The Karnataka High Court, in a recent ruling, set aside the order passed under Sections 201(1) and 201(1A) of the Income Tax Act, 1961, as being beyond the reasonable period of 4 years.
In this case, the assessee, Nilgiri Diary Farm, is engaged in the dairy product business. Certain payments were made by the assessee company during the financial years (FY) 2006-07, 2007-08, and 2008-09 towards consultancy charges to a Singapore-based company named MJR Consultancy Pvt. Ltd.
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In a letter dated 31.1.2014, the appellant was asked to explain why payments made to a Singapore-based company during the above-specified FYs should not be treated as fees for technical services according to the provisions of Section 9(1)(vii) of the Income Tax Act, 1961.
The appellant had filed a reply to the same. An order was passed by the income tax officer on 6.3.2014 under Section 201(1) and 201(1A) of the Income Tax Act and also issued a demand notice of Rs. `50,48,098/- under Section 156 of the Act was issued.
Aggrieved by the above order, the assessee approached the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) dismissed the appeal.
The Income Tax Appellate Tribunal (ITAT) also dismissed the appeal. Finally, the assessee has approached the Karnataka High Court for relief.
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The counsel on behalf of the assessee contended that the order passed under Sections 201(1) and 201(1A) of the Income Tax Act, 196 is barred by limitation. The counsel also submitted that the order passed on 6.3.2014 relates to financial years 2006-07 to 2008-09 and inorder to pass the order under Section 201(1) and 201(1A) of the Act, four years would be the limitation or reasonable time.
The bench comprising of held that he transactions or payments made to Singapore based company relates to financial years 2006-07, 2007-08, 2008-09 and the transaction or payment made to MJR Consultancy Pvt. Ltd., based in Singapore, relates to financial years 2006-07, 2007-08, and 2008-09 and the initiation of proceedings under the letter dated 31.1.2014 or order passed on 6.3.2014 is clearly beyond four years.
Thus the bench allowed the appeal in favor of the assessee and set aside the order dated 6.3.2014 passed by the Income Tax Officer.
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