Pranav B Prem

The Delhi Bench of the Income Tax Appellate Tribunal has held that a foreign company is not obligated to file an income tax return in India when its interest income is fully subjected to tax deduction at source in accordance with the provisions of the Income Tax Act and the applicable tax treaty. The Bench comprising Yogesh Kumar U.S. (Judicial Member) and S. Rifaur Rahman (Accountant Member) quashed the reassessment order issued under Section 147 of the Act against a UAE tax resident, observing that the Assessing Officer initiated reopening merely on the basis of non-filing of return without appreciating the statutory protection available to the assessee under Section 115A(5).

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The assessee, Kisan International Trading FZE, a UAE-based foreign company, had received interest income of USD 7,48,401.66 (equivalent to ₹4.24 crore) from Indian Farmers Fertilizer Cooperative Limited (IFFCO). Tax was deducted at source amounting to ₹53,09,375 at the concessional rate of 12.5 percent under Article 11 of the India-UAE DTAA. The Tribunal noted from the record that the assessee had no other income taxable in India and had complied with all procedural requirements to enable TDS under the treaty rate, including submission of its tax residency certificate.

The reassessment was triggered through the Non-Filers Monitoring System, treating the non-filing of return as “income escaping assessment”. The Assessing Officer thereafter proceeded to compute taxable interest income at ₹8.49 crore, exactly double the amount reflected in Form 26AS, without any corroborative material. The Tribunal found that the assessee had placed Form 26AS and other supporting documents before the revenue authorities to demonstrate the receipt of ₹4.24 crore and the corresponding TDS of ₹53,09,375, yet the Assessing Officer did not provide any basis for the inflated figure of ₹8.49 crore.

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While analysing the legal position, the Tribunal emphasised that Section 115A(5) explicitly exempts a foreign company from filing a return of income in India if its only income consists of interest or dividend and appropriate tax has already been deducted at source. The Bench held that both statutory conditions stood satisfied in the present case, and therefore non-filing of return could not constitute a justification for reopening. The Tribunal also observed that the reasons recorded for reassessment lacked any live nexus with tangible material and proceeded on a factual error regarding the quantum of income.

The Bench took note of the fact that even during reassessment, no verification exercise was undertaken by the Assessing Officer to reconcile the alleged income of ₹8.49 crore with the actual documentary evidence on record. Instead, the inflated computation was mechanically repeated in the reassessment order without addressing the assessee’s submissions. The Tribunal held that such an approach fell short of the statutory requirement of forming a reason to believe under Section 147 and amounted to reopening on a mere suspicion arising out of an automated NMS alert.

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Finding the initiation of reassessment as legally untenable and unsupported by material, the Tribunal quashed the reassessment proceedings and set aside the order dated 23.12.2019. The appeal filed by the assessee was accordingly allowed.

Appearance

Counsel For  Appellant: Tarandeep Singh

Counsel For Respondent: Vikram Singh Sharma, Sr. DR

Cause Title: Kisan International Trading FZE Versus ACIT

Case No: ITA No.6152/Del/2024

Coram: Yogesh Kumar U.S. (Judicial Member), S. Rifaur Rahman (Accountant Member)