimbursements and reversals, noting that these did not constitute taxable income.3. Appealability of the Order under Section 139(9) as per Section 246A:The CIT(A) dismissed the appeal on the ground that an order under Section 139(9) is not appealable under Section 246A. The Tribunal disagreed, stating that the order under Section 139(9) created a liability under the Act, which the assessee denied. Therefore, it was appealable under Section 246A(1)(a). Additionally, the Tribunal held that the order was akin to an order refusing refund under Section 237, making it appealable under Section 246A(1)(i).4. Treatment of Reimbursement and Reversals in Income Computation:The Tribunal accepted the assessee's claim that reimbursements and reversals should not be included in the total income. The Indian entities deducted tax on these amounts, which were not chargeable to tax. The Tribunal noted that if the amounts were indeed reimbursements, the tax deducted should be refunded without including these amounts in the total income.5. Applicability of Section 143(1)(a)(vi) Regarding Adjustments for Income Mismatch:Section 143(1)(a)(vi) mandates adjustments for income appearing in Form 26AS but not included in the return. The Tribunal noted that this provision applied only for the A.Y. 2017-18 and not for the A.Y. 2016-17. The Tribunal emphasized that the AO should have processed the return under Section 143(1) and made adjustments only after giving prior intimation to the assessee and considering the response. The AO could not declare the return invalid under Section 139(9) based on the mismatch.6. Legal Recourse Available to the Assessee for Claiming a Refund:The Tribunal highlighted that declaring the return invalid deprived the assessee of the refund claimed. The AO should have issued a notice under Section 142(1)(i) to the assessee to file a return, enabling a regular assessment under Section 143(3). The Tribunal held that the assessee was left without any legal recourse due to the actions of the DCIT (CPC). The Tribunal set aside the impugned order and remitted the matter to the CIT(A) for a decision on merits, ensuring the assessee's right to a fair hearing and refund.Conclusion:The Tribunal allowed the appeal for statistical purposes, directing the CIT(A) to dispose of the appeal on merits after providing a reasonable opportunity of hearing to the assessee. The Tribunal emphasized the need for justice and the proper application of legal provisions, ensuring that the assessee's legitimate claims are not denied due to technicalities.