AO Can Invoke Section 201 Even After Scrutiny Assessment; DRP Silence Not a Bar: HC

Solvay Specialities India Pvt. Ltd. made payments towards service charges to its Singapore group entity during AY 2020–21 without deducting TDS, contending that the payments did not qualify as “fees for technical services” under Article 12(4) of the India-Singapore DTAA due to the “make available” condition.

The Assessing Officer examined the foreign remittances but proposed only transfer pricing adjustments and made no disallowance under Section 40(a)(i). Thereafter the Assessing Officer (TDS) initiated proceedings, treated the payments as FTS, and held the assessee to be in default for failure to deduct TDS under Section 195. The assessee challenged the action by way of the writ petition.

Main Issue: Whether TDS proceedings under Section 201 can be initiated after completion of scrutiny assessment under Section 143(3) without any disallowance under Section 40(a)(i) for non-deduction of TDS.

HC’s Order: The High Court dismissed the writ petition and upheld the validity of proceedings under Sections 201 and 201(1A).

The Court held that assessment proceedings under Chapter XIV and TDS default proceedings under Chapter XVII operate in distinct and independent spheres. The absence of a disallowance under Section 40(a)(i) in the scrutiny assessment does not bar the TDS Officer from examining default under Section 195.

It was clarified that powers under Section 201 are independent and not controlled by the outcome of assessment proceedings. There is no statutory provision prohibiting the initiation of TDS proceedings merely because scrutiny assessment has been completed.

The Court held that its directions are confined to issues arising from the draft assessment order. Since TDS liability was not part of the draft order or DRP directions, their silence could not restrict the jurisdiction of the TDS Officer.

Thus, the Court upheld the jurisdiction of the Assessing Officer (TDS) and decided the issue in favour of the Revenue.

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