2015 (8) TMI 1038 - AT - Income Tax

Tribunal affirms CIT(A) decisions, allows export receipts offset, admits additional evidence, rejects disallowance, classifies UPS expenditure.

The Tribunal upheld the CIT(A)'s decisions on all issues, dismissing the Revenue's appeal. The assessee's netting off of export receipts against import ... Eligibility for claim of deduction u/s 10A on netting off exports receipts against import payments - Held that:- The export proceeds of ₹ 6,00,000 US $ should have been realized by the assessee before 29.3.2011 within one year from the date of export. The same was realized by the assessee on 18.3.2011, since the assessee imported from Evergreen Technology Ltd. goods to the value of ₹ 9,94,500 US $. In other words, within the period of one year from the date of export, the assessee is deemed to have realized the export proceeds and to have made payment to the foreign party equivalent to 3,94,500 US $. The assessee also applied to the competent authority i.e., Union Bank of India, authorised dealer of RBI, for giving a formal approval for net off of exports receivable against import payable. The competent authority did not reject the application for net off within the stipulated period of one year or till the passing of the assessment order by the AO. In such circumstances, it has been held in several decisions that the permission applied is deemed to have been allowed. It is in accordance with this Circular that the authorised dealer has granted the requisite permission to the assessee. CIT(A) is right upholding the assessees claim of net off of exports and import payments in the absence of permission from the Competent Authority before the due date (one year from the date of export) to bring in the export receipts. Also see case of Henna Jebart [2011 (7) TMI 526 - Allahabad High Court] and J.B. Boda & Co. Pvt. Ltd case [1996 (10) TMI 70 - SUPREME Court] - Decided against revenue. Admitting additional evidence - Held that:- The order of assessment was passed on 11.3.2013, whereas the permission of Union Bank of India, the authorised dealer, allowing net off is dated 13.8.2013. This document could not have been filed before the AO. In such circumstances, the provisions of Rule 46A(1)(b) or (c) will be applicable. Even otherwise, under the provisions of Rule 46A(4), the Commissioner had power to call for evidence necessary for adjudication of the appeal. Accordingly, no fault can be found with the order of CIT(Appeals) on the ground that additional evidence ought not to have been admitted.- Decided against revenue. Applicability of provisions of section 40(a)(ia) in respect of default in short deduction of tax - CIT(A) deleted disallowance - Held that:- As far as disallowance u/s. 40(a)(ia) of the Act is concerned, we are of the view that disallowance u/s 40(a)(ia) shall not be made merely because TDS has been deducted u/s 194C instead of Section 194J.Thus section 40(a)(ia) of the Act refers only to the duty to deduct tax and pay to government account. If there is any shortfall due to any difference of opinion as to the taxability of any item or the nature of payments falling under various TDS provisions, the assessee can be declared to be an assessee in default u/s 201 of the Act and no disallowance can be made by invoking the provisions of section 40(a)(ia) of the Act. The law has however been prospectively amended w.e.f. AY 2015-16. In view of the above legal position, we are of the view that no fault can be found with the order of the CIT(A) on this issue.- Decided against revenue. Revenue v/s capital expenditure - expenditure on purchase of UPS - Held that:- UPS cannot be claimed back by the assessee from the rural colleges in which it is installed as a part of the CET Rural Training Programme and as per the terms of agreement between the assessee and state of Karnataka. This was made very clear by the Director, Department of Pre-University Education, Govt. of Karnataka in its communication dated 7.10.2009. UPS, therefore, was not an apparatus with which the assessee carried on its business, but had been given to the rural colleges as a part and parcel of the services rendered by the assessee. It is on this basis that the CIT(Appeals) has treated the expenditure as revenue expenditure.- Decided against revenue. Issues Involved:1. Eligibility for deduction under section 10A on netting off exports receipts against import payments.2. Admission of additional evidence by CIT(A) under Rule 46A.3. Disallowance under section 40(a)(ia) for short deduction of tax.4. Classification of expenditure on UPS batteries as revenue or capital expenditure.Issue-wise Detailed Analysis:1. Eligibility for Deduction under Section 10A:The primary issue was whether the assessee was right in netting off export receipts against import payments and claiming deduction under section 10A. The assessee exported software worth US$ 6,00,000 but did not receive the proceeds within six months. Instead, they imported software from the same customer, resulting in a net payable amount. The assessee opted for netting off the transactions to avoid unnecessary foreign exchange traffic and sought permission from the Union Bank of India, which was not denied. The Assessing Officer (AO) disallowed the deduction under section 10A, citing non-receipt of export proceeds in convertible foreign exchange within the stipulated time. However, the CIT(A) allowed the deduction, referencing the RBI's general permission to extend the realization period and judicial precedents that supported netting off without affecting tax benefits. The Tribunal upheld the CIT(A)'s decision, noting that the export proceeds were effectively realized within the extended period and the competent authority did not reject the netting off application.2. Admission of Additional Evidence by CIT(A) under Rule 46A:The AO passed the assessment order before the Union Bank of India's permission for netting off was granted. The CIT(A) admitted this additional evidence under Rule 46A, which allows the Commissioner to call for necessary evidence for adjudication. The Tribunal found no fault with the CIT(A)'s decision, as the evidence was crucial and could not have been presented earlier.3. Disallowance under Section 40(a)(ia) for Short Deduction of Tax:The AO disallowed a sum under section 40(a)(ia) due to short deduction of tax at source, arguing that the payment to KCPL should have been subjected to a higher TDS rate under section 194J instead of 194C. The CIT(A) disagreed, citing the Calcutta High Court's decision in CIT v. S.K. Tekriwal, which held that disallowance under section 40(a)(ia) is not applicable for short deduction but only for non-deduction of tax. The Tribunal concurred, emphasizing that section 40(a)(ia) addresses the duty to deduct and pay tax, and shortfall due to opinion differences does not warrant disallowance.4. Classification of Expenditure on UPS Batteries:The AO treated the cost of UPS batteries as capital expenditure, but the CIT(A) allowed it as revenue expenditure. The assessee provided UPS to rural training centers as part of a government program and did not retain ownership. The Tribunal agreed with the CIT(A), noting that the UPS was not part of the assessee's trading apparatus but was given as part of the services rendered, thus qualifying as revenue expenditure.Conclusion:The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all issues. The assessee's netting off of export receipts against import payments was deemed valid for section 10A deduction, additional evidence was rightly admitted, disallowance under section 40(a)(ia) for short deduction was not applicable, and the expenditure on UPS batteries was correctly classified as revenue expenditure.