2014 (11) TMI 975 - AT - Income Tax

Tribunal Upholds Deletions Under Income-tax Act, Affirms Exemptions

The Tribunal upheld the Commissioner of Income-tax (Appeals)'s decision to delete the majority of additions made under section 144, emphasizing that ... Exemption under section 10B denied - Held that:- Transfer of right to use the software in media form, i.e., in the form of compact disc etc., was held to be sale of goods. The hon'ble Supreme Court in the case of CIT v. B. Suresh [2009 (3) TMI 4 - SUPREME COURT] where the issue arose whether exploitation of a film right which were transferred by the assessee in India to abroad would constitute export for the purposes of deduction under section 80HHC of the Act, it was observed that the telecast ing rights fell in the category of articles of trade and commerce and hence within the category of 'merchandise' and the transfer of the said rights by way of lease fell within the meaning 'sale' and would attract section 80HHC.Therefore the issue of exemption under section 10B is squarely covered in favour of the assessee by the above decision. disallowances of expenses - Held that:- Whatever disallowances are made, such income in turn becomes eligible for exemption under section 10B of Income-tax Act. Therefore we agree with the findings of the learned Commissioner of Income-tax (Appeals) that there was no purpose of making such additions and in our opinion, such additions have been rightly deleted - Decided against revenue. Issues Involved:1. Exemption under section 10B of the Income-tax Act.2. Deletion of additions made under section 144.3. Acceptance of additional evidence under rule 46A.4. Deletion of specific financial additions and disallowances.Detailed Analysis:1. Exemption under section 10B of the Income-tax Act:The main issue revolves around the grant of exemption under section 10B of the Income-tax Act. The Commissioner of Income-tax (Appeals) held that the appellant is a 100% export-oriented unit and eligible for exemption under section 10B. The Tribunal previously adjudicated this issue in favor of the assessee, confirming that software export transactions are entitled to such exemptions. The Tribunal referenced the Supreme Court's decision in Tata Consultancy Services v. State of Andhra Pradesh, which classified software as 'goods' for the purposes of sales tax, thereby supporting the exemption claim.2. Deletion of additions made under section 144:The assessment was completed ex parte under section 144 due to the assessee's failure to furnish required details. The Commissioner of Income-tax (Appeals) deleted several additions made by the Assessing Officer, including disallowances related to investment share written off, travelling and local conveyance expenses, salaries paid to relatives of directors, and exchange rate fluctuations. The Commissioner reasoned that these additions would not affect the taxable income since the appellant was eligible for exemption under section 10B.3. Acceptance of additional evidence under rule 46A:The Commissioner of Income-tax (Appeals) admitted additional evidence under rule 46A, which the Assessing Officer had not considered. The Commissioner justified this by stating that the appellant was prevented by sufficient cause from producing these documents earlier. The Tribunal upheld this decision, noting that the additional evidence provided clarity and support for the exemption claim under section 10B.4. Deletion of specific financial additions and disallowances:The Commissioner of Income-tax (Appeals) deleted several specific financial additions and disallowances, including:- Investment in shares written off (Rs. 6,90,000): The Commissioner accepted the appellant's explanation that the long-term capital loss was not accounted for in the return of income because the entire income was exempt under section 10B.- Travelling and local conveyance expenses (Rs. 6,12,380) and Singapore living expenses: The Commissioner noted that disallowing these expenses would not affect the taxable income due to the exemption under section 10B.- Salaries paid to relatives of directors (Rs. 6,96,000): The Commissioner found no cogent reason for reducing the salary amounts and deemed the disallowance arbitrary.- Exchange rate fluctuation (Rs. 6,98,603): The Commissioner accepted the appellant's detailed documentation supporting the claim, noting that the Assessing Officer had not provided a counter-argument.Additionally, the Commissioner confirmed the additions related to:- Difference in interest income (Rs. 33,867): The Commissioner upheld this addition, stating that the accrued interest must be taxed in the year it accrues.- Difference in provisional fee from Anglo Eastern Ship Management India (P) Ltd. (Rs. 8,676): The Commissioner confirmed this addition based on the appellant's acknowledgment of the mistake.Conclusion:The Tribunal upheld the Commissioner of Income-tax (Appeals)'s decision to delete the majority of the additions, emphasizing that any disallowances would ultimately enhance the income eligible for exemption under section 10B. The Tribunal dismissed the Revenue's appeal, affirming the appellant's entitlement to the claimed exemptions and deletions.