Month: March

For A.Y. 2003-2004 (for A.Y. 2004-05 facts were identical and
hence not given here). The assessee-company, engaged in the business of
providing software development and call-centre services, had set up units at
Mumbai and Pune which were registered as Software Technology Park (STP units).
In respect of these units, the assessee was eligible for exemption u/s.10A. For
A.Y. 2003-04, the assessee filed return of income on 25-11-2003 declaring a
total income of Rs.3,89,69,030 after claiming relief u/s.10A amounting to
Rs.8,46,49,114. While computing the claim u/s.10A the assessee had considered
unrealised export revenue of Rs.14,44,50,338 as part of export turnover. Out of
Rs total unrealised export proceeds of Rs.14,44,50,338 an amount of
Rs.6,72,97,027 was realised subsequent to 30th September, 2003 till the
completion of the assessment. The balance unrealised export proceeds of
Rs.7,71,53,311 were not considered by the AO as part of export turnover while
calculating deduction u/s.10A on the ground that the assessee had not been able
to furnish the approval of the competent authority granting extension of time.

Aggrieved the assessee preferred an appeal to the CIT(A) and
contended that in view of the ratio of the Mumbai Bench of the ITAT in the case
of Morgan Stanley Advantage Services (P) Ltd. v. ITO, 30 SOT 1, approval
for extension shall be deemed to have been granted if communication
accepting/rejecting the application was not received after a reasonable time and
in view of the provisions of section 155(11A), the order passed by AO needs to
be rectified by considering the export proceeds realised by the assessee as
export turnover. The CIT(A) did not adjudicate upon the first contention and
rejected the second contention on the ground that the assessment years under
consideration are for a period prior to insertion of section 155(11A).

Aggrieved the assessee preferred an appeal to the Tribunal.

The Tribunal noted that the assessee complied with all the
formalities and had applied for extension to competent authority vide letters
dated 2-9-2003 and 5-11-2003. It held that once the assessee has complied with
all formalities and the request of the assessee for extension of time is not
rejected, it could be presumed that after reasonable time, the extension of time
has been granted in respect of the amount realised and brought into India in
convertible foreign exchange. It observed that section 155(11A) was introduced
to enable rectification of assessments. It held that section 15(11A) is a
provision which permits amendment of assessments already completed due to
subsequent developments taking place and power was given to the AO to carry out
such amendments w.e.f. 13-7-2006. The Tribunal held that in the view nature of
things, this date (13-7-2006) cannot refer to any particular assessment year and
the power having been conferred upon the AO from this date, the assessment for
any assessment year can be amended provided the assessee applies within a period
of four years from the end of the previous year in which the export proceeds are
received in India. The Tribunal noted the findings of the Bangalore Bench of the
ITAT in the case of Nous Info-systems (P) Ltd. v. ACIT, (2009 TIOL 14
ITAT-Bang.).

The Tribunal remitted the matter back to the AO to determine
the amount realised in convertible foreign exchange and to grant the benefit of
deduction in respect of the sum so realised and recomputed the deduction u/s.10A
of the Act.

The Tribunal vide its order dated 4-3-2004 decided the appeal
filed by the assessee and granted certain reliefs to the assessee. The AO on
23-4-2004 passed an order giving effect to the order of the ITAT and determined
the amount of refund due to the assessee at Rs.3,26,48,225 (this included
interest of Rs.18,22,490). A part of the refund due to the assessee was adjusted
against the demand for A.Y. 2001-02 in July 2004 and the balance amount of
Rs.1,34,70,662 was paid to the assessee in August 2004. The assessee vide letter
dated 21-9-2004 moved an application u/s.154 of the Act on the ground that
computation of interest u/s.244A was erroneous and there was a short grant of
interest to the extent of approx Rs.42 lakh. On 26-9-2006, the AO passed an order u/s.154 and determined the balance refund due
to the assessee at Rs.42,15,279 and a further sum of Rs.13,16,576 was determined
as due to the assessee on account of MAT credit brought forward from A.Y.
1998-1999. Of the total amount of Rs.55,31,855 due to the assessee Rs.1,77,531
was adjusted against demand for A.Y. 2001-02 and balance Rs.53,54,324 was
adjusted on 4-12-2006 against demand for A.Y. 2003-04.

The assessee vide letter dated 9-11-2006 requested the AO to
rectify the mistake of short grant of interest on refund and for grant of
further interest on delayed payment of interest of Rs.42,15,279 for the period
from September 2004 to December 2006. The AO vide letter dated 3-1-2007 rejected
the contention of the assessee on the ground that there is no provision in the
Act for granting interest on delayed payment of interest.

Aggrieved the assessee preferred an appeal to the CIT(A) who
held that Sandvik Asia is a case where there was an inordinate delay and the SC
had taken serious exceptions to such delay. The case of Sandvik Asia was an
exceptional case and the ratio of the said decision would apply to such
exceptional cases. He was of the opinion that the case of the assessee did not
fall in the category of the Sandvik Asia case. He dismissed the appeal filed by
the assessee.

Aggrieved the assessee preferred an appeal to the Tribunal.

The Tribunal noted the ratio of the decision of the Apex
Court in the case of Sandvik Asia (280 ITR 643) (SC) and did not find any merit
in the observations of the CIT(A) that the case of Sandvik Asia is an
exceptional case and the said decision would apply only to such exceptional
cases. It held that whenever there is a delay in granting refund to the
assessee, the Department has to pay compensation by way of interest for the
delay in payment of amount lawfully due to the assessee, which is withheld
wrongly and contrary to law. The Tribunal held that the assessee is entitled to
interest u/s.244A on delayed refund of Rs.42,15,279 for the period from
September 2004 to December 2006. It directed the AO to pay interest u/s.244A to
the assessee as per law.

The appeal filed by the assessee on this ground was allowed.

The Assessing Officer asked the assessee to furnish partywise
details of professional fees received during the year and also to reconcile the
professional fees received by him with AIR information. The assessee in his
reply stated that all professional fees are received by way of cheques and all
such cheques received are deposited in one bank account only; professional
receipts disclosed by the assessee are more than the receipts shown in AIR
information and accordingly, there is no discrepancy. He also expressed his
inability to furnish partywise details of professional fees received during the
year under consideration. The AO added a sum of Rs.47,37,000 to the total income
of the assessee. This sum represented 40 items of receipts which, in the opinion
of the AO, were not disclosed by the assessee.

Aggrieved the assessee preferred an appeal to the CIT(A) who
sustained the addition of Rs.47,37,000 made by the AO on account of
non-reconciliation of professional fees with AIR information. He decided this
ground against the assessee.

Aggrieved the assessee preferred an appeal to the Tribunal.

The Tribunal noted that the submissions of the assessee were
not controverted by the AO and that the professional income declared by the
assessee far exceeded the professional fees as per AIR information. The Tribunal
held that in the absence of any contrary material brought by the Revenue
Authorities that the assessee has received amount more than the professional
fees than what has been declared by him, no addition should have been made. It
observed that there may be so many reasons such as low deduction of tax,
non-deduction of tax, deduction on account of reimbursement of expenses, etc.,
for which the figure of AIR may not tally with the income declared by the
assessee on account of professional fees from various clients. It also noted
that the categorical statement of the assessee viz. that it was not practically
possible to give detailed party-wise break-up of fees received was accepted in
the past in scrutiny assessment and no addition made. It deleted the addition
made by the AO and sustained by the CIT(A).

The appeal filed by the assessee on this ground was allowed.

The AO asked the assessee to reconcile the source of
investments in mutual funds and reconcile the same with AIR information as well
as co-relate the payments with the assessee’s bank account. The AO held that the
assessee failed to explain the source of investment in units of mutual funds
totalling Rs.4.75 crores. He added this amount to the total income of the
assessee as unexplained investment.

Aggrieved the assessee filed an appeal to the CIT(A) where he
filed additional evidence in the form of further statements got by him from
mutual funds. The AO in the remand report accepted Rs.4 crores as explained and
submitted that the two amounts aggregating to Rs.75 lakh remained unexplained.
The CIT(A) reduced the addition of unexplained investment from Rs.4.75 crores to
Rs.75 lakh.

Aggrieved the assessee preferred an appeal to the Tribunal.

In respect of the two amounts of Rs.50 lakh and Rs.25 lakh
regarded as unexplained investment of the assessee, the Tribunal noted that the
investment of Rs.50 lakh was in the name of the father of the assessee as the
first holder and assessee was the second holder. Similarly the investment of
Rs.25 lakh was in the name of the mother of the assessee as the first holder and
the assessee was the second holder. The Tribunal also noted that both these
persons were assessed to tax and the AO had written to the AO having
jurisdiction over these persons to take necessary action at their end. The
Tribunal was of the view that since the identity of these persons is established
and they are assessed to income-tax, therefore, addition, if any, could have
been made in their hands only on account of unexplained investment and not in
the hands of the assessee. The Tribunal set aside the order of the CIT(A) on
this ground and directed the AO to delete the addition of Rs.75 lakh.

The appeal filed by the assessee on this ground was allowed.

The assessee was a university incorporated under the Haryana
Universities Act, 2006. As per the relevant Section of the Haryana Universities
Act, the assessee shall be a body corporate and shall have perpetual succession
and common seal. It shall have the power to sue and to be sued in its name.
However, it is not registered u/s.25 of the Companies Act and also not
registered under the Cooperative Societies Act. The assessee had applied for
registration u/s.12AA of the Act as a charitable institution.

The Ld. D.R. argued that, based on the facts, the university
was not a separate entity and was just an activity carried on by the sponsoring
body and therefore would not constitute a person u/s.2(31)(vii).

It was held by the Tribunal that the university established
and adopted by Assembly of State and with the character of a body corporate as
per the relevant Act, though not registered u/s.25 of the Companies Act or
though not registered under the Co-operative Societies Act, will fall within the
definition of person in section 2(31)(vii) i.e., an artificial juridical person.

The next question after being satisfied that the
assessee-university is person u/s.2(31)(vii) is whether it qualifies for
registration as a charitable institution u/s.12AA.

The Ld. A.R. argued that the assessee-university was engaged
in imparting education in the field of law and administration. Objects of the
assessee-university were primarily aimed at awarding diplomas and degrees
granting fellowships and scholarships.

The definition of charitable purpose which existed at the
relevant point of time was in an inclusive manner to include education as one of
the many activities. The Ld. A.R. also relied on the decision of the Supreme
Court in the case of Sole Trustee Loka Shikshana Trust, which restricted the
meaning of education to impart instruction, schooling and training to prepare
the youth for the works of life.

The Commissioner argued that the assessee university was
charging higher fees and was not meant for the benefit of people at large.

The University satisfied the condition of imparting education
and should be thus granted registration u/s.12AA. If the purpose is education,
the requirement will be fully satisfied even if an activity for profit is
carried on in the course of actual carrying out the primary purpose.

1. The assessee-company was engaged in the business of
manufacturing different types of carburettors. It entered in a Technical
Collaboration Agreement (TCA) with a Japanese company. As per the relevant
clause of the TCA, the assessee was entitled to use any improvement made in
technology of carburettors by the Japanese company. The Japanese company
developed a new product, in respect of which they refused to give any advice
to the assessee company.

2. Subsequently the matter was referred to the
International Court of Arbitration and the said Court awarded compensation and
interest in favour of the assessee-company.

3. The assessee-company claimed the same as capital receipt
and therefore not taxable. However the Assessing Officer treated the same as
revenue and charged to tax.

4. On appeal, the CIT(A) held that the compensation was in
the nature of capital receipt, hence out of the purview of tax. However
interest received on the compensation is revenue in nature and therefore
chargeable to tax.

5. The Ld. AR of the assessee submitted before the Tribunal
that the compensation awarded was in respect of the extinction of a source of
income and profit-earning apparatus and was not awarded for breach of a
contract of revenue nature. Hence it was capital in nature. Similarly interest
on compensation received by the assessee-company was attached to the
compensation awarded by the Court, hence it partakes the character of the
compensation.

6. Whereas Ld. DR argued that compensation was awarded for
non-existing income i.e., for future loss which is nothing but revenue in
nature.

1. The Tribunal upheld the decision of the CIT(A) in
respect of the compensation awarded to the assessee-company and treated the
same as capital receipt.

2. In respect of interest, the Tribunal held that it is a
well-settled principle that interest always bears the character of revenue
unless it is awarded as profit. Since interest received is for the loss to the
assessee for delay in receipt of compensation which the assessee was entitled
to receive in the year in which the breach occurred, it was of revenue nature
and consequently the Tribunal upheld the decision of the CIT(A) in respect of
interest on compensation.

The assessee was a company engaged in the business of
development of software both by way of on-site development and offshore
development and it has a branch in the USA. It being 100% EOU, had claimed
deduction u/s.10B in respect of the exports of software made. During the
assessment proceedings, the AO had observed that the assessee had total export
turnover of Rs.28.61 crores and out of this amount, the assessee had utilised
the export proceeds to the tune of Rs.15.14 crores in the USA for the purpose of
carrying on export activities. The AO was of the view that since the said amount
had not been received in convertible foreign exchange in India within the
prescribed time u/s.10B(3), the said amount utilised in the USA cannot be
treated as a part of export turnover for computing deduction u/s.10B.

Further, the assessee had incurred expenses of Rs.3.33 crores
in foreign currency on account of payroll, etc., which were claimed to have been
incurred in connection with staff of the foreign branch in foreign country. The
AO also excluded Rs.3.33 crores incurred by the assessee outside India in
foreign exchange considering it as expenses in providing technical services,
while computing deduction u/s.10B. The AO placed reliance on the definition of
‘export turnover’ given in
Explanation 2(iii) to section 10B which excludes expenses incurred in foreign
exchange in providing technical services outside India from export turnover.

The first Appellate Authority allowed the asses-see’s appeal
in respect of inclusion of Rs.15.14 crores in export turnover for computing
deduction u/s.10B, whereas he rejected the claim of the assessee in respect of
inclusion of Rs.3.33 crores incurred by the assessee outside India in providing
technical services.

The Department had not brought anything on record to show
during the hearing, that the assessee-company was involved in rendering any
managerial consultancy services at foreign country. Also it was not brought on
record that the company was involved in providing the technical services to
other personnel or any outside agency. All the services rendered by the company
were to its staff located at New Jersy for the fulfilment of objects, namely,
development of software. A person cannot provide services to self. Whatever
expenditure has been incurred on foreign soil in a sum of Rs.3.33 crores was
incurred in connection with development of software by the employees of the
assessee-company at foreign branch and nothing has been incurred on managerial
or technical services rendered to outsider in foreign soil and therefore, the
same cannot be excluded from the export turnover.

Regarding the export proceeds of Rs.15.14 crores retained
abroad, the decision of the Supreme Court in the case of J. B. Boda & Co. (P)
Ltd. 223 ITR 271 would apply to this case also, even though the said
decision was on section 80-O wherein it was held that “two-way traffic of
receiving foreign exchange here and sending it back is a ritual which is
unnecessary”.

The assessee showed gross receipts of Rs. 46.10 crore in its
profit and loss account. Against this, the
assessee claimed deduction of Rs. 31.30 crore towards raw material consumed. Out
of the total amount of customs duty of Rs. 15.82 crore, Rs. 4.59 crores
represented the provision made for customs duty in respect of goods lying in a
bonded warehouse. This amount was provided to the raw material purchases
account. Since the imported goods were not released from the bonded warehouse,
they were shown as closing stock in hand and the customs duty payable was
included in this closing stock. The AO made addition on the basis that the
customs duty was not paid but was charged to profit and loss account. On appeal
to Tribunal, the Accountant Member upheld the order of AO while the Judicial
Member held otherwise. Hence, the matter was referred to Third Member.

The Third Member upheld the order of the Judicial Member. It
was held that section 43B can be invoked only when the assessee claims any tax
or duty. There was no dispute regarding accrual of liability. Even the assessee
accepted that the liability to pay customs duty had accrued. However, the fact
that the element of customs duty was made a part of closing stock had to be
considered. Since the customs duty was included in closing stock, it could not
be said that the assessee claimed the deduction of customs duty. Hence,
provisions of section. 43B could not be invoked and no disallowance u/s 43B was
warranted.

ITO v. Emrald Construction Co. P. Ltd.

The assessee-company had made payment to three companies in
the nature of interest and contractor’s payment, but without TDS on the same.
The Assessing Officer levied interest u/s.201(1A) till the date of assessment
order. Before the CIT(A), the assessee contested that no tax was payable qua
contract or interest payments (incomes) or qua any other incomes of the
recipients, so the question of loss to the Revenue does not arise. Hence, no
interest was leviable u/s.201(1A). The CIT(A) upheld the levy of interest, but
restricted it till the date of assessment order of the recipients. On cross
appeals by the assessee and the Revenue, the ITAT held that

Deepak Nitrate v. Dy. CIT

According to the Assessing Officer the two amounts viz.
(i) provision made for obsolescence loss, and (ii) reduction due to change in
method of inventory valuation should be added back in computation of the book
profits as per S. 115JA. He therefore added the said amounts to the income of
the assessee invoking the provisions of S. 154. The CIT(A) upheld the addition
no. (i) and deleted the addition no. (ii).

On cross appeals by the assessee and Revenue, the Tribunal
observed as under :

Styler India Pvt. Ltd. v. JCIT 2008

The assessee-company was set up as a 100% sub-sidiary of S of
Austria with the aim to make available technical expertise to the Indian
industry in three main areas — technical design and con-sultancy services,
systems supplier with respect to vehicle components and parts, sourcing of
vehicle components and parts from India for the global market.

The assessee filed a return for the A.Y. 1998-99 showing a
receipt of Rs.3,91,780 as interest on fixed deposit with the banks and claiming
expenses of Rs.49,27,336 as administrative and selling expenses as against the
receipt. The Assessing Officer was of the opinion that expenses of Rs.17,92,600
were capital in nature and that exhibition and launch expenses of Rs.15,65,239
should be disallowed as preliminary expenses.

The assessee explained that repairs, improvement and
innovation expenses were incurred for carrying on the business which was done by
obtaining long lease and in regards to exhibition and launch expense of
Rs.15,65,239, these were incurred after the company was formed on September 15,
1997.

For substantiating its claim, the assessee stated that it had
attended an exhibition in January 1998 at Expo ’98 at Delhi and it had taken a
stall and participated in the exhibition to promote the business interest of the
company and to increase its visibility in the eyes of Indian automotive
industry. The Assessing Officer held that interest income was liable to be
assessed under the head ‘Other Sources’ and expenses claimed amounting to
Rs.49,27,336 were not admissible and were to be disallowed.

The Commissioner (Appeals) held that there was no sufficient
proof to hold that the business had commenced, that all expenses were incurred
by the assessee before setting up of the business and
were not permissible. He upheld assessment of interest income under the head
‘Other Sources’ and did not allow any expenses against the above receipt.

On appeal to the Appellate Tribunal :

Tata Consultancy Service Ltd. v. ACIT

The assessee company owned two STP units for export of
software. During the A.Y. 2003-04, STP Unit 1 earned profit, whereas STP Unit 2
suffered a loss. The assessee in its return of income claimed deduction u/s.10A
of the Act in respect of Unit 1. This deduction was computed with reference to
profits of Unit 1 without setting off the loss of STP Unit 2. No deduction
u/s.10A was claimed in respect of STP Unit 2.

The Assessing Officer (AO) while assessing the total income
of the assessee, accepted the manner of computation of deduction u/s.10A.

The CIT was of the opinion that deduction allowed u/s.10A in
respect of STP Unit 1 without setting off the loss of STP Unit 2 against income
of STP Unit 1 was not in accordance with law and that the order is prejudicial
to the interest of the Revenue. He accordingly directed the AO to modify the
order and allow deduction u/s.10A after setting off the loss from STP Unit 2
against the profit of STP Unit 1.

Aggrieved with the order of CIT u/s.263, the assessee
preferred an appeal to the Tribunal.

The Tribunal after considering various judicial precedents
and also the provisions of S. 10A(1), 10A(4), notes on clauses while introducing
amendment to S. 10A(4) by Finance Bill, 2001 held as under :

During the year ended 31-3-2003, V.S.T. Precision Components
Ltd. (‘VPCL’), a company which was subsidiary of the assessee company was
amalgamated with the assessee company. The amalgamation, approved by the
Karnataka High Court by its order dated 18th July 2003, was to be effective from
1-4-2002. The terms of amalgamation, as mentioned in paragraph 11 of the order
of the Court, inter alia stated that accumulated loss and depreciation of
VPCL shall be deemed to be the loss and depreciation of the assessee company as
provided u/s.72 of the Act.

The assessee returned an income of Rs. Nil after setting off
business loss and unabsorbed depreciation of VPCL. The assessee computed book
profit u/s.115JB by reducing from profit as per its profit & loss account the
brought forward loss as per profit & loss account of VPCL.

The book profit computed by the assessee was accepted by the
AO in the assessment u/s.143(3).

Subsequently, the CIT was of the opinion that since the
unabsorbed loss was not as per the books of account of the assessee company but
of VPCL, the same cannot be permitted to be reduced from the book profit for
purposes of S. 115JB. He, accordingly, directed the AO to modify the assessment
order by re-computing the tax liability u/s.115JB.

Aggrieved, the assessee preferred an appeal to the Tribunal.

The Tribunal noted that the effective date of amalgamation
was 1-4-2002. The Tribunal held that in view of the statutory provisions of S.
72A(1) and also the order of the High Court sanctioning the scheme, the
unabsorbed business loss and also unabsorbed depreciation of VPCL were deemed to
be loss and depreciation of the assessee company. U/s.115JB(2) lower of
unabsorbed loss or unabsorbed depreciation is to be set off against the book
profit. Since the unabsorbed loss of VPCL was lower than unabsorbed
depreciation, the assessee had rightly set off the unabsorbed loss against book
profit. The Tribunal held that the CIT was not correct in directing the AO to
compute book profit without setting off the unabsorbed loss of VPCL. The
Tribunal set aside the order of the CIT passed u/s.263 of the Act.

Dy. CIT v. Beck India Ltd.

For the relevant assessment year, the Assessing Officer held
that the assessee was bound to follow the decision of the High Court in
Melmould Corpn. v. CIT, (1993) 202 ITR 789/71 Taxman 47 (Bom.) and that if a
change in method of accounting results in change in value of closing stock, no
corresponding adjustment would be required in opening stock, since such a change
would have the effect of disturbing the accounts leading to a chain reaction,
and, therefore, he added back MODVAT credit balance to closing stock of the
assessee. The CIT(A) directed the Assessing Officer to make corresponding
adjustments in the opening stock.

The Tribunal, relying on the decision in the case of CIT
v. Mahavir Aluminium Ltd., (2008) 297 ITR 77/ 168 Taxman 27 (Delhi), upheld
the CIT(A)’s order. The Tribunal noted as under :

Mafatlal Securities Ltd. v. Jt. CIT

In the course of original hearing, the learned counsel for
the assessee stated that the facts of this case were identical to the facts of
another case decided by this Tribunal, wherein the Tribunal had decided in
favour of the assessee. Hence, the case was heard mainly as a covered case and
the result was pronounced during the course of the hearing itself.

Thereafter, during the course of further study of the files,
the Bench thought that certain observations in the decisions in two cases of
Mumbai Benches were relevant. Hence, the case was released for fresh hearing as
a part heard case so as to confront these two decisions to the assessee. The
learned counsel took a preliminary objection that the Tribunal had pronounced
the order, hence, if any decision was taken contrary to the decision pronounced,
it would amount to review of order and which was beyond its powers. The learned
Departmental Representative supported the approach of the Tribunal where an
adequate opportunity of hearing was given to the assessee before taking any
other view in the matter.

The Tribunal, relying on the decision of the Supreme Court in
the case of ITAT v. V. K. Agarwal, (1998) 150 CTR 513 (SC)/(1998) 101
Taxman 382 (SC), held that unless the order of the Bench was signed by all the
members of the Bench and was dated, it was not an order of the Tribunal. The
Tribunal noted as under :

For the relevant assessment years, the Assessing Officer
disallowed 50% of the expenditure claimed by the assessee assuming that
expenditure towards foreign travel was attributable to the wife of the managing
director, who accompanied him during such visits. The CIT(A) allowed the relief
following the decision of the Kerala High Court in the case of Appollo Tyres
Ltd. [CIT v. Appollo Tyres Ltd., (1998) 149 CTR 538 (Ker.)/(1999) 237 ITR
706 (Ker.)]. The learned AM upheld the order of the CIT(A) following the same
decision of the Kerala High Court. However, the learned JM reversed the order of
the CIT(A) following various other decisions. It was contended by the assessee’s
learned counsel before the TM that the learned JM has referred to such decisions
which were not relied upon or argued on behalf of the Department.